“Matt Stiles, who writes at Stockhouse.com, who also happens to identify with the Austrian School of economics, argues why these hyperinflation fears are way overblown, and why we won’t see a Zimbabwe scenario here:

It is often said that we live with a “fiat currency” or with “paper money.” This is not entirely accurate. A very small portion of our total supply of money and credit is in the form of physical currency. It depends on how you count it, but regardless, it is under 10% of the total. This is what differentiates our monetary system with that of Zimbabwe or Weimar Germany circa 1920’s. Their economies were based on nearly 100% physical currency because nobody would accept the promises of government in order to issue credit.

The vast majority of our money supply is in the form of electronic credit. Electronic credit can be destroyed, while physical notes issued by a central bank cannot. This is why deflation is possible in a credit based monetary system, but not in a paper based monetary system.

…

All in all, the central banks are not nearly as powerful as they’d have you believe. The amount of the total money supply that is controlled by them is minimal. They won’t tell you that. They’d prefer you to think that just by them moving their lips they can affect the entire economy’s decision making processes. It simply ain’t so.

This begs the question: why is gold going up? Who knows. It has a mind of it’s own. But if it really only moved due to inflation concerns, it wouldn’t have declined 75% over two inflationary decades (80’s, 90’s) would it? If inflationary concerns were real, we would see TIP yields rising along with the gold price. They’re not. We’d also be seeing other typical inflation hedges rising – like property prices. That is obviously not the case. A better explanation is that gold is rising because of increased instability….”

More here

Comment:

Back later with more. But just one demurral. We won’t see Zimbabwean inflation because…well, because, Zimbabwe doesn’t influence the world in a million ways, through global institutions and laws and propaganda. The rest of this argument, I simply don’t understand. Electronic credit is still a claim on paper money.

But notice stocks are up…and we can see the reason why here:  existing home sales for Feb rebounded at the fastest pace in 6 years, according to Reuters. That’s mostly (45%) in the foreclosure market as we’ve been telling you guys. There are cheap deals out there – and not just in Detroit.

Meanwhile, the Treasury  came out with a detailed explanation of their bail-out which has people reassured. It’s the details of Geithner’s public-private partnership which has been overdue by 2 months and is cheering up the market.

Update:

Gold ended down, pressured by the rising stock market and the dollar. It  rebounded against the pound, euro, and yen, but ended down.

Update:  My conclusion is that this piece by Stiles is just more stock-boosting to mask the (long-term) bullish scenario for gold.

Short to midterm we are probably due for a correction in gold.