The major gold producers are mostly run by accountant's not miners or gold bugs.

Personally I see gold as a currency that does not pay interest. When the other currencies are trusted gold loses a lot of value (it does not pay interest). When the trust in the other currencies is in doubt then gold goes up (they currently do not pay positive interest either).

The powers that be will need to take some drastic measures to regain that trust this time. So far they have done all the wrong things but I will be watching for the signals that they are going to change tactics. I don't think it is time yet QE3 is coming.

If today was any indication, we can expect QE3 to be a bigger flop than QE2. There's only so much you can do to expand credit, and when no one steps up to borrow or banks are unwilling to lend, it's pretty much game over. QE3 or not, we're almost there I'd say.

The question to ask is, which of the possible outcomes is the lesser evil? Destroy the currency through hyperinflation, or force the bad debt into the open and suffer a protracted deflation. For all the power attributed to Wall St and the money center banks, I still think politics trumps their game. Politicians rely on the ballot, and hyperinflation is ultimately more damaging to joe voter than an economic contraction, however severe it might be.

The fly in the ointment is government debt. If rates go up, so does the carry cost of that debt. At some point you overrun revenue and government spending grinds to a halt. That's probably not a bad thing, but people have been accustomed to free lunches for so long now that it's political suicide to even suggest cutting back. Still, if politicians don't do it, the market eventually will. At that point politicians will get behind whatever the market dictates and try to present it as their own decision - a tough choice that had to be made. Name me a politician that won't do that. What are they going to say? Sorry folks, we lost control?

Even if the hyperinflationary scenario does plays out, I'm not sure it's to the gold bug's advantage. It's a bit naive to think you can buy life's necessities with a few gold coins when supply chains start breaking down. Are they going to pay the truckers delivering food to the supermarket with gold coins? What about the fuel they need to run their trucks? Does that get paid in gold? I don't think so. Gold disappears in this scenario. People won't be spending it unless they absolutely have to. They'll be hunkering down and bartering anything they have of value long before they touch their gold. Gold is a bridge, not a currency. You're probably better off with silver coins under that scenario, although the supply chain problem still confronts you.

The other bugbear is a desperate government. They seized gold once before - it would be even easier this time around. People today broadcast their gold advocacy on the internet. They join groups like GATA that have membership lists. Very foolish. I wouldn't say word one if I were serious about holding gold. Not a peep.

I keep mulling over scenarios - I've presented a few on this board. Not that I have any idea what's going to happen next - I'm just trying them on for size. The only thing I can say for sure is there are far too many pat answers. People seem way too confident about their favorite theory. Very little questioning of basic assumptions going on. I think the end game may surprise us all. I'll cite 9-11 as an example. Who expected anything like that, or the follow on effects? We may be facing an entirely different crisis before the monetary issues really kick in. Oil shortages, famine, a flu epidemic, sudden drastic weather change. Who knows? There's far too many variables here to make any kind of reliable prediction.

Owning gold or silver isn't necessarily a bad idea, so long as it doesn't lead to overconfidence. You always want a plan-B though. What's my fall-back if things don't go the way I expect?

ebear