Monday, December 19, 2005


'The Time-Honored Way Of Reducing Debt'

The Dallas News looks at golds' role in the changing world economy. "'One thing contributing to higher gold prices is the first changing of the guard at the Federal Reserve since 1987,' John Lonski, chief economist at Moody's said. 'There could also be uncertainty about the longer-term outlook for the dollar.'"

"Gold's behavior, it would seem, encapsulates everything negative that consumers, politicians and Wall Street are ignoring, our untenable record trade deficit and a housing bubble that's poised to pop into a recession. 'The question is whether the Fed has gotten itself into a corner because of record high ratios of home prices to personal income,' Mr. Lonski added. 'The big risk is an extended period of home price deflation.'"

"A housing crash in the U.S. would bring job growth to its knees and push nascent deflationary threats to the forefront in a hurry. Any less in the way of income growth among U.S. households would cripple the few lucky industries that still retain pricing power. And that would be disastrous for all the debt lurking just under the surface like so many breeding Florida alligators."

"Deflation would perversely cause debt loads to grow, wages would fall as debt payments held steady."

"One way to 'solve' the problem of the debt bubble, Mr. Lonski said, is to do the opposite, to engineer inflation: 'The time-honored way of reducing debt loads is by way of higher inflation.'"

"Peter Schiff is an outspoken opponent of this route out of the swamp. 'Ben Bernanke believes that credit expansions need never end, that a boom can be prolonged indefinitely simply by printing enough money,' Mr. Schiff said. 'The fact that the incoming Fed chairman believes such nonsense is similar to a Cold War president having believed he could win a nuclear war,' Mr. Schiff said, mixing metaphors. 'However, Bernanke's finger will not be on the button but on the printing press, and he seems itching to crank it up as he is convinced he will win the deflation war.'"

"That will send the dollar falling, and that, I learned, has put the golden gleam in the eye of a vitally important group of investors."

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