It looks like gold will hit $2,011 an ounce in 2011 as the permanent drop in Western living standards continues apace.
This economic "markdown" started in 2008 when America hit the wall and deepened again in 2010 after Europe's crisis.
But this summer, another, deeper one is underway: The financial tourniquets aren't holding and now major amputation is being performed.
The "markdown," to be brutal, means chronic unemployment as public debt costs devour government budgets and more taxes eat up job-creating capital. There's also the demographic markdown: Aging populations don't consume as much and well-paying American or European jobs will be filled by robots or, alternatively, five cheap, younger workers in Asia.
Americans, Europeans and the rest of us will just have to work longer for less to a riper age. We will benefit from fewer government goodies and our kids may have to teach English in Asia or, better yet, become engineers and build nuclear reactors or highways over there. The rest who stay put will continue to be partially subsidized by their parents or governments or find themselves living like Argentinians.
It's grim, but not as bad as what Europe is in for, the continent of the 32-hour week, six week holiday and freedom 55.
The big news a few weeks ago was that gold hit new highs and markets plummeted because Germany's Angela Merkel and France's Nicolas Sarkozy met to do nothing.
Markets dumped Euro banks, the minute the shorts found a way to get around the ban on shorting these banks. In the worst shape is Commerz Bank, which faces a writedown higher than its market cap, according to Egan-Jones Rating Agency in New York City, the only rating agency that doesn't take payments from those it's rating. Worse yet, its president, Sean Egan, told CNBC that the total cost of fixing Europe's basketcase sovereigns and banks would be six trillion euros, more like three trillion because they'll all take a 50 percent haircut.
Little wonder the Merkel and Sarko tent folded and went away. They do nothing because they cannot do anything except postpone and pray.
"It's the end of the road," said Egan. "Germany's total sovereign debt is already 1.4 trillion Euros which is 78 percent debt to GDP. Germany cannot do this alone, so all the Europeans will have to."
So in a weird way, this means markets are working and the collapse is the arithmetic revaluation in anticipation of a continental workout. This fix will involve dumping money into Europe's central bank, dumping money into banks that loan to Greece et al, which will wipe out shareholders and guaranteeing deposits to avoid the collapse of Greek and other banks.
But there is one other prescription, which is why markets are jamming gold higher -- the Europeans will have to print money or, as the central bankers euphemistically call it, quantitatively ease. This is inflation by any other name, a thief in the night against the rest of us, and what the U.S. has done twice. So we will go from America's QE1 and QE2 to Europe's QEE1 and eventually QEE2 and 3. On second thought, the U.S. will be sucked into the European mess so there will possibly be a QE3 too.
"Gold is the world's default currency," says Maison Placements analyst John Ing, whose $2,100-an-ounce forecast a while ago is looking smart. Unfortunately, it will be too low should there be a QE3 and QEE3.
And the Americans still are not out of the woods either unless they bite the bullet, he added. "The easy credit of yesteryear spawned the financial crises of today. America is simply over‐housed and stretched financially. The heart of the problem is that it is spending 25 percent of its GDP yet raises less than 15 percent in taxes."
And Europe's worse.
So this means that markets will continue to correct and politicians will be left to react and undertake damage control to more slowly stretch out the lowering of living standards that are irreversibly taking place.
In the U.S., Republicans will propose, again, draconian spending cuts to avoid raising taxes, and the Democrats will go for a moderate dose of both. Neither are right. This simply about arguing over what chairs go where on the Titanic.
In Europe, the German strategy will be to demand that spendthrift countries dismantle their entitlements and raise taxes, and the French will play for time, or until after the next French election, even though time's run out.
So for investors, it's a flight to quality and safety and investing in solid corporations and countries, U.S. T-bills or in the asset class for the confused and/or frightened, which is gold.
Still others buy the shiny stuff in the hopes that it will become part of the solution and, because it's finite and cannot be printed, will impose discipline on everyone, instead of remaining a symptom of the problem. World Bank President Robert Zoellick gave credence to that debate last fall when he suggested a system that would involve the dollar, euro, yen and renminbi with gold as a reference point to keep every one honest.
It's inevitable because this isn't working.
From Diane Francis's blog at "Financial Post."