Even though multitudes of American investors have lost faith in Wall Street and our nation’s banking system, they can still show their patriotism by purchasing American gold bullion, as they convert their wealth into precious metal diversification. Traditional investments in stocks and bonds have had their overextended course of contrived prosperity, now it’s time to pay the piper. As we all prepare for the treacheries of an indeterminate inflationary period, many investors are claiming financial independence from our banks and brokers by diversifying with American gold bullion like Engelhard brand, one-ounce, and ten-ounce bars, and American gold bullion coins like 22-karat American Eagles, or 24-karat American Buffalos.

Engelhard 24-karat bars are manufactured in New Jersey, and make great items for personal possession, as well as short-term diversifications for rare coins like $20 Lady Liberty’s, or $20 Saint Gaudens, which are traditionally used for long-term stability. Bullion prices usually hover just above the current spot price, and investors can also use this affordability for long-term financial safety, as government approved, gold-backed IRA contributions. Rare coins are not permitted for precious metal IRA storage, but the aforementioned American Eagles, and Buffalo coins are permissible, along with proof, and “Ultra-High” proof versions of the modern American Eagle bullion coin. Investors may also wish to round off their budgets with fractional denominations of the $50 American Eagle, which include ½-ounce, ¼-ounce, and 1/10-ounce coins. These investors are encouraged to complete their research, and then to contact one of our friendly specialists, who offer institutional discounts on bullion, and rare coin.

Danny Burns

Read more….

Gold bullion value is the most fundamental assessment of physical, investment-grade gold worth, and also a strong economic indicator for current market trends. Gold bullion value is only slightly more than the current gold spot price, which is the cost of one Troy ounce of pure gold, and this price historically tends to rise during adverse economic conditions. More and more economic experts are finally agreeing that our present economic status is sub-standard, and still declining. Our U.S. dollar is braving the slings and arrows of international disapproval, and American citizens are desperate for some hard-nosed leadership. While our Administration heads back to the drawing board, projections for gold bullion value are bullish. Pragmatic investors everywhere are liquidating their stocks and bonds, and fortifying their portfolios with precious metals like gold bullion bars and coins.

Bullion bars are traditionally used to capitalize on potential short-term gains, as liquid diversifications for long-term, rare coin investments, or as government-approved, gold backed IRA contributions. Purity is everything in bullion bar investment, so buyers are advised to purchase reputable brand names for their bullion bars, which include Engelhard, PAMP Suisse, Credit Suisse, and Johnson Matthey. Bullion coins are only slightly more costly than bars, and investors can use coins like 22-Karat American Eagles and 24-Karat Canadian Maple Leafs for all of the same purposes as bullion bars. Investors can avoid paying eye-gouging retail prices for their bullion by contacting one of our friendly specialists, who offer institutional discounts on bullion, and rare coin.

Danny Burns

Read more….

The Daily Reckoning

“Who goes borrowing, goes sorrowing.”

– Ben Franklin

Today’s reckoning is going to be short. We’re on the road again…this time to Ireland where our Family office is headquartered.

The quote above comes from one of America’s founding fathers. But it was recalled to us neither by America’s president, nor America’s secretary of the Treasury, nor by America’s top banker. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.”

The Telegraph reports:

“Cheng Siwei, former vice-chairman of the Standing Committee…said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than – $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

The Chinese now have the wind at their backs. Having done the stupidest things a nation can do – for a period of about half a century – the Chinese are getting smart. They’re discovering the wisdom Americans have forgotten.

“A penny saved is a penny earned,” is another of Franklin’s quips. In China it is practically the national motto. The Chinese save 25% to 40% of their income.

And now, with their $2 trillion in national savings, they’re going on a buying spree. But unlike Americans in the Bubble Epoque, the Chinese aren’t buying cheap consumer goods. They’re buying real assets…raw materials…and key supplies of essential resources, such as rare metals.

Ultimately, gold is money…it’s a way to store wealth over the long term.

