As I stayed up past midnight following the election results, I was struck by a piece of news that was flying below the radar screen. And the more I thought about it, the more worried and afraid I became.

You see as happy as I am that we’ll have a stop to runaway spending and to possibly put fiscal sanity back in play as promised by the Republican sweep of the House of Representatives, I’m afraid we may already be too late.

Let me explain…

On Wednesday morning, the Fed Chairman Bernanke confirmed that the Fed would initiate another round of quantitative easing (QE2) of the money supply; aka, print more money out of thin air and buy treasury bonds to the tune of $600 billion and possibly up to another trillion over the next twelve months.

If you have $100,000 in cash right now in the bank, by the end of (QE2) your $100,000 will be worth $80,000. Looked at another way you are being taxed 20% on your money.

The value of the US dollar is falling and will continue to do so until we stop spending, borrowing, and printing dollars. The US government has already run up $1.7 trillion in debt this year; now add another $600 billion with up to an additional $200 billion and by the second quarter of 2011 we’ll have increase our debt by $2.5 trillion.

That’s more than the combined debts of Greece, France, Germany, Spain, and Italy combined!

Since 2000, the price of gold has increased from $256 to $1380 for a gain of over 439% and the price of silver has increased from $4 to $25 for a gain of 520%.

The past three months have revealed deep cracks in America’s paper-money system. In response to a plunging U.S. dollar and the ballooning federal deficit, gold has soared from $1,200 an ounce to $1,380 an ounce. Gold’s cheaper cousin, silver, has soared from $18 per ounce to $24 per ounce, a gain of 33%.

The Markets Have Spoken:

Today, Thursday as I write this the DJIA is up 189 points and the December Comex gold futures contract has shot up $45.50 (3.4%) to $1,383.10.  These are the effects of QE2 as the dollar devalues and commodity prices go up.

Now why is this a problem?

Well, lets go back in time during the American War of Independence, the Continental Congress decided to print money, the Continental. The value was supposed to be based on the Spanish dollar, the famous “pieces of eight,” which equaled eight silver Spanish reales.

The Continental Congress intended on printing 2 million Continentals. It soon realized it didn’t have enough to pay its debts (sound familiar?). So by 1779, the Congress printed more than 242 million Continentals. The British waged a counterfeiting campaign, compounding the problem. By the time the Continental Congress stopped printing them in 1781, it took $168 worth of Continentals to buy a $1 silver coin. Hence the old saying, “Not worth a Continental.”

Sounds familiar?

Since the Federal Reserve came into being in 1913, the value of the US dollar has reduced in value by about 95%.

Given yesterday’s announcement by the Fed to print more money, you see the dollar is headed for further devaluation. Banana republic, Zimbabwe anyone?

Currently, total US debt – public, corporate, and personal – in the United States is more than $60 trillion. That’s $186,000 per person in the United States or $750,000 per family. Last year, total debt increased by $3 trillion – roughly eight times faster than GDP. And as I mentioned earlier, this year we’re adding an additional $2.5 trillion. This is unsustainable.

Normally in a recession, you’d expect to see total debts fall.
But not here.
Our government believes it can borrow an unlimited amount of money and then print more to repay it. That’s like lighting matches next to gas tanks.

So what can you expect – inflation.

I enjoy cooking so I do most of the grocery. Since July 2010 the price of milk is up 6.5%, butter 19%, bacon 14%, candy 13.7%, and beer 6%.

By the way ladies, the costs of women’s dresses are up 6.3% and footwear 45%. This data comes from the Bureau of Labor Statistics (NY Post).

So what does this all mean for you?

Although the midterm elections provided the promise of a quick stop to excessive government spending as promised by the republicans, it is but only a small step towards fiscal sanity.

The real trick will be whether our government officials will have the temerity to tackle our real underlying problems and address the problems of Social Security, Medicare, Medicaid, and Defense spending – all accounting for 74% of all government spending.

In the meantime, here’s what you need to do now while your dollars can still buy stuff.
Start buying physical gold and silver, farmland, and stocks in coal and uranium.

Why coal and uranium?
To satisfy their growing power needs, over the next ten years China will be building 60 nuclear plants and India will be building 40 nuclear plants.  In the interim, they need coal to run their coal-driven power plants. Their economies are growing at 7-10% compared to our paltry 2%.

You are in charge of what you do:
Only you can decide if you will continue to follow the madness or take steps to protect you and yours. I can only show you the problems before you, but only you can do something about it.