from Richard Russell

"Let's start with this vital and rather shocking piece of information, courtesy of Stephan Roach, chief economist at Morgan Stanley: 'Net foreign inflows into longer-term U.S. securities fell to just $15.6 billion in December 2006. This is the weakest reading in nearly five years. This stands in sharp contrast to America's enormous external financing needs -- about $3.5 billion of foreign capital inflow each and every business day is required to fund a current account deficit that was running at close to an $875 billion rate in the first three quarters of 2006.'"What does this mean? It means that the squeeze is beginning."Normally, the U.S. reaction to the 'shortfall' would be a recession in order to cut way back on U.S. spending. Or it could be raising rates in order to make it more attractive to accumulate and hold U.S. securities. But raising rates would impact on the fragile U.S. housing situation. If the negative current account deficit trend continues, I don't know how it will be resolved. "One result should be a weaker dollar and rising gold. If the shortfall continues, we can be sure of one thing -- something has got to give."Meanwhile, the central banks of the world are on a tear. I guess you could call it 'deflation-phobia.' At any rate, check out these statistics:

"In Australia, the M-3 money supply is running 13% over last year. In the Euro-zone, M-3 is up 9.3%. In Britain, M-4 is up 13%. In Korea, M-3 up 10.3%. In China, M-2 is up a whopping 16%. Russia shows M-2 up 45%. In the US, M-3 has been reconstructed to show that it's up 10.7%. As one wag put it, the central banks have instituted a campaign of "Whip Deflation Now!"I've described the situation previously as "Money gone wild." It's a blizzard of fiat paper and credit beyond anything ever seen before in world history. The mystery is that gold isn't higher, much higher. My thinking is that central banks and others have, so far, held gold back with derivatives and massive short sales. I doubt that this can continue."..

My comment: Central Banks certainly do their best to keep the gold price unter control not allowing the price to increase considerably. However the high physical demand on one side and the fact that there is more and more cash available thank to the increase in money supply I believe that all investments can go up in price. The created money has to be invested somewhere. Of course more money chasing the same amount of goods is inflationary. The machine has to be kept on. This could very well end with extremely high inflation or hyperinflation. It would not be the first time in history. Taking into account that the real inflation in the US is already above the 10% I suspect that the real inflation of all countries is in fact much higher than the official numbers.