Just ask Terry Herbert. The man spent his time with a metal detector, looking for treasure in England’s green and golden fields. He’d been looking for years, but when he finally found something important it “brought tears to my eyes,” he says.

What Mr. Herbert found was perhaps the greatest discovery of buried treasure in English history – 1,500 different artifacts of gold and silver…dagger hilts, crosses, helmet cheek pieces and other items of war booty from the Anglo-Saxon period, about 1,400 years ago.

Had Mr. Herbert stumbled upon some IOUs from a Saxon chieftain, it would have been a remarkable discovery. Its historical value might have been inestimable. But what he found weighed in at 11 pounds of gold. In addition to the value to museums and historians, it has monetary value. Even if you melted it down, erasing all trace of its history and provenance, it would still be worth about $160,000 at today’s price – probably about as much as it was when the Saxons stole it.

Gold’s “price has been remarkably similar for centuries at a time,” wrote Roy W. Jastram in his 1977 book, The Golden Constant. “Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century.”

Gold outlives paper money, empires, governments…all of us and all our institutions.

The Chinese have metal detectors too. And they know there’s not much real value behind the dollar.

“The dollar is finished,” says historian Niall Ferguson. The Chinese are dumping it, he says.

Ferguson speaks for the popular intelligentsia. His ideas reflect those of fund managers, hedge fund operators, bankers, politicians and speculators. They’re all convinced that the dollar is doomed.

The Financial Times elaborates:

“The financial crisis vividly taught investors the importance of tail risk, a massive one-off event that can crush the value of portfolios. As the dust settles, fear of another ‘tail’ to sting portfolios is uppermost in the minds of many investors and money managers.”

Oh, Mr. Market…where’s thy sting? It’s inflation, they believe.

It’s the risk “that the huge liquidity injections being made by central banks could spark a surge in either inflation and/or long-term interest rates beyond 2012,” continues the FT.

“Inflation is the single biggest topic for discussion among our clients,” says a private banker.

What’s remarkable about inflation is that there is so little of it. It makes us think this story may have a twist.

Until tomorrow,

Bill Bonner
The Daily Reckoning

The Golden Road Out of Financial Crisis originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets.

More articles from The Daily Reckoning….

It’s becoming painfully evident to more and more investors that resisting an economic trend is like trying to sweep back the ocean with a broom, and these investors are liquidating their paper assets in stocks and bonds, and converting that wealth into a gold bullion investment. You may notice that fewer and fewer so-called “economic experts” are claiming that the stock market is showing indications of recovery, or that unemployment figures look promising, or that the housing problem is under control. Just ask these experts where they’re protecting their money. If only we could.

There are those who subscribe to the real estate philosophy, but there are glaciers that move faster than the housing market in terms of appreciation. Still others acquire works of art, or fine wine as long-term investments, and I don’t think that those people are very forthcoming about how they handle their finances. Hence the cliché, “How do you think they got so rich?”

Meanwhile, there are investors who are witnessing the benefits of gold bullion investment first hand, as the gold spot price continues to rebound to near record, or record highs, and after only minimal periods of profit taking. Bullion has been the traditional vehicle for short-term profit gains, and gold’s recent return to the global investment spotlight looks to be just the beginning of a long-term economic trend. Gold bullion investment could also be the ideal long-term move for a great many investors, especially for those who cannot afford the high premiums that rare coins command. Prospective investors who are considering a gold-backed IRA are encouraged to complete their research, and then to contact one of our friendly specialists, who offer institutional discounts on bullion bars and coins.

Danny Burns

Read more….

Everyone got a good hard look at precious metals investment in action over the last two weeks, as gold repeatedly surpassed it’s all-time high on consecutive days. Now that gold prices have retreated to $1055 levels, more investors are considering an investment in gold bullion coin. Bullion coins like the modern, 22-Karat, American Eagle $50 gold coins are only slightly more costly than the current spot price of gold, and the U.S. government backs their weight, and precious metal content, which is one full Troy ounce of pure gold. Since American Eagle gold bullion coin possess no numismatic value like rare coins do, they are widely used to capitalize on potential short-term gains, as diversifications for far more costly rare, certified coins, or as long-term, government approved, gold-backed IRA contributions.

