To get this disturbing concept into your brain, think of a shark frenzy.
At first, there's this one shark biting on a freshly killed tuna. Smelling the blood, a bunch of new sharks immediately join the feast. In no time, fifty, maybe a hundred crazed sharks show up, each having an increasingly tough time getting their snouts in there to take a bite of this rapidly shrinking meal.
Okay, that may be a bit dramatic. Then again, as far as gold goes, maybe it's not. See, while Washington is busy 24/7 cooking up enough dollars to back those eyeball-popping bailout checks politicians are writing, less and less gold is getting pulled out of the ground.
You get the picture here? A lot more dollars…a lot less gold?
Spreading Monopoly Money
It's sad, of course, to see this happening.
There's our once-glorious dollar, part of the foundation of our great nation, the mighty monetary standard of the world, now getting printed up like so much multi-colored Monopoly money.
How much Monopoly money are we talking about? According to analyst Barry Ritholtz, who went to painstaking detail in constructing an Excel Spreadsheet of government bailouts, we're on the hook for $8.5 trillion. That doesn't include "the $5.2 trillion in Fannie/Freddie portfolios that the US taxpayer is now also explicitly responsible for."
And even his estimate may be on the low side. Ritholtz' pegged President Obama's stimulus package at $168 billion while the amount being kicked around today is more like $850 billion.
We're now throwing trillions around like we used to toss billions, almost as if the word, trillion, doesn't mean what it actually means. To give you some idea of the word's mind-blowing scale, Olivier Garret of the Casey Report compiled a list of the cost of ALL the American wars and government initiatives, including Iraq, the Gulf War, Vietnam, World Wars 1 and 11, the Marshall Plan and everything NASA's ever done, including visiting the moon.
He came up with $8.1 trillion.
Ritholtz' relatively modest bailout figure is nearly a half a trillion higher than that. The ultimate question here is how can the world possibly digest 8.5 trillion of brand new dollars?
The obvious answer is, it can't.
Flood of Dollars Won't Pass Perk
You've heard the term before? A perk test is the amount of time it takes for the soil on a building lot to absorb the water standing on it. Timely absorption means the lot will pass perk.
Over the coming year, the world economy will face it's own nightmarish version of a perk test: A flood of dollars is spreading over every nation in the world, and there's little chance it will all get absorbed before devastating and lasting consequences follow.
These trillions mean more diminished dollars than ever will be chasing the world's goods. And that's a formula for hyperinflation, the classic example is, during the German hyperinflation of 1923, a wheelbarrow of currency getting stolen after the thief dumps the increasingly worthless money it holds on the ground.
Here's another, (from marketskeptics.com): "My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread."
Wikipedia's definition of hyperinflation is "inflation that is 'out of control', a condition in which prices increase rapidly as a currency loses its value."
So, taken a step further, what happens when the production of goods these increasingly worthless dollars are chasing starts drying up?
Less Gold Since the Turn of the Century
It's why gold is so valuable: There's just not a lot of it in or on the Earth.
And less and less of it is getting produced these days. While companies are mining the precious metal all the time, worldwide production has been in retreat over much of the last decade.
According to London research group, GFMS consultancy, annual gold-mining output peaked at 2,573 metric tons in 2000, falling to 2469 metric tons in 2006 and 2,444 metric tons in 2007.
And 2008? Best year-end estimates show gold production falling to 2,400 tons. That would mean, since the year 2000, a drop in gold production of 6.72 percent.
Part of the problem is the declining mine production of the former Saudi Arabia of gold, South Africa. While China is expected to replace South Africa as the new gold leader, there's little anticipation gold supply will zoom to new heights.
So there you have it. More dollars than we've ever seen before…less gold since the turn of the century.
"If the Fed creates enough inflation, gold's probably going to hit $5,000," said noted analyst Peter Schiff on a Fox News interview, wonderfully summarizing the outcome of this hyperinflationary dollar/scarce gold chase.o
Kevin DeMeritt www.LearCapital.com January 15, 2009
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at http://www.gold-eagle.com/editorials_08/demeritt011509.html
