David Einhorn says that the price of gold rises when people lose faith in government monetary and fiscal policy »
FWIW, I agree. Whether we see US dollar hyperinflation will be determined in Washington. German hyperinflation in the 1920s was possible because the politicians were unable to stand up to the industrialists who resisted higher taxes, and over time, more individuals positioned themselves to benefit from continued high inflation, through investments in hard currency (then the US dollar), in stocks in exporting companies, and by taking out large fixed rate loans. This vicious cycle built upon itself until the economy collapsed and all transactions were denominated in gold, rather than paper-backed currency. It is now up to the folks in Washington (and ultimately US citizens) to decide whether we can raise taxes and modify Social Security and Medicare, to fix our fiscal problems and avoid hyperinflation. This would have the pleasant benefit of hurting those speculators who have bet against America’s ability to heal itself (by buying stock in exporters, foreign stocks, commodity-linked bond funds, and junk bonds). It is also necessary to avoid the sort of upheaval that allowed the Nazis to take over Germany.
My optimistic belief is that the baby boomers will sacrifice their own retirement benefits and push through the necessary reforms. I.e. they’ll jump on this grenade. Unfortunately there is little evidence that this is occurring.
