Bill Bonner

The big news from yesterday was the rise in the price of gold. It went up $24 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.

What then?

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… 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 $1,500…then, $2,000 just a few weeks later.

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 IMF:

“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.

Here’s the report from The Telegraph:

“The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment,” said Dominique Strauss-Kahn, the IMF’s chief, at an Oslo jobs summit with the International Labour Federation (ILO).

He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. “We are not safe,” he said.

A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. “The Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies,” it said.

The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the “employment intensity of growth” as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water.

Olivier Blanchard, the IMF’s chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.

“Long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression,” he said.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • John

    Bill, you may prove to be right much sooner than anyone thought possible.

  • Chris

    If you believe we are really that close to hyperinflation, go rack up tons of debt buying cars, guns, houses, everything. Then when hyperinflation hits you can sell a couple the the items you bought and pay off all of your debt!

  • Another John

    Hey chris: who will lend you money to go on your house and gun buying spree? Not the too big to fail banks! Maybe they, and BB, know something you don’t.

  • https://www.facebook.com/FUNtasticDental how much do invisible braces cost

    Wow, more power to them. I just dont think I have it in me to play Mega Man games for four days non-stop. Glad to see donations are going to a good cause.

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