Lear Capital asks Which Comes First - Deflation, Inflation or Rising gold

Your Peek at Today's New Normal,article"With all these dollars getting thrown around like so much confetti, what's the prospect for inflation? High, that's what. Think about it. With the dollar no longer formally backed by gold (since 1971), the only thing supporting its value is the "full faith and credit of the U.S. government."

Other than that, the dollar is just some fancy paper with some fancy printing on it.

Bush and Obama's trillions mean more weakened dollars than ever will be chasing the world's goods. And that's a formula for hyperinflation.

"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run," according to Wikipedia.


The classic example is, of course, the German hyperinflation of 1923. Back then the dollar was strong, and the German mark was pegged at nine (marks) to one (dollar) coming off World War I (1918).

A couple years later, in 1923, as German hyperinflation reached its peak, one dollar was worth 4.2 trillion marks! Which tends to lend credibility to the following


"The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin

bank with the cook as beneficiary, the bank to administer and invest the dollar." (from an article on

Hyperinflation can certainly do crazy things to money. Like this:

"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread."


Nielson believes the circumstances surrounding a potential deflationary collapse are unique this time round in that we are not talking about a "recession" or even a "depression" but, instead, about entire nations effectively going bankrupt and defaulting on their massive debts claiming that "with none of the world's currencies backed by anything, paper "money" is now essentially nothing but the unsecured IOUs of the governments issuing those currencies. As such, he postulated that:

1. were such governments to default then billions (trillions?) of dollars of government bonds would have very "questionable" value - if not become totally worthless

2. were government bonds to become worthless, then the paper currencies of those governments would also become worthless

3. were government bonds to become worthless, then the government would have no ability to borrow any money to fund government spending - and would have no choice but to simply print unlimited amounts of un-backed paper money that would be nothing more than unsecured IOUs. Nielson conclude the aforementioned with the question: "What is the value of an IOU from a debtor who has already defaulted on his debts? The answer is: zero."

Either way the consensus is, both inflation and deflation are currency destructive. This is not a concept foreign to our readers. The need for real money, has never been stronger. And what is real money? Precious metals.

With over $1 quadrillion of global debt lurking, a day of reckoning approaches. Think of it this way. If mounting debt never created the threat of default, then our problems would be over. All we would need do is print more of our world class currency, enough to settle current debt and stimulate the world economy at the same time.

However, such is not the case. And if we believe the experts cited here today, it does not matter. Either way gold benefits which likely explains why current worldwide gold demand is rising. For a copy of Lear Capital's Special Report A Peek at Today's New Normal, visit to request your free Gold Investor Kit and special reports.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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