What IMF chief DSK really fears is losing his head...
THE BIG NEWS is the rise in the price of gold, writes Bill Bonner, currently in Paris, in his Daily Reckoning.
It shot up $24 on Tuesday to a new all-time high. The stock market was just about flat. What does it mean?
Well, the Dollar is going down, for one thing. Bonds too. Has the long- awaited turnaround in the bond market finally begun? We don't know. We really didn't expect it so soon.
John Williams, who keeps track of what is really going on in the economy at his "ShadowStats" outfit, says to expect hyperinflation within 6 to 9 months.
Seems too early to us.
But a major turn in the bond market...and much higher inflation rates...are coming. And you don't want to be holding US bonds...or muni bonds...or any kind of bonds when they arrive.
Cash and gold. Those are the only reasonably safe positions now. Your gold will go up. Your cash will go down. You'll come out even. That will be a lot better than most people.
One thing John Williams is probably right about is that when it comes, it probably won't be led by a gradual, orderly increase in consumer prices. We're still in a de-leveraging cycle, with plenty of spare capacity and little excess purchasing power. Which means, normal demand will not push up prices.
Take the labor market, for example. There are millions of idle hands available...and labor is a big part of business costs. Until unemployment goes down and employees have some bargaining power, there shouldn't be any inflation coming from that front.
This will be a different kind of inflation...much more violent and dangerous. Prices will shoot up suddenly, quickly – as people lose confidence in the Dollar. It will not be gradual, but shocking...turbulent...unexpected.
Gold will hit $1500...then $2000 just a few weeks later. And this hyperinflation, along with high, long-term unemployment rates, will set the stage for serious trouble.
Unemployment peaked out in the recession of the early '80s with the average jobless person out of work for a little more than 20 weeks. Today, the average jobless person is out of work for more than 35 weeks. We haven't seen anything like this since the Great Depression.
But our message today is that this is actually worse than in the Great Depression. In the words of Dominique Strauss Kahn, who heads the International Monetary Fund:
"We are not safe."
What haunts DSK, as he is known in France, is the French Revolution. People like DSK lost not only their jobs...but their heads.
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