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Forbes: "Devaluation and economic chaos are guaranteed"

In Forbes article Soon The Economic Deluge, author Daniel Oliver Jr explains that with the dollar in freefall, the monetary system is breaking down. The author explains that if this crisis resembles the 70s it would result in $7,000 gold and $200 oil. IMO, seems that it's going to be a lot worse than the 70s.

The article concludes:

"Devaluation and economic chaos are guaranteed, just as they were in 1969. Fortunately, unlike in 1969, gold ownership is legal. Those who understand free markets can still preserve the capital that will be needed to restore American prosperity after the deluge."

Read more at http://www.forbes.com/2011/01/06/dollar-economy-monetary-pol...

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A potential monkey wrench in

A potential monkey wrench in this thesis, at least in the short to medium term, is the sheer amount of demand destruction being wrought by deleveraging in the coming years. There was nothing like this on the horizon in '69.

Instead, '69 witnessed the beginning of the entry into the labor force, and leverage increasing household formation phase, of the largest cohort in history. Now those guys are retiring, and looking to draw down savings, aka. delevering.

In addition, inflation like that, is bound to show up even in the most manipulated excuse for a Consumer Price Index the Fed and Government can realistically get away with publishing; inevitably spiking borrowing rates for a Government hooked on $1trillion+ of fresh credit every year.

So, personally, I believe the kind of inflation implied by $7000 gold, at least sustained over any duration, will only come as a result of an explicit and well publicized political choice. Think "WE need to do this to get out of this 'unforseen' emergency (that just, uh, kind of happened...) / Everyone has to make sacrifices..... blah, blah type addresses by President DimBulb or some successor." Not something that "sneaks in" the back door like in the 70s. But what do I know? Given that the author of the article repeatedly referenced Hazlitt, he is obviously both thoughtful and well informed, quite possibly more so than I.