Antal Fekete On The Bond Market And Gold – 2002


As I have mentioned in emails prior to this blog, I have been reading Antal Fekete’s work… the below is something to ponder.  There is a lot of info to read on his site.  He has contributed much to my education on monetary matters. And it is interesting to discover how right he has been thus far… however, the below scenario has yet to fully mature, but it is clearly in the process with Fed monetization that will continue unabated as liabilities in dollar terms come due in the marketplace and the Fed steps in to provide the necessary “liquidity” (i.e. print money to buy up assets) that allows for maturity of the liability in question.
Gold has been cornered several times in the past.
There is no reason to believe that it could not be cornered again in the future whenever conditions are ripe. Consider the following scenario. The Federal Reserve is desperately trying to combat deflation brought about by bond speculators out in force to drive the rate of interest to zero. The Fed is printing dollars working the presses overtime, but these dollars are snapped up by the bond speculators just as fast as they are printed. So the process must accelerate and will start spinning out of control. At one point the Federal Reserve will go overboard and print too many of them.
The bond speculators will get scared and decide to cut and run. As they dump the bonds, they trigger a credit collapse. The government’s credit will be ruined. Interest rates will go to outer space together with the price of marketable commodities. There will be a fatal, irreversible loss in the purchasing power of the dollar. In short, there will be a runaway inflation. A runaway inflation is but a corner in gold by another name. It is rather naive to believe that the Texas hedges of Barrick can stem the tsunami of the coming gold corner.

Antal Fekete

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