Lear Capital asks Which Comes First - Deflation, Inflation or Rising gold

In a recent Lear Capital Special Report, titled Your Peek at Today's New Normal, Kevin DeMeritt tells us of $1 quadrillion worth of worldwide derivatives - let's call it debt.Lorimer Wilson in his latest article adds, "that's 20 times larger than the entire global economy."

Both writers bring us to similar conclusions.This enormous debt will someday implode and cause a series of defaults globally.When that happens, currencies will become worthless and the need for real money will be stronger than ever.Real money being precious metals.

The question remains, will this debt implosion (deflation) come after high inflation or before?As one perpetually follows the other each appears to come to the conclusion that it does not matter.In either case the value of a defaulting country's currency heads to zero.

Here's Kevin DeMeritt's comment on inflation.

"With all these dollars getting thrown around like so much confetti, what’s the prospect for inflation?High, that’s what.Think about it. With the dollar no longer formally backed by gold (since 1971), the only thing supporting its value is the “full faith and credit of the U.S. government.”

Other than that, the dollar is just some fancy paper with some fancy printing on it.
Bush and Obama’s trillions mean more weakened dollars than ever will be chasing the world’s goods. And that’s a formula for hyperinflation.

“The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run,” according to Wikipedia.

AMAZING HYPERINFLATION STORIES

The classic example is, of course, the German hyperinflation of 1923.Back then the dollar was strong, and the German mark was pegged at nine (marks) to one (dollar) coming off World War I (1918).

A couple years later, in 1923, as German hyperinflationreached its peak, one dollar was worth 4.2 trillion marks! Which tends to lend credibility to the following
story:

“The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin
bank with the cook as beneficiary, the bank to administer and invest the dollar.” (from an article on MarketSkeptics.com).

Hyperinflation can certainly do crazy things to money. Like this:

“My father was a lawyer,” says Walter Levy, an internationally known German-born oil consultant in New York, “and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread.”

Yikes.

Now let's delve into deflation.Citing content from a speech by Jeff Nielson of BullionBullsCanada.com, Wilson writes:

Nielson believes the circumstances surrounding a potential deflationary collapse are unique this time round in that we are not talking about a “recession” or even a “depression” but, instead, about entire nations effectively going bankrupt and defaulting on their massive debts claiming that “with none of the world’s currencies backed by anything, paper “money” is now essentially nothing but the unsecured IOUs of the governments issuing those currencies. As such, he postulated that:

1. were such governments to default then billions (trillions?) of dollars of government bonds would have very “questionable” value – if not become totally worthless

2. were government bonds to become worthless, then the paper currencies of those governments would also become worthless

3. were government bonds to become worthless, then the government would have no ability to borrow any money to fund government spending – and would have no choice but to simply print unlimited amounts of un-backed paper money that would be nothing more than unsecured IOUs. Nielson conclude the aforementioned with the question: “What is the value of an IOU from a debtor who has already defaulted on his debts? The answer is: zero.”

Either way the consensus is, both inflation and deflation are currency destructive. This is not a concept foreign to our readers.The need for real money, has never been stronger.And what is real money?Precious metals.

With over $1 quadrillion of global debt lurking, a day of reckoning approaches.Think of it this way.If mounting debt never created the threat of default, then our problems would be over.All we would need do is print more of our world class currency, enough to settle current debt and stimulate the world economy at the same time.

However, such is not the case.And if we believe the experts cited here today, it does not matter.Either way gold benefits which likely explains why current worldwide gold demand is rising.For a copy of Lear Capital's Special Report A Peek at Today's New Normal, visit LearCapital.com to request your free Gold Investor Kit and special reports.