Gold backed retirement accounts have recieved consistently growing consideration by baby-boomers in particular since 2007, as traditional IRA’s with holdings in stocks and bonds have lost $trillions since then. Rare coins aren’t permitted for IRA storage, and the aforementioned American Eagle gold bullion coin is the only 22-Karat coinage that is permitted. 24-Karat bullion bars are allowed in these IRAs, along with 24-Karat bullion coins like American Buffalos, Chinese Pandas, Austrian Philharmonics, Australian Kangaroos, Koalas, and Lunar coins, as well as Canadian Maple Leafs. All of these coins are also minted in smaller denominations like ½-ounce, ¼-ounce, and 1/10-ounces, to customize a wide range of budgets. Investors are encouraged to complete their research, and then to contact one of our friendly specialists, who offer institutional discounts on bullion, and rare coin.

Danny Burns

Read more….

Mark O’Byrne submits:

Gold
Gold is trading at $1.056.50/oz. In EUR and GBP terms, gold is trading at €706.82/oz and £655.25/oz respectively. Resistance currently lies at $1,064.10/oz and $1,070/oz with initial support at $1,048.60/oz and then $1,040.70/oz.

There continue to be very strong fundamentals driving the gold market. These fundamentals are driven by basic economics. There is a small finite supply of gold; while there is a very large and growing very significantly supply of government bonds as governments internationally print money and create public debt on a scale never seen before in history. In the battle between the huge supply of government debt versus the small finite supply of gold, there can be only one winner for the

Read more »

Popular gold bullion doesn’t carry the same connotations that popular people carried when we were in school, because in the investment world, today’s bottom line is safety. Likes and dislikes have very little to do with protecting dollar values, as more and more people are relinquishing their spot at the Wall Street lunch table for a more tranquil quiet lunch in the back of the library, researching popular gold bullion investments. Our current economic status is growing increasingly sub standard, and even the most diehard stocks and bonds investors are converting to precious metals to protect their wealth from depreciating dollar values. Popular gold bullion is bullion that can be liquidated without discrepancies over purity, and it is recommended that investors use popular brand names for their bullion bar purchases. Such reputable brand names include Engelhard, Johnson Matthey, Credit Suisse, and PAMP Suisse, for 24-Karat purity, and worldwide liquidity.

The most popular gold bullion coin in the world today is the 22-Karat, American Eagle, $50 modern bullion coin. American Eagles contain one full Troy ounce of pure gold, and the U.S. government backs them for weight and precious metal content. Various countries also issue bullion coinages, whose governments also back them for authenticity. South Africa manufactures the most affordable bullion coin in the world, as 22-Karat Krugerrands were the first modern bullion coin ever produced. For investors with a taste for 24-Karat bullion, there are American Buffalos, Austrian Philharmonics, Chinese Pandas, Canadian Maple Leafs, and Australian Kangaroos, Koalas, and Lunar coins. Investors can benefit from institutional savings on their bullion bars and coins by contacting one of our friendly specialists, who offer these discounts to household investors like you.

Danny Burns

Read more….

Bullion Vault

Rome’s long decline, now repeated by the United States…

WARREN BUFFETT famously says that people do not make money by betting against the US economy. But two years ago we decided to take a chance, writes Bill Bonner in his Daily Reckoning.

“We are short the United States of America,” we announced from the comfort and safety of our headquarters in London.

“Sell its stocks. Sell its bonds. Sell its money. Sell its real estate. Sell the equity. Sell the debt. Sell everything.”

What we saw was an over-stretched empire getting ready to snap. But we were also allowing ourselves to be lazy. Rather than deconstruct the capital structure of the world’s largest economy, we decided to sell the whole damned thing.

