Last Updated : 18 December 2012 at 13:20 IST
I do hope that President Obama and Republican Speaker John Boehner really know what they are doing. They are playing with fire and the whole world is feeling the heat; it is questionable if they are feeling the same. What a pity!
I do hope that President Obama and Republican Speaker John Boehner really know what they are doing. They are playing with fire and the whole world is feeling the heat; it is questionable if they are feeling the same. What a pity!
Unless the fiscal cliff talks arrive at a tangible solution before December 31, chances are more that US dollar would have a cardiac arrest, I mean a hyperinflation on a global scale and a rally so huge in gold and silver that every $5000/oz-gold-analyst would be put to shame as their estimates get dwarfed by the new rally.
Let me go back to1914 when Germany just like many other countries went off the gold standard to finance the World War. Going off the gold standard gave Germany the necessary blank cheque to print unlimited currency. The process went on until 1922 when something triggered a hyperinflation for Germans.
“The ultimate trigger was the loss of trust in the government’s policy and debt. As foreign capital refused to buy Germany’s debt anymore, the exchange rate depreciated (i.e. currency debasement) and the rate of inflation accelerated considerably. While it was a certainty that inflation would hit, the timing was determined by the loss of confidence.”: an article in trader said.
The quantity of Germany’s monetary base expansion is presented in the chart below in dotted lines. The chart shows as well the rate of inflation. [Monetary base is the total amount of money—including currency notes and coins—in the system along with reserves held by central banks.]
The chart below shows the Adjusted Monetray Base of US. The steep rise is attributed to QE initiatives now-a-days tethered to a mirage: job creation.
The recently announced QE4 unlike Operation Twist can significantly add to US monetary base.
So, it can be safely assumed that if US fiscal cliff talks fail and markets, including debt markets, get spooked, there would be a sudden rush to safe haven assets like silver and gold and a complete and absolute abandonment of US Dollar sparking hyper-inflation and a depression on a global basis. The issue would thus snowball into a crisis of confidence on unprecedented scale.
This has not happened before in the history of the planet and if it happens, then it will be a depression to end all depressions! Mind you Obama and Boehner!
And to conclude: after reading this, may no gold bull be carrying out a sinful prayer of no resolution of fiscal cliff issue!
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