Revaluation of gold, and a return to the gold standard, is the only way that hyperinflation can be avoided while large numbers of paper currency units are released into the economy. This is because most of the rise in prices can be filtered into gold. As the asset value of gold rises, it will soak up excess dollars, euros, pounds, etc., while the appearance of an increased number of currency units will stimulate investor psychology, and lending and economic output will increase, all over the world. Ben Bernanke and the other members of the FOMC Committee must know this, because it is basic economics.
As terrible a vista this might be, consider that Hyper Inflation is not the highest of their worries, Ben “Chopper” Bernanke has said that Inflation, which eats the value of debt instruments, is not a bad thing..it saves Governments money in the long run..
I’d love to know if those investments houses like Goldman Sachs were using Fed Money to purchase gold deliveries to dump on the market down the road.
While I agree that hyperinflation is a potential threat, the bigger threat IMHO is the liquidity trap. That is, the FED and the Treasury even can pump as much money as they want but it does not stimulate the economy. This causes DEFLATION.
The asset bubbles in housing, stocks, oil, gold and other commodities caused real inflation to soar - some say 15% annualized last year alone. We know housing inflation was over 7% compounded per year. We know oil prices went from $40 to $140 in a year.
Now the unwinding, the deleveraging, is causing deflation in all those asset classes. In periods of deflation it is better to hoard dollars and invest in nothing and buy nothing but the essentials.
Look now, they are printing money and they have cut the fed rate to 1% - and still no stimulus. This is perilously close to the problem Japan had with no real interest rate and no real economic growth. It is possible that Bernanke and Paulson are making it worse by not letting deadbeats go broke but Paulson already cut the banks off because he saw they weren’t lending. The Treasury was buying shares and assets but the banks were hoarding the money. That means they think we are in a deflationary period.
Nobody is buying cars or tvs. Housing is still falling. Oil is still falling. At some point that deflation will hit manufacturers costs and they will begin to pass along lower prices too.
I hope we get out of it but I’m not convinced that the conventional wisdom of impending inflation is really the problem. IMHO the problem could just as likely be 1) the consumer and small business is tapped out and 2) people with money are hoarding it because they think deflation is the real problem and they would rather keep cash today because they believe they will get better deals later - they won’t even buy T bills because 1% return is no good if cash will earn even more... which it is - look at the interest banks will pay on a CD vs what the Fed pays of a T-bill.
Good luck.