I'm going to start a new thread on what we should be expecting over the next few years as the GFC continues to unfold.
Up until recently, I was a firm believer that some sort of high inflation crisis (perhaps not hyperinflation) will hit US and other developed countries as the amount of money currently being thrown into the economy has been unprecedented from a historic perspective. There is a mainstream believe amoung the inflationists (yes, pure Austrian economists) that all these money being "printed" to pay for these stimulus will eventually cause inflation, and therefore, the best hedge against such crisis would be to buy gold/silver. Evidence to support such a thesis was the massive increase in base money supply measured by official date such as M0.
But on the other side, we have those from the deflationist camp who would argue that while the money supply has certainly increased, the amount of money being circulated in the economy necessary to cause inflation has actually contracted. This was because banks were hoarding the cash given by the bailout funds and most stimulus packages received directly by the public were used to pay down debt or to save. This is another reason why most Keynasium inspired economists (i.e. government advisers) would argue that it is imperative for people to borrow and spend even more so a depression could be avoided.
But who is right?
Now here is the article that I would like to everyone to read. It has certainly enlightened me despite the fact that I have read so many "analyst" articles (from both inflationists and deflationists, though mainly inflationists) in the past.
Mike Shedlock has for the first time (not sure on this one) supported Steve Keen's analysis on the critical role of credit in affecting how money supply should be interepted.
I suggest everyone should give it a good read and also read what Steve Keen's has posted recently on his blog.
Basically, he concludes that we will more likely head for a Japanese style deflation than a massive great depression. And that there are simply too much bad debt in the system to be cleared and it really relies on the will of the politicans and central banks to "print" enough money to counter the deflationary trend.
What about gold? I have already mentioned it in the gold thread and I still believe that gold MAY be a good hedge because of the fear factor. Of course, there is no guarantee that this may be true.
The only fact is that we are in unchared water, and there is little historic evidence to prove that gold prices would remained depressed if the world falls into another great depression.