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Solving Debt Crisis By Printing More Money, Buying More Gold

Today, the markets are expressing exuberance as Europe speaks of printing more money in order to bail itself out of a debt crisis. Here we go again. As soon as it appears Europe is on the brink of collapse, some encouraging news makes its way through the airwaves and for a few days hence, all seems well in Mudville.


Let's be honest, whatever is known today by European officials, regarding the financial state of Europe, was known a month ago, a year ago and maybe even a decade ago. In my opinion the U.S. has knowingly been kicking the can down the road for over twenty years. Loose money policies have been in place since the advent of the Home Equity Loan (HEL) whereby consumers were duped into sacrificing home equity in favor of temporarily elevating their lifestyle. I will submit, without the "equity-for-debt-trade," the economy would have died a long time ago.

Here in the U.S. warning bells of a credit crisis have been sounding for decades. Trust me! Europe heard them too. Don't try to tell me policy makers, here in the U.S. did not see the dangers that came with the creation of liquidity out of thin air. And, whatever Europe's plan may be for digging the world out of this crisis now, that plan was made long ago.

I've always believed that the "fix" to the crisis, here or in Europe, will be to continue to find ways of creating more liquidity. Printing more money, if you will. In the old days it was accomplished through the seduction of the consumer. We traded our equity for debt and there was no need for government intervention, per se. Now trillions of our dollars in equity are gone. What we had, going into 2008, was wiped out overnight as some $7.7 trillion was lost to instantaneous deleveraging of derivative assets by major banks.

That leaves Central banks and governments as our only source for new liquidity/printed money. Can we expect it? If printed money, either by the consumer, central banks or governments, has been what's bailed us out for more than two decades now, what makes you think this practice will now cease?

The world is faced with two choices. Either print more money and continue to destroy the value of all paper currencies, or, default on debt. Since default would lead to flat out depression and a digression in standard of living back to depression-like standards, I suspect, the world will continue to print more money. Since the U.S. has already printed trillions, it is Europe's turn at bailing out the global markets.

And why not? If we take turns with Europe in printing more money, the vanishing purchasing power of our money will be masked by an equal drop in purchasing power of the Euro and the Pound Sterling. China may become the biggest victim of our printed money as the more we print the less profitable their massive exports become. That will force higher prices and now we begin to see how inflation takes seed and grows.

This also goes far to explain why central banks have become net buyers of gold. If printing money is going to destroy the value of currency, then a counter move to buy gold with some of the money printed, makes perfect sense. The more currency you print the less valuable it becomes. Conversely, the gold price moves higher as valued in currency thus preserving purchasing power. How much gold would you buy if you needed only to print the cash with which to pay for it? It's brilliant! Print more currency to buy more real money - GOLD!

And if Europe fails to print more money? According to Peter Mirici, in a recent New York Post article, "the Euro's death will send gold soaring." Essentially, the death of the Euro would destroy all faith in paper money and drive investors to gold.

So, you see, it appears gold is in a win win situation. If Europe prints more money, then inflation strikes hard and the migration of investor money to gold will continue for many years to come. If the Euro crashes the flight to gold will leave within the hour. Either way it is difficult to see why gold prices would collapse or why gold would all of a sudden become irrelevant as a safe haven investment.

How will you protect your hard-earned savings. To learn more watch this free video and see why gold prices could double even triple where they are today.

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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