Simple Equation Explains Long-term Effect of Money Printing

The U.S. Labor Department reported yesterday that the Producer Price Index (a measure of wholesale prices) rose by 0.3% in November, an annualized rate of 3.6%. The Labor Department also reported that Import Prices rose 0.7% in November, an annualized rate of 8.4%!

The numbers being released confirm my fears about rapid inflation ahead. If you think the rally in gold bullion is over, look at the inflation numbers coming from the Labor Department and you can’t but help rethink your opinion.

Government debt gone made, a central bank buying U.S. Treasuries, and an unprecedented expansion of the money supply, we can’t escape rapid inflation!

The only place deflation is happening is in the housing market!

Yesterday, the standard 30-yearU.S.mortgage rate fell to 3.94% (Source: Freddie Mac). You can get a home mortgage in theU.S.at the lowest interest rate since 1971, just before the energy crisis hit.

But hold on a minute. Won’t rapid inflation eventually lead to higher interest rates? Yes is the answer to this question. And won’t that mean mortgage rates will rise, further punishing theU.S. housing market? Yes is the answer to that question, too.

Two trillion dollars: that’s how much the Fed has increased its balance sheet by buying securities. And where did the two trillion dollars come from? It was created. My final question for you, dear reader: how can you create two trillion dollars, on top of the five trillion the Obama administration has expanded its debt, and have rapid inflation not become a problem?

Here is the simple formula: rising government debt plus lots of money printing = rapid inflation, which = higher interest rates, which = higher gold bullion prices, which = higher prices for quality gold mining stocks.

Michael’s Personal Notes:

Happy to see someone’s buying stock…

The year 2011 has been a difficult year for the stock market considering how well stocks performed in 2009 and 2010. Looking at the stock market and all the negative news we hear about the economy and the eurozone, it sounds like investors are avoiding the market. Wrong.

Appetite for stocks in the last quarter of this year has been exceptionally strong for IPOs with a good story. Consider these new IPOs:

Zynga Inc., the biggest maker of games for the web site Facebook, will raise about $1.0 billion in it initial pubic offering today, making it one of the hottest of this week’s IPOs. This offering values Zynga at $7.0 billion, almost seven times revenue.

Michael Kors Holdings Limited (NYSE/KORS) jumped 21% yesterday on its first …

76 thoughts on “Simple Equation Explains Long-term Effect of Money Printing

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