2013-10-16

Will it be inflation after all? Is the Tea Party finished?

I have been in the deflationist camp, but the one path I saw to inflation was via out of control government spending. If they can run the deficit back up over $1 trillion or even above $2 trillion (which is what is needed to kill deflation) then it is another story. The main issue in all of this is whether the Tea Party is finished or not, but the deal is definitely a total loss for them. Ironically, not winning here probably will help them in the election because they would have been blamed for any negative outcomes of spending restraint.

Deflation isn't dead, but it requires at least a roadblock in Washington. It is clear from the rhetoric and proposed spending that President Obama and the Democrats are in the camp that believes low interest rates show the market is not concerned about debt levels.

Based on the technicals, gold can still go lower, perhaps as far as $900, though the next stop is somewhere in the $1100 range. Still, buying some periodically is the best approach. If the deficit starts moving higher and the Tea Party is really spent as a political force (something that may be unresolved until the 2014 elections) then it may be the last chance to load up on gold, gold mining shares, and/or move assets out of the United States. At the very least, it will move the date of the final crisis up on the calendar.

No comments:

Post a Comment