Bonfire of the fiat currencies

Are we in a crack up boom? (Or as Von Mises knew it, Der Flucht in die Sachwerte, or the flight into real values.)

With the fiat paper dollar collapsing in value against gold, expect Bernanke to start buying even more fleets of helicopters to drop even more cash in to his friends in Wall Street. It won't work, obviously, but expect this clot to do it anyway. With the Carlyle group hedge fund collapsing and Bear Stearns teetering on the edge, things may seem bad, but I think we have a long way to go down yet.

I must say though, even I am surprised by the speed of this. I expected gold to hit the psychological barrier of $1,000 dollars in a few weeks time, rather than now, but everyone is piling into it like lemmings, so expect the price to keep rocketing upwards before a correction downwards (which will be hailed as Bernanke's helicopter policy triumphing) before it starts upward again.

I try to avoid getting too psychologically hooked on figures such as 1,000, but there is little denying that it has acted as an important trigger to drive Bear Stearns into a wall. But what if this is much worse? What if we are finally in Mises' oft-quoted crack up boom? The printing press can be used for so long, but not indefinitely, Mises said. One day there must be a reckoning. Is this it? Is the game finally up?

That the dollar is finished is a foregone conclusion and I'm fully expecting the next fashion season in London to feature a Damien Hirst suit made entirely out of $10,000 dollar bills. But if this is a crack up boom, we are in for one heck of a roller coaster ride.

I hope you've shorted the market or have plenty of gold, property, and other decent commodities in your cupboard. Because you may need these 'real values' rather badly in the months and years ahead.

How much further north will gold go? Only God and a Monte Carlo machine can answer that. However, one thing is for certain. Paper currency is going south. And it's going to keep going south until it reaches the same desperate spot Captain Scott and Captain Oates got to, and it may then be some time before it recovers, perhaps by morphing into an older more reliable commodity-based form. (A sort of Jon Pertwee version of money.)

The 100% gold reserve currency may be closer now than we ever thought possible even one year ago. It may become a fait accompli, with gold certificates 'replacing' dollar bills as the world's international reserve trading currency, and sooner rather than later. Let us see which way the Monte Carlo dice roll...