Excellent piece. I would also add

15. Read some Ben Graham (or at least Jason Zweig channeling him):
"Could things possibly get worse? I don't know, but I am an optimist -- so I certainly hope things do get worse. Nothing else should satisfy an intelligent investor."
http://online.wsj.com/article/SB121582067258747665.html

-Gunnar

> Heady stuff! The essential problem is that the US economy, and/or the government, and/or the Americans, has overspent.

Right, which means over borrowing. The amount is worse than this chart shows:
http://goldprice.org/bob/uploaded_images/debtchart-jan042003-b-794623.jpg

> The old story is the inflation one: too many dollars washing around causes too much investment, and then a little inflation, and a little more and a little more and a lot more ... until the government decides to put the brakes on

This time they can't put the brakes on or the combination of the Treasury/Fed will break the system earlier rather than later. In the '70s, they knew they wouldn't actually break the system. ["They stab it with their steely knives, but they just couldn't kill the beast" - Hotel California, The Eagles] This time their choices are crash the economy or crash the dollar. For a dollar (dollar A) to be created, a dollar's worth of debt has to be accepted first. Now, in the system, there are not enough cents to pay the interest on that debt. So, now somebody has to be convinced to take on more debt in order for more cents to be created so that there will be enough cents to pay the interest of that last dollar (dollar A) worth of debt. In other words, in this current system since 1971, there has to be a rate of M3 supply that increases at an increasing rate just to keep the system functioning. Well, at some point the system simply can't take on more debt. That's when things start breaking. After enough reckage, a new system developes.

I hear that the supply of this stuff, Desperation, has run out, can't be bought at any price:
http://goldprice.org/bob/uploaded_images/Cologne-713869.jpg

> Except: supposedly with the death of Keynes and the rise of the Austrians and the new enlightened central banking age, we were supposed to be passed all that. What went wrong? That is what is flumoxing the fundamentalists amongst us. What we know is that we've never been here

Right. Up to 1971 there never has been a situation in the world where there was no safe currency to flee to. Although there is still money (that which has no liability attached to it) to flee to. A currency being a note redeemable in something like gold, silver, packs of cigaretts, your services, etc. Oh boy!, have they cooked the goose this time. Best that you don't open the oven door. Just throw the oven out with the goose.

100 year logrithmic chart of gold:
http://goldprice.org/bob/uploaded_images/Cologne-713869.jpg

200 year purchasing power chart of the dollar:
http://goldprice.org/bob/uploaded_images/dollar_USD_Purchasing_Power-753629.gif

200 year CP Index chart:
http://goldprice.org/bob/uploaded_images/cpi1800-747132.jpg
Notice on the chart where 1913 is which is the start of not only the Fed, but the latest income tax in the US.

'nother CP Index chart:
http://goldprice.org/bob/uploaded_images/cpi-1800-740709.gif

Where are we in this cycle?
http://goldprice.org/bob/uploaded_images/economic_cycle-720776.png

This guy could actually be living in poverty:
http://goldprice.org/bob/uploaded_images/ZimbabweMoneyGuy-733276.jpg

Interesting charts:
http://goldprice.org/bob/2008/04/gold-tidbits.html

> 9. However, as the dollar was the trading currency of the world, things were decidedly not equal. By fiat of Bretton Woods, as it were. Monetary policy has never really considered wholesale redemptions by the world's customers, so it was an open question as to what would happen. In this case, those wiley Europeans, those cunning Chinese, those devilish Japanese, and even the happy go lucky Aussies ... all decided to *help the Fed*. And, help in this case, turned out to be letting their currencies go down as well.

Yup. http://goldprice.org/bob/uploaded_images/global-money-supply-760368.png

> .... the monetary authorities and the governments got it all wrong.

From the citizen unit's point of view, or their point of view? This could very well have been the plan, man. Think of the wealth tranfers going on. You don't engineer fortunes over night. Even organized crime can be disciplined and take one step at a time.

> Here we are, staring at recession. It's hard to recommend what to do, but it should be to reduce dependency on the US dollar, anyway you can. Whatever you have in mind, do it quickly.

By now you should
1. be your own banker
2. be your own central banker
3. have eliminated as many financial institutions between you and your wealth as much as possible
have already pulled the 'ol back to basics trick.

"Send lawyers, guns and money. The sh*t has hit the fan." - Warren Zevon

More upbeat:
Shirley Bassey singing Goldfinger
http://goldprice.org/bob/2007/12/goldfinger.html

Great analysis. I just did my own and you can see that article for more details at my blog.

Do these goldbugs really believe all that nonsense they spew? Seems pretty obvious to me that when they figure it's time to sell their gold, they're trying to convince suckers to buy.

Gold is a pretty small fraction of the economy and of society's wealth in general. Mostly it sits in vaults, except for a small fraction that is used for jewelry, electronics, etc. It costs money to store and secure gold and its value fluctuates wildly over the years, but, unlike the stock market, does not tend to increase in the long run.

And who would expect it to beat inflation? It's sitting in a vault, costing money to store, not out there in the economy creating additional wealth. And all this doom and gloom about a recession to convince people to BUY GOLD NOW!!!

Most people are still making money despite any "recession." 95+% have jobs. They go to work, draw a paycheck, feed their kids. Gold isn't going to help anybody support him/herself or feed a family. It's not even an appropriate investment for retirement.