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<p>[QUOTE=&quot;Bluesboy65, post: 1100697, member: 23329&quot;]In a normal economy (one with access to credit) debt creates inflationary pressure because it creates economic activity and increases velocity.&nbsp; One of the few tool the Fed has in it&#039;s arsenal to deal with inflation is to raise lending rates so that economic activity is slowed down and thus mop up excess liquidity.</p><p><br /></p><p>The case for inflation:&nbsp; Our national debt ($14T) requires either servicing or default. We will never default because to do so would truly mark the end of our ability to attract money to run our government; so we can take that option off the table.&nbsp; Servicing of our debt is funded through tax receipts, taking on additional foreign debt or by creating money (a technical default).&nbsp; With stimulus, M1 is growing much faster than growth in the economy but the real risk is with the debt held by foreign governments and their loss of confidence in our currency because 1) our loose monetary policy and 2) our ability to eventually pay.&nbsp; As confidence fades, bond yields climb (happening now) which quickly makes our debt problems much worse.&nbsp; In response our Fed will more frequently&nbsp; be forced to step in as the buyer of last resort (this too is already happening) as we are no longer able to attract foreign investment.&nbsp; This will lead to an environment where not only will we be unable to attract buyers, but our buyers (i.e. the Chinese) will become net sellers and dump our bonds for whatever they can get (painful for US and China).&nbsp; When this begins, the trillions of dollars that begin to flood the global market will dramatically increase M1 and we will see substantial price inflation; we will be in a decidedly tight spot.&nbsp; These dollars will begin chasing coal, corn, wheat, timber, oil, cotton, apparel, consumer electronics, durable goods etc.</p><p><br /></p><p>People have debated about whether we are headed for inflation or deflation but the inflationary scenario is the one that is playing out.&nbsp; Even Ben Bernanke is discussing his plans of dealing with the inflation he is trying to create.&nbsp; He has explicitly stated that he is trying to create inflation.&nbsp; So the global story is inflation, it is threatening emerging markets, heating up the biggest growth story in history (China) and you can feel it when you go to the store.&nbsp; That’s how I see it.&nbsp; I invite anyone to pick apart my analysis and articulate the mechanics of a deflationary scenario.&nbsp; Whether we continue to see inflationary pressure or this reverses and we begin to experience deflation portends very different approaches to precious metals investing.[/QUOTE]</p><p><br /></p>

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