All hell broke loose in September 2008. Since then, US stocks have gone down about a third. Real estate too. Unemployment has doubled. Consumer prices are going down at the fastest rate since the ’50s. And the economy is in the worse recession since WWII.

Meanwhile, Americans’ per capita wealth has fallen from $172,000 in September from $212,000 two years earlier. And the UN reports that the quality of life in America has gone down too…from No.5 on its list in 2000, it fell to No.13 in 2007. No doubt it is below No.20 now.

Buffett has lost billions betting on the US economy while our Gold positions are handily up; gold was the most profitable major asset over the last ten years.

So you see, we were right; America was a sell two years ago.

Read more….

Oct. 12 (Bloomberg) — Central banks flush with record reserves are
increasingly snubbing dollars in favor of euros and yen, further
pressuring the greenback after its biggest two- quarter rout in almost
two decades.

Policy makers boosted foreign currency holdings
by $413 billion last quarter, the most since at least 2003, to $7.3
trillion, according to data compiled by Bloomberg. Nations reporting
currency breakdowns put 63 percent of the new cash into euros and yen
in April, May and June, the latest Barclays Capital data show. That’s
the highest percentage in any quarter with more than an $80 billion
increase.

World leaders are acting on threats to dump the
dollar while the Obama administration shows a willingness to tolerate a
weaker currency in an effort to boost exports and the economy as long
as it doesn’t drive away the nation’s creditors. The diversification
signals that the currency won’t rebound anytime soon after losing 10.3
percent on a trade-weighted basis the past six months, the biggest drop
since 1991.

“Global central banks are getting more serious
about diversification, whereas in the past they used to just talk about
it,” said Steven Englander, a former Federal Reserve researcher who is
now the chief U.S. currency strategist at Barclays in New York. “It
looks like they are really backing away from the dollar.”

Sliding Share

The dollar’s 37 percent share of new reserves fell from about a 63
percent average since 1999. Englander concluded in a report that the
trend “accelerated” in the third quarter. He said in an interview that
“for the next couple of months, the forces are still in place” for
continued diversification.

America’s currency has been under
siege as the Treasury sells a record amount of debt to finance a budget
deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.

Intercontinental Exchange Inc.’s Dollar Index, which tracks the
currency’s performance against the euro, yen, pound, Canadian dollar,
Swiss franc and Swedish krona, fell to 75.77 last week, the lowest
level since August 2008 and down from the high this year of 89.624 on
March 4. The index, at 76.104 today, is within six points of its record
low reached in March 2008.

Foreign companies and officials
are starting to say their economies are getting hurt because of the
dollar’s weakness.

Toyota’s ‘Pain’

Yukitoshi Funo, executive vice president of Toyota City, Japan-based
Toyota Motor Corp., the nation’s biggest automaker, called the yen’s
strength “painful.” Fabrice Bregier, chief operating officer of
Toulouse, France-based Airbus SAS, the world’s largest commercial
planemaker, said on Oct. 8 the euro’s 11 percent rise since April was
“challenging.”

The economies of both Japan and Europe depend
on exports that get more expensive whenever the greenback slumps.
European Central Bank President Jean-Claude Trichet said in Venice on
Oct. 8 that U.S. policy makers’ preference for a strong dollar is
“extremely important in the present circumstances.”

“Major
reserve-currency issuing countries should take into account and balance
the implications of their monetary policies for both their own
economies and the world economy with a view to upholding stability of
international financial markets,” China President Hu Jintao told the
Group of 20 leaders in Pittsburgh on Sept. 25, according to an English
translation of his prepared remarks. China is America’s largest
creditor.

Dollar’s Weighting

Developing countries have likely sold about $30 billion for euros, yen
and other currencies each month since March, according to strategists
at Bank of America-Merrill Lynch.

That helped reduce the
dollar’s weight at central banks that report currency holdings to 62.8
percent as of June 30, the lowest on record, the latest International
Monetary Fund data show. The quarter’s 2.2 percentage point decline was
the biggest since falling 2.5 percentage points to 69.1 percent in the
period ended June 30, 2002.

