$500 Gold and Interest Rates
As the Fed continues its inflation campaign, most have yet to come to grips with the reality of America's uniquely precarious situation. In an act of prestidigitation that would impress Harry Houdini, the Fed is now attempting to make inflation disappear by no longer publishing data on the growth of M3, while mystifying the public with phony CPI statistics. However, the relentless rise in the price of gold is evidence that fewer people are being fooled by the Fed's slight of hand.
Gold's recent rise to just under $500 per ounce, gaining over $30 per ounce in November alone, indicates the market's expectations of higher current and future inflation. Higher long-term interest rates are sure to follow. As fiat currencies continue to lose value relative to gold, lenders world-wide will demand higher rates of return to compensate for that loss, ending the low interest rate environment that has nourished the global economy for the past six years.
Nowhere will the fallout be greater than in the United States, where the economy is more vulnerable than any other to the crippling effect of higher interest rates. As the world's biggest debtor, America will be forced to pay higher interest rates to creditor nations. The resulting drain on America's national income and strain on consumer spending will plunge its economy into a severe recession.
Under normal circumstances, debtors would benefit from higher inflation, which would greatly diminish the real burden of repayment. However, these are hardly normal times. Due to the irresponsible debt management of the Clinton and Bush administrations, the average maturity of the eight trillion dollar national debt is now under three years. Therefore our creditors are not stuck holding low yielding, long-term debt. They can simply refuse to roll-over maturing paper, or demand substantially higher interest rates for doing so.
In addition, under normal circumstances, a debtor nation would improve its lot by wiping out the real value of its liabilities through currency depreciation. Not so for the United States, where a hollowed out industrial base makes its citizens extremely vulnerable to a loss of confidence in its currency. Not only will Americans have to live without the products currently supplied by foreign manufactures, but the jobs associated with their distribution as well. In addition, without access to foreign savings, the rug will be pulled out from under the housing market and consumer spending, as well as the employment associated with each.
Nov 25, 2005
In addition, as the dollar's value is likely to sink far faster than those of other fiat currencies, investors can learn strategies to protect wealth and preserve purchasing power by downloading my free research report on the coming collapse of the U.S. dollar at www.researchreportone.com and subscribing to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange