A rough sketch of econ changes to come.

Do you wonder sometimes how I can say the things I do? Well, I read about what analysts write, consult graphs and use my own methods of sifting evidence. So, here is some analysis of developing trends.

1. Inflation. The #1 factor of importance.

The money supply (M1, currency held by the public and private accounts) took off and grew by 18.4%% in the year that ended in this last June. This rate of growth is unprecedented. Even during the Carter inflation of the 1970s, M1 only grew by less than 10%/year. There is another measure of inflationary predictor: the tipping point that causes hyperinflation. That tipping point is a 40% deficit in the budget. And that is where we are this year.

2. The price of gold. This is factor #2 in importance.

The price of gold is rising in dollars, because the value of the US dollar is falling. The cost of producing gold has not changed. As of now, gold is rising slowly and according to the inverted head and shoulders is expected to rise to 1,300/oz. I expected gold to correct back to 1040 and it corrected to 1028. It is now back above 1040 and I expect it to rise next week. In 2 weeks time, I expect gold prices to hit above 1100.

3. Economic indicators. This is factor #3 in importance.

The economic recovery is hampered by increased government spending, which is largely unproductive. The 3.5% change in GDP reported for Q3 is a fantasy. The real change is about 1.7%. Since, we need 2% growth to break even, the economy is still weakening. Cash for clunkers and other government spending has inflated GDP figures, but the continued flat performance of the transportation factor show that the recession is not really over.

Timing is everything - almost.

The monetarists figured out the effects of flooding the market with currency to stimulate the economy. The first effects are on stocks and bonds, usually within 6 months. The next to follow is economic recovery within 18-30 months. Prices will respond with an inflationary change in 30-48 months. What makes the prices go up? The inflationary psychology is described in the Casey Report:

"Dropping large chunks of newly created money into the economy leads to price inflation, because the recipients are likely to find themselves over provisioned with cash. As they try to unload the excess, they bid up the prices of the things they buy, whether it be stocks, shoes, gasoline, silver coins, or granola. The sellers of those things then find themselves cash rich and start doing some buying of their own, and so the wave of excess money and the bidding it inspires propagate through the economy.The process isn't instantaneous. It takes time. Just as each player in the economy has a sense of how much of his wealth he wants to hold in the form of money, everyone will move at his own speed to make adjustments when his actual cash holdings seem to be off target."

The monetarist timetable for these events would be to place economic recovery to the middle of 2010-2011 and price inflation to the middle of 2011-2012. The way the Democrats run the economic scam of theirs is to saddle an incoming Republican Administration with the task of raising interest rates and lose the next election.

This timetable would presume a slowdown in the printing of money and a rise in interest rates. We know that Bernanke is reluctant to raise interest rates, so we will tip into inflation much quicker than the Casey report expects.

In my opinion, the dollar will resume falling next week which will push up stocks and gold.