“The diversification out of the
dollar will accelerate,” said Fabrizio Fiorini, a money manager who
helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People
are buying the euro not because they want that currency, but because
they want to get rid of the dollar. In the long run, the U.S. will not
be the same powerful country that it once was.”

Central
banks’ moves away from the dollar are a temporary trend that will
reverse once the Fed starts raising interest rates from near zero,
according to Christoph Kind, who helps manage $20 billion as head of
asset allocation at Frankfurt Trust in Germany.

‘Flush’ With Dollars

“The world is currently flush with the U.S. dollar, which is available
at no cost,” Kind said. “If there’s a turnaround in U.S. monetary
policy, there will be a change of perception about the dollar as a
reserve currency. The diversification has more to do with reduction of
concentration risks rather than a dim view of the U.S. or its
currency.”

The median forecast in a Bloomberg survey of 54
economists is for the Fed to lift its target rate for overnight loans
between banks to 1.25 percent by the end of 2010. The European Central
Bank will boost its benchmark a half percentage point to 1.5 percent, a
separate poll shows.

America’s economy will grow 2.4 percent
in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in
Japan, median predictions show. Japan is seen keeping its rate at 0.1
percent through 2010.

Central bank diversification is helping
push the relative worth of the euro and the yen above what differences
in interest rates, cost of living and other data indicate they should
be. The euro is 16 percent more expensive than its fair value of $1.22,
according to economic models used by Credit Suisse Group AG. Morgan
Stanley says the yen is 10 percent overvalued.

Reminders of 1995

Sentiment toward the dollar reminds John Taylor, chairman of New
York-based FX Concepts Inc., the world’s largest currency hedge fund,
of the mid-1990s. That’s when the greenback tumbled to a post-World War
II low of 79.75 against the yen on April 19, 1995, on concern that the
Fed wasn’t raising rates fast enough to contain inflation. Like now,
speculation about central bank diversification and the demise of the
dollar’s primacy rose.

The currency then gained 26 percent
versus the yen and 25 percent against the deutsche mark in the
following two years as technology innovation increased U.S.
productivity and attracted foreign capital.

“People didn’t
like the dollar in 1995,” said Taylor, whose firm has $9 billion under
management. “That was very stupid and turned out to be wrong. Now, we
are getting to the point that people’s attitude toward the dollar
becomes ridiculously negative.”

Dollar Forecasts

The median estimate of more than 40 economists and strategists is for
the dollar to end the year little changed at $1.47 per euro, and
appreciate to 92 yen, from 89.97 today.

Englander at
London-based Barclays, the world’s third- largest foreign-exchange
trader, predicts the U.S. currency will weaken 3.3 percent against the
euro to $1.52 in three months. He advised in March, when the dollar
peaked this year, to sell the currency. Standard Chartered, the most
accurate dollar-euro forecaster in Bloomberg surveys for the six
quarters that ended June 30, sees the greenback declining to $1.55 by
year-end.

The dollar’s reduced share of new reserves is also
a reflection of U.S. assets’ lagging performance as the country
struggles to recover from the worst recession since World War II.

Lagging Behind

Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have
outperformed the Standard & Poor’s 500 Index of U.S. stocks, which
has gained 18.6 percent. That compares with 70.6 percent for Brazil’s
Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.

Treasuries have lost 2.4 percent, after reinvested interest, versus a
return of 27.4 percent in emerging economies’ dollar- denominated
bonds, Merrill Lynch & Co. indexes show.

The growth of
global reserves is accelerating, with Taiwan’s and South Korea’s, the
fifth- and sixth-largest in the world, rising 2.1 percent to $332.2
billion and 3.6 percent to $254.3 billion in September, the fastest
since May. The four biggest pools of reserves are held by China, Japan,
Russia and India.

