Gold prices will rise...but not before we've had deflation...

NOW THAT Gold Prices have broken above $1,600, is it time to sell? Nah...not even close. It will have to go to $2,500 just to reach the high – adjusted for inflation – set 30 years ago, says Bill Bonner, founder of the Daily Reckoning.

But a lot of water has gone under the bridge in the last three decades. And almost every drop of it gurgles to us: Gold Prices will go higher.

There's much more debt than there was 30 years ago...and much more 'funny money.' What's more, Paul Volcker is no longer at the Fed. This time, America's central bank is run by Ben Bernanke...who has made it very clear what his response to crisis will be – print more money!

Yes, dear reader, gold is going higher. A lot higher. But not necessarily right away.

Harry Dent sent us the manuscript for his new book. He argues that gold will go higher...but not before it sinks. Debt is deflationary, he says. Everyone owes Dollars. As debt is destroyed in the Great Correction the price of the Dollar will go up and gold will go down. We will have deflation before we can move on to a super-boom, he believes.

He could be right. The markets always find a way to surprise us; you can count on that. But, by one route or another, gold will end up at twice today's price – at least.

So let's go back to see how the Great Correction is proceeding:

"Economy Faces a Jolt as Benefit Checks Run Out," was a headline in The New York Times last week.

Europe's debt market was melting down last week too. In all of the excitement, we overlooked this NYT item. But it is important. For two reasons. First, it shows the extent to which the US economy has been zombified. Second, it shows what happens when you let the zombies take over.

A large part of Americans' income now comes neither from the sweat of their brows nor from the toil of their money. Instead, it is money that is given them by the government.

A large part of the population has turned away from profit-seeking, growth-enhancing work and towards zombie-ism, feeding at the public trough. And the more people who live at the expense of others, the less incentive the others have to bust their humps. Real GDP – the real wealth of a nation – goes down.

Then, the zombies get squeezed too. If you're going to live at someone else's expense, you better hope that he is doing well! But as the Great Correction continues and intensifies, zombie benefits run out...

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