Things are about to get very tricky.

Throughout the last year the regulators—the Federal Reserve, Treasury Dept, SEC and even Congress—have done everything they can, including some things they weren’t legally authorized to do, to try and stem the deflationary tide of the US housing market.

However, ALL of their efforts have failed. The Case-Shiller Home Index—a general measure of housing values in the US—has fallen 18% from its June 2006 peak. And if anything, the drop is now accelerating—the index fell 8% in all of 2007… it’s already fallen 7% in the first nine months of 2008.

It’s now getting to the point that the Fed has no other option than hyperinflation. And by hyperinflation, I mean the dollar as a currency is toast. As disturbing as this option sounds, it’s already happening.

Leaving aside the various bailouts/ interventions (Fannie/ Freddie/ AIG), the Feds are now running the printing presses like maniacs. The Adjusted Monetary Base has soared from $873B on Sept. 10 to $1.017 trillion as of the Wednesday before last. The compound annual rate of growth since August 13 is 114 %. It’s not yet Weimar Germany inflation… but it is approaching Argentinean levels.

I realize some people are visual. And these are enormous numbers to picture. So perhaps the below chart will put this all into perspective. It’s a chart of the US Adjusted Monetary Base.

To put that recent surge in context, consider that the little bump in March 2008 was the Fed pumping the system during the Bear Stearns deal. That slope in July 2008? The Fannie Mae/ Freddie Mac crisis. Compared to the horrific spike that is September 2008, both of these periods appear positively rosy.

They say a picture is worth 1,000 words. The above image says only six:

Gold is going through the roof.

At some point, the Fed’s inflationary tactics will begin to take hold of the financial markets. When this happens, the dollar rally will reverse and gold will begin its spike above $1,000 an ounce. Gold was, is, and always will be THE storehouse of value during times of mass inflation.

And those times are coming soon.

Graham Summers

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