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One statistic says it all.

September 16, 2011 – Thanks to Lance Roberts in Seeking Alpha for this little statistic that tells us why gold bullion still has a long ways to go: “The economy is currently requiring roughly $4 of total credit market debt to create $1 of economic growth.” Chew on that a minute. That’s akin to running the economy on payday loans.

Anyone who has ever fallen into the payday loan trap will tell you there is but one way out – clear away the excess debt that got them into it. And most will say that means doing without many things they once thought were necessities for quite some time.

That’s why nothing the Fed has done to date has had any real effect – they are treating the economic crisis as just another downside of the business cycle and that’s exactly the opposite of what they should be doing. Keynesian policy has reached its limit and we now have to unwind the damage done.

The magnitude of the debt deleveraging required to return to a productive economy is staggering – almost $30 trillion. But it must happen and everything the government does trying to avoid it will only prolong the time it will take and elevate the misery of getting there. At best we can expect their efforts will create “an economy plagued by more frequent recessionary spats, lower equity market returns, and a stagflationary environment as wages remain suppressed and the costs of living rise.”

The path of least resistance is to stop shooting Novocain into the economy and let it begin to heal on its own. But that’s not what Americans want to hear because we are accustomed to being comfortably numb. But eventually we will come to understand that proper treatment is not a matter of choice and realize that it is best to just get it over with.

I don’t know how much further downhill we have to go, but it will be a relatively quick trip before we hit the bottom. One thing is certain, however: It will be a slow and grueling climb back up and we have a long ways to go before the dollar can again hold its own against gold bullion. The way things look today, I seriously doubt we will ever get there.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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