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Stagflation and Gold

Wednesday, August 3, 2011
Michael Pento

The only answer central bankers have to solve an inflation problem is to print more money. And the only solution from politicians to fix slow growth is to spend more money. The more answers we get from government, the further exacerbated the stagflation situation becomes. More evidence of U.S. stagflation has come recently from the ISM manufacturing and non-manufacturing reports, which showed a slowdown in new orders and employment in the sub indexes. This morning’s ADP report showed that even after the NBER said the recession ended over two years ago, we still lost 7k goods producing jobs in the month of July. And the Challenger Grey and Christmas report released today indicated that layoffs surged 60% last month to a 16 month high. Meanwhile, YOY consumer prices are up 3.6% and M2 money supply is up 7.5% YOY and rising at a 14.6% annual rate in the last quarter. As the problem with stagflation becomes worse, international investors will eschew U.S. debt and dollars at an ever increasing rate.

Soaring debt to GDP ratios on the sovereign level in Japan, Western Europe and America will spur investors into owning precious metals at an increasing rate. The fiat currency system is soon coming to an end, with the dollar and U.S. debt feeling the brunt of that change. But take heart, the replacement of the U.S. dollar’s status as the world’s reserve currency with gold is, hopefully, only a few years away.