Dan Gheorghiu's Weblog

Our country's ability to buy goods and services from abroad is
diminishing and Santa is not coming this Christmas (just look around
and you'll see Christmas decorations already in some stores – how
desperate is that?) Foreign manufacturers are going to be scratching
their heads over the holidays wondering where the dollars that used to
come from America suddenly went.

The financial markets are going
to slowly realise that the only reason foreign central banks bought
Treasuries is because the US bought their goods first! China, as one
example, realises our money is not that good and will take an interest
in holding dollars only because we are buying goods and services from
them. Foreign countries have no reason to buy massive amounts of
Treasury debt unless we buy something from them first.

the Treasury debt still can't be sold to American savers because
America doesn't have savers; and, we are no longer buying enough goods
from foreigners and sending them our dollars to finance the Treasury
deficit.

However, squeezing a trillion dollars out of the money markets of the
world is clearly impossible and the only remaining option to fund the
US Treasury's insatiable appetite is through 'monetisation'.
Monetization means that the Federal Reserve would step in and print up
new money out of thin air and buy the Treasury debt. If that occurs,
monetary growth rates would soar and, in turn, create very high
inflation as too many dollars start chasing too few goods. Rising
inflation forces interest rates up, and rising interest rates always
have devastating consequences for the prices of financial assets such
as stocks and bonds.

So, how will we all be affected? First, start reading about what life
has been like in the Banana Republic and in countries like Argentina,
where the inflation rate in 2002 rose to 20% following the devaluation
of the country's currency, the peso. Brace yourself for several years
of rising inflation and interest rates and, by all means, protect your
portfolio. Remember, cash is king again.

First, I want to buy gold and silver in physical form whenever I can.
In the world of inflation, while cash is king, gold is the emperor!
Second, I look to accumulate real assets if they are quality assets and
the prices have crashed down. So, I do believe that in a few years even
real estate will again be a great inflation hedge!