China, which controlled $2.1 trillion in
foreign reserves as of June 30 and owns $800 billion of U.S. debt, is
among the countries that don’t report allocations.

“Unless
you think China does things significantly differently from others,” the
anti-dollar trend is unmistakable, Englander said.

Follow the Money

Englander’s conclusions are based on IMF data from central banks that
report their currency allocations, which account for 63 percent of
total global reserves. Barclays adjusted the IMF data for changes in
exchange rates after the reserves were amassed to get an accurate
snapshot of allocations at the time they were acquired.

Investors can make money by following central banks’ moves, according
to Barclays, which created a trading model that flashes signals to buy
or sell the dollar based on global reserve shifts and other variables.
Each trade triggered by the system has average returns of more than 1
percent.

Bill Gross, who runs the $186 billion Pimco Total
Return Fund, the world’s largest bond fund, said in June that dollar
investors should diversify before central banks do the same on concern
that the U.S.’s budget deficit will deepen.

“The world is
changing, and the dollar is losing its status,” said Aletti Gestielle’s
Fiorini. “If you have a 5- year or 10-year view about the dollar, it
should be for a weaker currency.”

Read more….

The Daily Reckoning

“It was at Rome, on the 15th of October, 1764, as I sat musing amidst the ruins of the Capitol, while the barefooted friars were singing vespers in the Temple of Jupiter, that the idea of writing the decline and fall of the city first started to my mind.”
– Edward Gibbon

Warren Buffett famously says that people do not make money by betting against the US economy. But two years ago we decided to take a chance.

“We are short the United States of America,” we announced from the comfort and safety of our headquarters in London. “Sell its stocks. Sell its bonds. Sell its money. Sell its real estate. Sell the equity. Sell the debt. Sell everything.”

What we saw was an over-stretched empire getting ready to snap. But we were also allowing ourselves to be lazy. Rather than deconstruct the capital structure of the world’s largest economy, we decided to sell the whole damned thing.

All Hell broke loose in September 2008. Since then, US stocks have gone down about a third. Real estate too. Unemployment has doubled. Consumer prices are going down at the fastest rate since the ’50s. And the economy is in the worse recession since WWII.

Meanwhile, Americans’ per capita wealth has fallen from $172,000 in September from $212,000 two years earlier. And the UN reports that the quality of life in America has gone down too…from #5 on its list in 2000, it fell to #13 in 2007. No doubt it is below #20 now.

Buffett has lost billions betting on the US economy while our gold positions are handily up; gold was the most profitable major asset over the last ten years.

So you see, we were right; America was a sell two years ago.

And now it is the dollar that is falling. It’s gone down 12% in the last six months – a huge move for a major currency.

“Asia tries to slow dollar fall,” is the lead story in today’s Financial Times.

Today, a buck and forty-seven cents will buy you only 1 euro. Ten years ago, you could have gotten a euro for less than a single dollar. A falling dollar makes imports more expensive, say analysts…raising the cost of living in the homeland. But you wouldn’t know it from walking around on the streets of Miami or Las Vegas. You can get a house at 50% off its price three years ago. As for the breakfast special – for less than 3 euros you can get enough food to kill a Pakistani.

By European standards, America is cheap.

“Europeans again interested in Florida houses,” says a headline in The New York Times.

House prices are down 30% to 50%. The dollar is down about a third too. That makes the United States a bargain.

But is the United States of America about to become even cheaper?

One thing we were wrong about when we issued our ‘sell America’ call two years ago was US debt. Treasury bonds have resisted the general downward trend of things with the stars and stripes on them. Bonds have not gone down; they’ve gone up.

Private households are buying them for their retirements. Banks are buying them for risk-free profits. Speculators are buying them in anticipation of deflation.

David Rosenberg:

“The big story yesterday was the further massive $12 billion decline in outstanding consumer debt in August – the consensus was looking for an $8 billion contraction. This was the seventh month of debt retrenchment in a row. In other words, the tidal wave of the credit collapse continues unabated, and this is the primary reason why bond yields are still in a fundamental downtrend.

