Bernanke's plan: Stopping massive deflation with massive inflation and hope it all comes out in the wash

Grocery prices are soaring. Gas prices are soaring. Hell, most prices are soaring. Thank you Helicopter Ben.

But about the only thing that ISN'T soaring is the price of homes. In the middle of this rampant (consumables) inflation and dollar destruction, you have historic (asset price) deflation. Just as most HP'ers have predicted.

Eventually though, home prices will stop falling. Probably quite some time from now, when the historic housing P/E ratio is restored, confidence is somewhat restored, pre-bubble prices are back, and it's cheaper to 'own' than rent.

And when that happens, and home prices stop falling or god forbid start going up, the NAR and the few realtors who are left will start saying "home prices stable!". But when you factor in the wild inflation underway (the real inflation, not the government-reported inflation), real home prices will still be in freefall, and the crash will have been much worse than people think, and the combination of flat incomes, job losses and rising consumable and service prices will be devastating.

Here's a new editorial on the inflation solution, which is well underway I believe. Meanwhile, got gold? Got food?

The Inflation Solution to the Housing Mess

The policy alternatives in the post-housing-bubble world are painfully unpleasant. In my view, the least bad option is for the Federal Reserve to print money to help stabilize housing prices and financial markets.

Yes, use reflation to soften the pain for Main Street and Wall Street. If instead we let housing prices fall another 25%-30% – as predicted by the Case-Shiller Home Price Index – it's almost certain that Washington will end up nationalizing the mortgage business.

While there is a substantial risk that inflation may rise for a time – this would be the policy goal – monetization is more easily reversible than nationalization of the mortgage market.

Gold cracks $1000. What comes next: $500, or $2000?

Remember when people were mocking HP'ers for talking about gold when it was at $500?

Same people are probably still not getting it with gold at $1000

Here's the best I can sum this up: It's not about gold. It's about the dollar.

Oil, corn, wheat, soybeans, silver, aluminum, gold... It really doesn't matter. What matters is that the dollar is being turned into toilet paper on purpose by Ben Bernanke, Hank Paulson and George Bush.

Invest wisely. Gold is a historically crappy investment, but has always been and will always be the #1 store of value when fiat currencies go bust.

You ain't seen nothing yet. But oh, what a wild ride it will be (up and down).

With no safe place left to store wealth, some are now saying we have a US Treasury Bill Bubble. Man, these are bizarre times indeed.

You have t-bill yields falling to near record lows again as investors rush to the "safety" of US government debt (that alone is kinda funny, considering we're bankrupt), with investors apparently thinking deflation and depression are coming and are happy to earn essentially a negative interest rate on their cash.

Then at the same time you have investors bidding up gold to multi-decade highs, apparently fearing that the dollar is being debased and inflation is about to rage out of control. With a sprinkling of flight-to-safety store-of-wealth as well.

SO WHAT THE HELL IS GOING ON OUT THERE?

Well, one thing is that people are scared and trying to find a place to keep their wealth. And the second big thing is investors placing bets, very different bets, on the Inflation/Deflation thing.

If t-bills are in a bubble that could suddenly unwind, and gold is an asset that can be suddenly sold off to raise cash, and both are paying essentially no interest, that does lead us back to one thing, one sentence, one time-tested piece of advice:

Cash is King.

That said, I am using some cash now to buy very selected and targeted non-REIC buy-and-hold stocks that I see as unwisely and temporarily beaten down. CEOs and insiders were net buyers of stocks last month for the first time since 1995, and short levels are the highest since 1931, if that gives you some guidance as contrarians.

But keep these three words in your mind as it all continues to fall apart:

Cash is King.

Bubble Trouble: Could the Treasury Market Be Due for a Rapid Price Deflation?

Investors' raging demand for safe assets over the past six months may have created a bubble in the Treasury market -- and some onlookers expect to hear a bursting sound any minute now.

Insider Buys Exceed Sales, Signaling Market Bottom

The last seven times insiders bought more than they sold, between 1988 and 1995, the Standard & Poor's 500 Index rallied an average 21 percent in the following 12 months

While executives step up buying, short sellers are betting against U.S. companies like never before. The amount of short selling -- when traders sell borrowed shares expecting to buy them back after prices fall -- grew to 3.7 percent of the total shares on the NYSE last month, the highest since at least 1931.

National median home prices down 33% in the past 12 months in gold terms as the dollar destructs

Looks like some of you are struggling with the concept of inflation, money supply and hyperinflation, figuring "it can't happen here". Especially some who think you can't have inflation unless wages are rising. 100% incorrect. The two are not linked. Whereas inflation and money supply are.

Meanwhile, for hints of our currency destruction and seeds of hyperinflation, gold is at $800 and oil is at $100, and a burger in a pub over here is $22. Gee, weren't those three things a bit cheaper just a bit ago?

So remember, housing prices in America have crashed, are crashing and will continue to crash for years to come. Real house prices that is. That fact is not disputed - it's how you keep score that's the challenge.

When lying realtors on commission, the deceptive monkeys at the NAR, the lazy MSM and the clueless Bush Administration trumpet that home prices are only down single digits, and when they fall again next year another 5% to 10%, don't forget you have to do your own math.

Unfortunately, you won't be able to use the "official" inflation reading, especially the "core" inflation number that doesn't factor in food or energy. Nope, you'll have to do your own hyperinflation tracking and math. And for the truest measure, adjust home prices against the price of gold, the only true currency (gold-weighted home prices are down 33% this year already - see yesterday's post).

The very fact that home prices are falling in an inflationary period show you how bad the crash truly is.

Here's more on hyperinflation. Start giving this some more thought HP'ers. You'll be glad you did.

In economics, hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 20 or 30% or more. In informal usage the term is often applied to much lower rates.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle.

Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Gold - Whadda ya think?

Gold meltdown as investors sell all asset classes in a classic rush to cash and liquidity?

Gold surge as dollar melts down, markets tumble and investors rush to a safe haven?

Gold as electronic currency as baseless world funny-money loses credibility?

Gold as a hedge against inflation as too much money chases too few goods?

What's your take today on gold?

(Note - I don't own the yellow stuff, waiting to buy at my target price, but I do own gold miners)

Free gram of gold at Bullion Vault

Who says HP never gave you anything?

Bullion Vault, a partner I've used on HP for over a year to track live gold prices, is giving anyone who opens a free account a free gram of gold. I think that's like $15 or $20 at today's nearly $700 / oz gold price.

Hey, it's a start...

Interesting thing about Bullion Vault is you actually take possession of physical gold, stored at their facility (here in London, or Zurich or NYC) in your name. I have $$$ in the gold ETF "GLD" but I know many gold-bug HP'ers think that's a bit risky, since you don't have the physical stuff. Your thoughts on Bullion Vault, or any other ideas on easily and safely taking possession of the shiny stuff?

Enjoy your free gold...