Deflation Dragon Disaster

By Jennifer Bawden
November 25, 2008

So, Lets see if I understand this correctly.

Real estate prices just keep dropping lower and lower and loans become harder and harder to get.

The consumer’s balance sheets are upside down and more and more are defaulting on their debt every day. Everyone else is in a race to liquidate assets.

Yet, the dollar is much stronger against world currencies and will continue its climb as the world races to the safety of Tbills

The strong dollar hurts exports causing the ISM manufacturing exports index to fall of a cliff in October.

Meanwhile, global demand also followed over the same cliff.

So the Government and the Fed offer massive stimulus programs, the mother of all bailouts and the M1 has exploded in the past few months as the fed adds even more liquidity to fight deflation. (The M1 is a measure of the total money supply including transaction deposits and cash in circulation.)

The stock market keeps hitting lower lows and lower highs.

Yet, everybody is screaming that Mr. Market is as oversold as he’s ever been and is due for a big bounce here very soon. (Bear market rally here we come.)

Will the unprecedented inflow of cash that is being injected into the system be enough to still the deflation dragon? At what point will the unyielding upward trend in the dollar be stopped in its tracks by the avalanche of flat sisters and brothers joining the family daily?

When will the worlds governments, sovereign wealth funds and institutional investors decide its time to sell the dollar and buy gold?

Oh, but that’s the real question isn’t it?

Silver Wheaton (SLW:CN) is selling for $3.22 (the high was 19.30.)

Agnico Eagle (AEM:CN) is selling for $41.75 (the high was $82.80.)

Seabridge (SEA:CN) for $12.60 (the high was $23.29.)

For anyone else holding NovaGold, Ouch! What a disaster! Even gold mining companies need to borrow money for expansion and survival.

Nobody knows were and when Mr. Market will finally bottom but I feel it will be closer to 5400 then 7552. Perhaps the great explosion of our monetary supply will come quickly enough to stop the market from reaching my bear market target.

One thing I do know. Eventually, everything will rise with the deliberate great re-inflation tide of the US Peso. That is, until one day our great Uncle Sam drowns in his very own sea of debt taking the US dollar down with him. That is when you can be sure that gold and gold mining companies will soar.

Jen Bawden

Jen is a best-selling author and serial social entrepreneur passionate about disruptive technologies, with a decade of experience in Homeland Security technology solutions. She is also a contributing author at Seeking Alpha, a top financial news site, and a member of several think tanks including: The Aspen Institute, TED, The National Committee on American Foreign Policy, Renaissance Weekend, Summit Series, Task Force on National & Homeland Security, & Secure the Grid Coalition.