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Why does the debt crisis mean more inflation, and why hold gold and silver now?

*Dow Theory Letters, Richard Russell, August 2, 2006

“Flash! As housing softened and as the stock market weakened ten weeks ago, Bernanke made his move. Over the last ten weeks the M-2 money supply increased at a 10% rate. Bernanke isn’t taking any chances, he’ll expand the money supply at the first sign of a weakening economy — and that’s just what he did! Russell advice — Hold on to your gold and silver.
I’ve been emphasizing the massive debts that have been built into the US economy. They run into the multi-trillions of dollars. Mortgage debt alone towers above $10 trillion. State and city debt at $1.6 trillion. Government debt off into space. Corporate debt massive. Total US debt has been calculated to be $44 trillion. All this debt must be carried, and as you are well aware, it takes money to carry debt. To the extent that debt sucks up money, debt is deflationary. If you’re making say $80 thousand a year and you’re carrying a huge load of debt, and the cost of carrying that debt is $20 thousand — then it becomes a brutal job carrying your debt. So what do you do? You cut back on your spending and try to scrape through. In other words, the cost of carrying your debt forces you to curb your consuming and spending — and that’s deflationary.

But our government has another way of handling its massive debt. It reduces the power of that debt via inflation. Year after year the power of the debt is reduced. Since the debt is expressed in a fixed number of dollars, and as inflation continues, the power of those dollars, thanks to inflation, diminishes. That difficult $5,000 that you owed in 1990 seems like “small potatoes” today — thank you Mr. Inflation.”

*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.