Banks to the rescue, maybe!

Gold has made a substantial upward move over the last 24 hours as shown in the first www.Kitco.com/ graph. It is not as noticeable on the 1 Year graph. However, it does seem to be breaking out upward from the triangle (Pennant). It will be interesting to see if the price is allowed to continue upward or is manipulated downward.

The world is awash with financial liquidity pumped in by central banks all over the world. This, of course is produced out of "thin air" in the form of computer blips. It is totally un-backed and is simply counterfeit money. Further adding to the inflation of American assets are the purchases made and contemplated by the vast amount of dollar instruments held by the Sovereign Wealth Funds (SWF) of many governments of the world. With the lower value of the dollar, our assets are increasingly seen as bargains.

All of this extra paper currency is designed to avoid deflation at all costs. It is aimed at bailing out the banks hit by the sub-prime crisis. All governments prefer inflation over deflation. Therefore, they are on a paper money creation binge. This, also, supports the creation of more debt and government spending. Thus, we are very likely headed for inflation or, possibly simply stagflation which is a combination of price inflation (the result of currency inflation) which exceeds the inflation of wages. This will present consumers with higher costs facing incomes of lower value in the market place. Seldom, if ever, do wages keep up with the rate of price inflation.

The potential of a 2008 recession or worsening of the current pseudo-recession is the threat against which the central banks have acted. Their answer is always, more liquidity which actually created the problem. They continue to "push on the string." It has worked so many times in the past, that I hesitate to say that it will not work this time. The massive amount of added liquidity is testimony to their fears.

I trust that you spent a wonderful Christmas day praising the Lord for all His grace and the best gift of all times: Immanuel (God with us!). What a wonderful joy to be reconciled with the Father as a joint-heir with King Jesus. Continue to praise Him on a daily basis with voice and actions in concert with His written word.

Best to each of you in the coming year, Doug