“Over the past year, consumers have run down their debt by a record $113 billion (and this does not include mortgages). This is an absolutely epic shift in household attitudes towards credit and discretionary spending.”

Americans are saving. And they’re buying US Treasury bonds. (More below…) But how safe is their money? Is it a good idea to buy US debt now?

On Wednesday, Latvia tried to raise a trivial amount of money. It offered $17 million worth of 6-month bonds. How likely is it that Latvia will default before Easter? We don’t know, but investors judged it not worth the risk. Not only did the bond auction failed, it failed with no bids.

That’s what happens when lenders lose faith in a government. They refuse to lend it money – except at high rates of interest. But the high rates of interest work like a noose on the neck of a cattle rustler. They block the vital flow of oxygen – not to mention breaking his neck.

Note that the US federal government is still functioning like an empire at the peak of its power. The Pentagon is still rustling up trouble all over the world – at a cost of trillions. US government employees are growing more numerous and richer – with twice the annual incomes of the private sector. And the Obama Administration – apparently unaware that the total unfunded debts and obligations of the federal government have soared to nearly $120 trillion – is considering new ways to get rid of cash.

Remarkably, investors still lend the US government money – asking only 4% annual yield on a 30-year loan. As for 91-day money, they practically give that to the feds for free; it sports only a yield of 0.066%.

This will surely be a point of puzzlement for the financial historian of the next century. It is certainly a point of puzzlement for us.

Yesterday, gold hit a new record at $1057. Doesn’t gold go up when inflation rates rise? And don’t bonds go down when inflation goes up?

So why are people buying bonds with such puny yields?

There is a lot of whispering in this market. Gold is trying to tell us something. Bonds are trying to tell us something. The dollar seems to have something on its mind too. Stocks are just babbling.

If gold is trying to signal that inflation is coming, the bond market is not paying attention. Bonds seem to be saying that it is deflation we should be worried about; but the stock market doesn’t seem to hear.

And there’s the dollar. The greenback is in the same choir with stocks and gold, as near as we can tell. They all seem to be chanting about inflation coming back.

But what if they’re all wrong?

Just look at what is going on in Washington, if you can bear it.

The feds have a budget that anticipates inflation and growth. Spending is supposed to remain flat until 2013. Tax receipts, which are no higher today than they were 10 years ago, are supposed to rise, gradually filling in the Grand Canyon of deficits. The number crunchers think we’re headed back to the Reagan years – when the tough-love policies of the Volcker Fed squeezed out inflation and created a real boom. Then, tax revenues rose 9% per year between 1984 and 1989.

How likely is that today? Not very. Instead, what is likely to unfold is a deflation story. Instead of staying flat, federal expenses are likely to rise as one failed stimulus gives way to another failed stimulus. Then, instead of going up, tax revenues will go down…digging an even grander canyon between out-go and income.

Then, or long before, there will be a panic out of bonds, the dollar, stocks – practically everything. Everything goes down!

At this point, the US will be in about the same situation as the Roman Empire as it approached retirement. Expenses kept rising. Rome had to pay the Blackwater-type military contractors of the era…in addition to keeping Roman mobs supplied with food stamps and unemployment benefits…while its tax base fell. Gradually, the empire lost the ability to defend itself.

When Edward Gibbon began his history of Rome’s decline and fall, Roman real estate had probably been in a bear market for at least 1300 years. Rome’s population fell from over a million to under 20,000. Politically, Italy had broken apart more than 1,000 years before Gibbon was born, and it wouldn’t be put back together again until nearly 100 years after he was dead.

It’s far too early to write the story of America’s decline and fall. That job will fall to some future historian, perhaps seated on the ruins of the Lincoln Memorial, wondering how people made such a mess of things.

Our guess is that he will come to the same conclusion we have: Stocks? Bonds? The dollar? Investors should have sold them all!

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

A Deflation Story

More articles from The Daily Reckoning….