The Great Depression Online

Great Depression Online Archive Issue:

One For The Ages

Great Depression Online
Long Beach, CA
May 18, 2010

Inside This Issue You Will Discover…

*** Panic Gold Buying in Europe
*** Inflation Now, Deflation Later
*** One For The Ages
*** And More

Panic Gold Buying in Europe

“A currency without a state is difficult to manage,” said former Italian Prime Minister Lamberto Dino late last week.  The Greek debt crisis, and bailout, now make that painfully apparent.  Why it wasn’t obvious before was summed up by Louis Bacon, founder of Moore Capital Management LLC.

“Investors had always regarded the euro as a de jure German mark.  It’s dawning on the world that it is becoming, de facto, a Greek drachma.”

Now that the cat’s out of the hat, confidence in the euro has eroded faster than a Mississippi levee during a hurricane flood.  Here’s what we mean…

~~~~~~Signs of Deflation~~~~~~

Signs of Deflation You May Not be Able to See Clearly.  Most people assume that they are investing in an inflationary world, because that’s what the Fed tells them it’s worried about.  But deflationary forces continue to loom even though they are not so visible.  Here are five that you might not be able to see clearly.

Read More


When measured against the dollar, the euro has fallen about 15 percent this year.  But that’s nothing.  When you measure the euro against gold, it has collapsed 21 percent in less than five months.

No doubt, European’s are in a panic.  In fact, we’ve come across numerous reports of gold shops running out of physical gold due to panic buying.

“This is confirmed by the Australian Mint,” reported the International Business Times, “announcing that they sold 243,500 OZ of physical gold during the last two weeks, more than in the entire first quarter.  The orders came nearly exclusively from Europe and the Australian Mint sees signs of ‘panic buys’”

Deflation Now, Inflation Later

Peter Schiff, a 2010 Senate candidate, declared on CNBC last week that gold is going to $10,000.  And David Hefty, CEO of Cornerstone Wealth Management, expects “a complete freefall like we saw back in 2008 that could push the DOW as low as 5000 or lower by the end of the year.”

What to make of it.  Gold rocketing past the moon would only occur if there’s runaway inflation.  The DOW in complete freefall is, of course, deflationary.  So who’s right? 

Here at the GDO we believe we’ll get deflation first…followed by inflation.

There’s just too much debt in the world for the economy to support.  The market was doing its work, and bring things back into balance in 2008 and 2009, before the Fed stepped in to save the day with more debt.  Unfortunately, the market still has unfinished business.

The market wants to liquidate.  So the Fed counteracts it with more liquidity.  During the next rapid selloff, Bernanke will be ready, like he was before, with more funny money.

Where does the Federal Reserve get the money to lend out to others?  It borrows it.

Who does it borrow the money from?  Why it borrows it from itself.

How does it borrow money from itself?  It just makes a notation in its ledger and the money appears.

Pretty neat…pretty clever…until the currency cracks up.

One For The Ages

What must happen, will happen…all in good time.  From our vantage point, the stock market appears to be turning over.  It may even have already topped out. 

Good grief…it’s about time.  We’ve been expecting this would happen practically since the day the rally began.  Now that it finally is, we can hardly believe it.

Investors are exiting the stock market…and they’re parking their money in government debt.  Last week yields on Ten Year Treasuries dropped below 3.5 percent.  Does anyone out there really believe that sometime in the next 10 years inflation will not exceed 3.5 percent?

At this point, many seem willing to take this risk.  For greed has given way to fear…and return of capital is more importance than return on capital.  That’s our guess at least.

Perhaps this is the beginning of the end of the biggest all time suckers rally.  Who knows, maybe Hefty’s right and the DOW is, in fact, headed to 5000.  If so, it should be quite a sight. 

Our recommendation is to step aside, and awe at the aesthetic form of it…the stock market’s swan dive shall be both eloquent and historic.  It’ll be one for the ages.


M.N. Gordon
Great Depression Online

P.S.  Why are the truly big economic catastrophes so “big?” Put simply, it’s that such a small number of people prepare themselves beforehand.  Think about 2008 and you’ll realize it’s true.  There are but a few opportunities left and little time to take them.  Even as this happens, the terrible irony is that so many people believe the conventional wisdom, which claims “the worst is over.”

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