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Is the Great Inflation Upon Us?

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For as long as I can remember—at least 40 years—people have been warning about the dire effects of federal spending and the national debt. I can remember my father and uncles sitting around discussing these things. Among conservative pundits and economists, the predictions (again, for 40 years) have been that inevitably out-of-control government spending would result in sharp inflation, even, perhaps, hyperinflation.

With one exception (the period 1970-1980, largely due to energy price increases), these predictions have proven wrong. They have proven wrong so much that hyperinflation has taken on a Second Coming aspect—expected by many, so far seen by none.

At long last, may that be changing? There have always been canaries in the coal mine of inflation, most notable prices in commodities such as gold, silver, copper, oil, gas, and most critically, labor. If you had bet on gold from 1980 to 2010, you would have bet on a loser. Gold moved up a little (standing today at around $1700 per ounce). Of more interest is the fact that in the last five years, gold jumped $575, and over the last 20 years, $1500. Starting in 1971 when President Richard Nixon ended the fixed exchange gold standard put in place by the Bretton Woods Agreement in 1944, gold sat around $40 an ounce. Four years later, Americans were allowed to privately own gold for the first time since the New Deal and the price rose to just under $200 an ounce. (Somewhere in there, yours truly bought gold for under $200 an ounce and sold for $450 by the late 1970s).

The change in the law allowing private citizens to own gold came as the U.S. was entering its only serious inflationary binge since “Horsemeat Harry” Truman’s post-WW II era.

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