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"The Fed must be watching with horror at the financial nightmare in Japan. They could be looking at the very same scenario here in the U.S., which is why they may consider monetizing the entire financial system."

I've been reading about how our economy will follow Japan's economy into the tank for at least 12 years now. You see, dire alarmist predictions sell more newsletters than the reasonable forecasts made by experienced economists. There are a number of major differences between the American economy and the Japaneese economy. One of the biggest differences is that America has a huge home building industry and a lot of empty land where we can build new homes. This home building industry, along with the auto industry, can be cranked up rapidly by the Fed simply by cutting interest rates. This is how the Fed prevents recessions from turning into depressions. Japan, however, doesn't have any vacant land where they can build new houses. Their real estate is completely developed. There's no place to put any more houses. Therefore Japan has a lack of industries that can be stimulated by lower interest rates. In addition, the Japaneese people have a very high savings rate (around 20%) and so they have less need to borrow to make any kind of purchase. America has a low savings rate, therefore consumer spending is stimulated greatly by lower interest rates. Finally, Japan has a strict population control policy and has essentially no population growth, which greatly reduces their long-term economic growth. China is now the engine of economic growth in Asia and it's economy will be bigger than Japan's in a few years. In a nutshell, Japan's economy is already maxed out because of limits on real estate development and population growth. America has neither of those limits and we will continue to grow steadily in the years ahead. Much of the rise in gold prices is simply a trading rally in the commodities market. This rally will probably lose steam around $300 as long as inflation remains reasonably low. People have been predicting a big jump in gold prices for 15 years and it's not going to happen without a jump in inflation.

The price of gold is flirting with $300 an ounce despite desperate efforts by central bankers to knock the price down. The rise in gold may be signaling trouble lies ahead for the financial markets. The Fed has been dismissing gold and a weakening U.S. currency.

The Dollar Index is just as strong now as it has been in recent times. The price of gold is going up for other reasons. Mainly because of hoarding by the Japanese and declining forward sales by producers.

Rohry?

Once people lose confidence in paper, which is what is happening in Japan right now, the confidence isn't gained back easily. Over the weekend, a relative gave me more than 200 German 100-mark notes issued between 1903 and 1910. When issued, they were worth just under $25 -- i.e., more than an ounce of gold. I was recently appraised that they are now worth between $0 and $0.07. They were demonetized following the German inflation of 1923.

The one positive factor for stock prices may be the Fed itself. There was a story in today?s Financial Times about how the Fed considered propping up stock prices if short-term interest rates didn?t revitalized the economy. In the minutes from its January FOMC meeting the Fed talked about taking an unconventional approach to rescuing the economy if it deteriorated substantially. If short-term interest rates failed to arrest an economic decline the Fed would consider a plan to buy U.S. stocks to prop up the economy.

Here are the minutes of the January FOMC meeting. I can't find any such plan.