Things That Make You Go Hmmm...

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It's no secret that the U.S. is completely unable to withstand higher interest rates and so, to maintain low rates, they have chosen to go down the path of Quantitative Easing or, to use the vernacular, moneyprinting. As a consequence, there are multiple trillions of dollars of freshly printed money currently waiting to be unleashed into the wild ($1.6 trln alone just sitting on deposit at the Fed in return for 0.25% interest).

What happens when that pent-up cash is released is anybody’s guess and the cornerstone of the inflation/deflation debate that rages constantly. My own belief is that the debate is largely a moot one as any bout of deflation will be attacked with highly inflationary measures ensuring that, even if we have a brief period of deflation, ultimately, with the cure for the one ill being a healthy dose of the other, you can rest assured that we will end up with inflation either way.

In the late 70s/early 80s, the world faced a situation remarkably similar to that it faces today in many ways but many believe there will somehow be a different outcome. As Sir John Templeton said, the four most dangerous words in investing are ‘this time is different’, but as my good and wise friend Brian P. likes to say “This time isn’t different. This time is NEVER different”. In fact, if there IS one difference, it’s that level of debt which only serves to make this time WORSE, not better than last time.

tensions in the middle east 1970s and 1980s

Looking at the checklist above, it seems as though we are only missing two crucial ingredients and, though many people in positions of influence over such things as Fed or ECB policy like to believe they have the necessary control over all aspects of what they are doing to address the world’s current problems, they are wrong. Dead wrong.

At some point, inflation WILL kick in and rates WILL rise as what Bill Fleckenstein likes to call ‘the funding crisis’ begins and that perception of control will be shattered.

When that happens, the current ‘high’ prices of oil and gold will seem like nothing of the sort.

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About Grant Williams