Skip to content
HTML5 Incompatible Browser
Gold Banner

What protection is there for the economic outcome of government over-spending?

*Dow Theory Letters, by Richard Russell, December 20, 2010

”Also in the current issue of Barron’s there is an outstanding article by Victor Sperandeo, an article that I would like every subscriber to read.  Victor is talking about hyperinflation ahead, not inflation, but all-out hyperinflation.

His thesis is that a huge portion of our government spending has been financed by the government selling bonds.  But at some point, bond buyers will halt buying bonds when they are afraid that the yield on the bonds will not be sufficient to cover the losses due to inflation and a lower dollar.  In other words, they’ll ask, ‘Is the risk worth the reward?’  The bond market’s answer to this question appears to be a resounding ‘no.’  This could lead to a panic to get rid of Treasuries.  If that happens, the US government will have to ‘print’ money to cover its expenses.

Remember, over recent months there has been almost a panic to buy ‘safe-haven US Treasuries.’  The frantic buying of Treasuries has brought their yield down to absurd lows.

The greater the US government’s deficits (these enormous deficits won’t be financed via the sale of Treasuries), the closer we get to an emergency period of enforced money-printing.

I used to issue the following warning: ‘The Fed can continue to print money until the bond market says it can’t.’  The current slumping action of the bond market is telling us that we’re almost at that point. If the US government can’t borrow hundreds of billions of dollars a month, the Fed will be forced to print the money to finance the government’s deficits.  The amount of money that will have to be printed will be massive, it will be mind-blowing.  Another word for it will be hyperinflation.

If we move into a period of hyperinflation, that will not be lost on gold.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.