The new beginning of a brave new world started in 2000 however it accelerated with a down turn in late 2007 with a justified lack of confidence.   By 2009, after unprecedented monetary inflation the money supply began to contract.  Liquidity has been steadily drying up ever since.  Money supply has begun to contract because the world has maxed out its credit limits.  So have the lenders and now the great credit contraction begins. 

This has the unfortunate potential to turn into the credit squeeze from hell initially forcing massive deleveraging.   This may be great for gold in the longer run because it sets up sovereign default scenarios which will severely damage confidence in global financial markets.   We may make a great deal of money out of gold and eventually gold stocks however the social consequences are highly unfortunate.

In the short term stagflation will be the inevitable result as some asset classes fall sharply (read de-leveraging) while we simultaneously face rising interest rates.  This last point often confuses investors however it will come to pass baffling many and causing them to miss the best opportunities.  This whole situation has profound influence on investing in the “new” economy as well as gold stocks and gold.

The global bond markets have been influenced by huge bond and sovereign funds which amass investor funds and play the bond markets.  This has provided vital capital for corporations and governments alike as the debt bubble grew.  This monstrous pool of capital is now starting to seek a new home and the effect will be immense.  We can take advantage of this capital wave as it seeks yield in a low yield world.

To be clear I am stating that I believe the debt crisis in Europe cannot do anything but spread confirming the IMF’s worst fears as they announce their forecast of 4.5% global growth this year.  Their huge caveat and the massive growth assumptions made by governments startle this analyst.  The largest sovereign funds have declared that bonds are dead due to the absurd volume of issuance due in the next few years.  This is incredibly important because the capital flows and effects will be immense.  Given their past support for the debt markets is no longer palatable it will be steadily withdrawn.   It beggars belief that anybody could believe the cost of capital will not increase dramatically.  Who is going to buy all that debt?