In the late 1970's central banks lost control over inflation forcing New York Fed President Paul Volker to push for a boosting of interest rates beginning in 1978. In fact, during a six month period in that year, rates were increased 2% to a level of 9%, only to find out that inflation still continued to climb.
A year later inflation was raging at a level of 13%, and following President Jimmy Carter's firing of several people in his cabinet, declining confidence in the dollar led to gold shooting up an unprecedented $300 an ounce in a short amount of time.
Gold of course would go on to reach a then historic high of around $850 per ounce until Volker, who would become the next Chairman of the Fed under President Ronald Reagan, took the ultimate step of raising rates from 9% to 20% between late 1979 and 1981.
The moral of this story is that once inflation gets away from central bankers, only a move of raising interest rates to extreme levels will have any chance of taming the inflation monster, but at a cost to the general economy, as well as the stock markets.
Fast forward to 2017...
On March 10 central bankers in Japan and Europe both hinted that they may now be forced to end their policies of ZIRP and could soon commence on monetary policies of raising rather than lowering interest rates because the inflation they have been masking for the past nine years has begun to rise precipitously similar to what occurred in the U.S. economy during the 1970's. Added to this was what the market titled 'Bond King' Bill Gross said about the 10-year Treasury, that if it reaches and stays above 2.6% it will mean armageddon for almost everything.
Investors need to watch only one number in 2017 to figure out what returns are going to look like across the various markets, bond guru Bill Gross said Tuesday.
Whether the 10-year Treasury yield crosses the 2.6 percent mark will be critical both to the bond market and to stock prices, the fund manager at Janus Capital wrote in his monthly report for clients. The yield was around 2.39 percent Tuesday morning. Higher yields reduce a bond's face value.
"If 2.6 percent is broken on the upside ... a secular bear bond market has begun," Gross said. "Watch the 2.6 percent level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important than dollar/euro parity at 1.00. It is the key to interest rate levels and perhaps stock prices in 2017."
Gross said the 10-year yield has been in a downward trend line since 1987. If that channel is broken, look out.
"Investment happiness and/or despair may lie ahead over the next 12 months depending on it," he said. - CNBC
This week will see at least two, if not three or more important financial, economic, and political events occur that will have tangible effects on interest rates, inflation, gold and silver, as well as the overall economy. These include but are not limited to: The debt ceiling vote, the Fed's FOMC meeting and announcement, and elections in the Netherlands which could bring another anti-euro and anti-EU candidate to a presidency.
All if this of course is almost meaningless in regards to the potential of inflation moving into a higher gear no matter what the central bank does monetarily, and the Congress does fiscally. Because through our 100 year plus virtual fiat currency system, where the purchasing power of the dollar has lost over 97% of its value, what would the price of gold and silver be if that inflation completely disconnects from any chance of central bank or government control?
Earlier today on March 12, Matterhorn Capital Management head Egon Von Greyerz laid out a chart of what the actual price of gold and silver should be today using dollar terms if the cost of inflation had been, and was allowed to effect money and asset prices. And in his charts going back 300 years of actual inflation (not reported or manipulated), then gold today would be around $14000 in 1980 dollars, and silver above $650.
The 300-year chart of gold adjusted for real inflation shows that gold is now at the bottom of the range. Even more interestingly, the $850 top in January 1980, adjusted for inflation, would be $14,463 today.
The 300-year silver price chart, adjusted for real inflation confirms that the 1980 $50 top would be $669 today. - News.gold-eagle
Many will say that these prices are absurd, and that central banks will always have the ability to control and manipulate gold and silver markets, as well as obfuscate the reporting of real inflation. But all one has to do is look back to 2008 when they had to come hat in hand for a taxpayer bailout to save the entire global financial system, or in 1980 when it took extreme measures that are impossible for them to do today regarding interest rates because of how high the U.S. and global debt levels are, and you will see that if the scenario of out of control inflation is already set, then it is only a matter of time now before they lose control over all prices and assets, and gold and silver will very quickly spring back to their equilibrium true values that will not just leave the metals unaffordable, but damn well completely priceless.