Hyperinflation by 2014

Current developments in the United States and globally make hyperinflation almost a certainty, but you can protect yourself from it and even profit.

$1,500 Gold and $30 Silver are just harbingers of things to come and should the US suffer hyperinflation these numbers could triple.

I have written "U.S. Hyperinflation Is Coming Soon," a 24-page, 13,000 word analysis of economic, historic and social factors and suggested plan of action for investors.  In it, I conclude that   if your assets are stored primarily in U.S. Dollars, you need to act now to protect your family, wealth and future.

In April 2004 I wrote “The Perfect Golden Storm,” which described the forces driving gold toward and beyond its 1980 peak of $850. In April 2008, with gold already having reached $1,000, I wrote “Gold: $2011 by 2011,” which predicted that the bull market in gold would continue. By April 2011 gold had reached $1,500.

The current gold bull market is still in Phase I. Phase I involves gradual increases in the price of gold; Phase II, steeper increases; Phase III, a near vertical increase, followed by a sharp fall.

In Phase I of the 1977-1980 gold bull market, the price increased 25.8% the first year, 33.6% the second year, and 22.8% in the next six months (45.6% annualized). In Phase II, the price went up 84.5% in the next six months (169% annualized). Phase III lasted 20 days, during which the price spiked 66% (1,204% annualized)>

The current bull market, which has already lasted 10 years, is still in Phase I, with average annual increases of 20.3%. 

In Phase II we are likely to see 50% annual increases over a period of about two years, taking gold to around $3,000. The complete Hyperinflation study explains Phase III, which would have gold reaching $5,000 or more with three or four months. I believe Phase III will occur by 2014. A US government decision to adopt a gold standard or start a gold confiscation program would accelerate this timetable.

The 1977-1980 gold bull market ended without hyperinflation. Very high interest rates and wage and price freezes sent the country into a recession and gold into a bear market. The U.S. is in a different place today, facing stiffer global competition and higher federal deficits and national debt, and committed to stimulating the economy through low interest rates.

During the 20th Century, 30 countries experienced hyperinflation. In every case, horrifying price increases that quickly wiped out the value of savings and of most forms of investment took people by surprise.

Economist Phillip Cagan famously defined hyperinflation as an average monthly price increase of 50% or more. At that rate, a $10 item costs $1,946 one year later. Most of the 30 nations that suffered from hyperinflation in the 20th Century followed the Cagan model.

Many of the factors that have led to hyperinflation in the past are present in the United States today. They include fiat currency, financing wars through debt, government bailouts of financial institutions, rapid increase in national debt, increased creation of money, and monetizing of national the debt (through Fed purchases of Treasury notes), wage freezes, and social turmoil.

U.S. federal debt is going up, with no end in sight. Standard & Poor’s changed its outlook rating on US sovereign debt from “Stable” to “Negative.” Bill Gross’s PIMCO Total Return Fund sold all the T-Bills in the fund. State and municipal budget deficits compound the problem, as do growing trade deficits.

The federal government claims inflation is running at about 2%. If the CPI were still calculated as it was in 1980, inflation would be running at just under 10%. The index of all commodity prices is up 230% in 10 years. The US Dollar Index is calculated against a basket of six other fiat currencies that have lost purchasing power. Nevertheless, from a high of 160, the USD has recently tracked in the 72-74 area. Governments that are in denial about inflation continue to feed inflation until it grows into hyperinflation.

In November 2010, President Obama froze the wages of 2.1 civilian federal employees for two years. Many states and municipalities are following suit. Tens of thousands of workers and students demonstrated in Madison, WI and even briefly occupied the State House to protest the termination of collective bargaining rights. Similar protests have taken place in Montana, Illinois, and Indiana. In California, New York, and other states, thousands of college students, faculty, and employees have demonstrated against cuts to education budgets.

Social unrest makes governments leery of taking economic measures, such as raising interest rates and tightening up on credit that might create more unemployment and generate more protests. Often, it drives them toward papering over the problems with money, bringing on hyperinflation and even more social unrest.

My   study covers the history and possibility of US. Government Confiscating Gold or what is happening right now that could lead our country to creating a Gold Standard, and backing our currency with Gold.