The Great Credit Contraction

I believe stocks are heading much, much lower. I say that because I still believe a continued deflation of our credit markets is most likely. As politicians and bankers continue to print money and debase the dollar, that is not to say that some items, including commodities, might not get stronger over time.

But in general, I see a deflationary depression more likely than a hyperinflationary event. In fact, I think a deflation is far better than a hyperinflationary event because in hyperinflation everyone gets hurt badly, including those people who lived within their means and saved their money. Everyone is destroyed in a hyperinflation, although in theory those who hold gold should come out relatively well, assuming civil order allows one to retain possession of any of his holdings.

I should make one correction to your statement regarding deflation, however. In a true deflation, the currency actually gets stronger, such that paper money is the most liquid and sought-after medium of exchange, next to gold, when the credit system deflates. Trace Mayer, who was on my show at Voice America, which you can access via miningstocks.com, has revised John Exter’s inverted pyramid to update the items in the markets to fit modern times. Note that the bottom item, which is the most sought-after when the system implodes, is “Power Money,” which Trace defines as gold and silver. Power currency is Federal Reserve notes, or paper money, that we carry around in our pockets. As the system gets ready for another implosion, you will want to have gotten out of items at the top of the pyramid and turned them into the most liquid items you can find that are at the bottom of the inverted triangle.

Regarding “building a bunker,” please don’t apologize for doing what you are doing to plan ahead for a catastrophic event. If you wait until it happens, it will be too late to be prepared. On my radio program last week I had a brilliant lady and friend of mine, [Name requested to be removed], speak about her company, All-In-One-Preparedness. Suzanne has gathered basic life support products under one roof and from what I can tell they are very reasonably priced. Go to  AllInOnePreparedness.com for more information, and also listen to my discussion with Suzanne on the archived editions of my show at VoiceAmerica.Com.

Jay Taylor
Gold Investor