By: The_Gold_Report
The Gold Report: When we talked in May, you predicted that hyperinflation could be a reality as soon as 2014, something you addressed at length in your Hyperinflation Special Report. Have six months of euro debt crises, Middle East revolts and U.S. Treasuries' downgrading altered your outlook?John Williams: Not a bit. We still seem to be moving down that road to a relatively near-term break toward hyperinflation. The most important thing that's happened since we last talked was the global response to the U.S. legislators' negotiations over the debt-limit ceiling and the deficit reduction problems at that time. Clearly, no one controlling the White House or Congress was serious about addressing the nation's long-term solvency issues. That sparked a panic selloff on the dollar against currencies such as the Swiss franc, and of course gold, which made the gold price rally sharply.
TGR: Did the politicos learn anything from those "negotiations," as you just described them?
JW: Not at all. In fact, I'll contend that everything that's happened since then has been just a playing out of what resulted in a complete collapse in global confidence in the dollar. The ensuing rapid shift of market focus to crises in the euro area was really more of a foil to distract the global markets from the dollar. Following that horrendous performance by Congress and the White House, the global markets indicated a major loss of confidence in the dollar that had been coming. I think that's now established and in place. The dollar is doomed to lose its reserve status eventually, and any day now, we may see things heat up again over the deficit negotiations.
TGR: What steps would we see on the way to the dollar losing its reserve status?
JW: Probably the biggest thing would be heavy selling pressure against the U.S. dollar, along with a spike in the stronger currencies such as the Swiss franc. The more the pressure builds for selling of the dollar, the more expensive and disruptive it will be for the Swiss National Bank to keep supporting the euro so I don't think that intervention will last long.
As heavy selling of the dollar develops against the Swiss franc, the Canadian dollar and the Australian dollar, and the gold price rallies, we'll see a very strong effort by those who are dependent on the dollar—such as the Organization of the Petroleum Exporting Countries (OPEC)—to have the dollar removed from the pricing of oil. Along with that will come a movement to change the dollar's reserve status.
TGR: If other countries start demanding payment in alternative currencies, how can investors protect themselves against a shift from the dollar standard?
JW: I'm not a day-to-day timer in this. My outlook has been consistent that we're heading into U.S. dollar hyperinflation, and the effective purchasing power of the currency as we know it will disappear. If you're living in a U.S. dollar-denominated world, you don't want to be in dollars—you want to move to protect the purchasing power of your assets, your wealth.
To do that, I look very specifically at physical gold, preferably gold coins and silver, and assets outside the U.S. dollar. The currencies I like the best are the Swiss franc, the Australian dollar and the Canadian dollar. This is something you do for survival over the long haul because you're likely to see all sorts of volatility in the short term.
But once you ride through the storm, if you've been able to preserve your wealth and assets in terms of their purchasing power and to maintain liquidity—which the physical gold and the currencies will give you—you'll be in a position to take care of yourself and take advantage of some extraordinary investment opportunities that likely would flow out of the turmoil ahead.
In the interim, I wouldn't start betting that next week we're going to see the dollar do this or that. This is a long-term hedge strategy, an insurance policy against the hyperinflation that I view as inevitable due to the long-range insolvency of the U.S.
TGR: Is that long-range insolvency also inevitable?
JW: Severely slashing social programs such as Social Security and Medicare would be the only way it could be avoided. I don't have any problem per se with Social Security or Medicare, but you can't bring things into balance without addressing them. If you look at the U.S. annual deficit on a GAAP basis—generally accepted accounting principles—with accounting for the year-to-year change and the net present value of unfunded liabilities in Social Security, Medicare and such, you're seeing a federal deficit in excess of $5 trillion per year.
Putting that in perspective, if you wanted to raise taxes, you could take 100% of people's salaries and the government would still be in deficit. You could cut every penny of government spending, except for Social Security and Medicare, and you'd still be in deficit.
You can't escape the eventual hyperinflation if those programs are not addressed. Originally, I was looking for hyperinflation by the end of this decade. I've advanced it to 2014, and it may well come before that. I think we're already in the early stages of going through what has to happen for this to break.
TGR: But would politicians touch those entitlement programs in an election year?
JW: No one wants this, but the federal government and the Federal Reserve have backed us into a corner and there's no other way of escaping. There's no political will to address the long-range insolvency, so they kick the proverbial can down the road. They did that in 2008. They did everything they could to prevent a systemic collapse by creating, spending and guaranteeing whatever money they had to.
We're coming to another point where we face risk of systemic collapse, and we're likely going to see another round of quantitative easing (QE) as a result. That also could pull the trigger for massive dollar selling, moving us into much higher inflation. That will start the final process.
TGR: One of your recent newsletters showed that annual core inflation had risen for 12 straight months, ever since QE2. What would QE3 do to some of the indicators you watch—gold, silver, commodities?...finish reading from source
