Right now, however the Fed is on record that they will start monetizing debt and already basically doubled the monetary base. Velocity is still low and many banks aren’t lending, but still, with that kind of monetary expansion, there’s no reason to expect gold prices won’t continue to rise… be it to $1500 or beyond.

In the modern era of online money transfer transactions, gold can now be traded, transferred and held in accounts as a “Digital Gold Currency” or DGC. As such, it trades independent of exchange rates, although DGC deposits do fluctuate in value depending on the price of gold in your base currency.

As bad as all that sounds, it ignores the dire situation we are facing in a very familiar setting; the housing market. Contrary to popular wisdom, the ‘toxic assets’ have not been cleaned out. It is very likely we are heading for a second mortgage meltdown.

Leave it to comedian Chris Rock to educate Americans on the value of the US dollar. Appearing on Letterman, Rock lets us know that wherever you go around the globe, people have reservations about the greenback. And in other urgent economic news, apparently Carrot Top is a world commodity!

According to Bloomberg, Ben Bernanke and the Federal Reserve have pledged “to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month.”

The Federal Reserve and Treasury have pumped an ungodly amount of money back into the economy, which raises serious concerns about future inflation, but for now, much of that money is stuck in the banks and velocity is extremely low.

So what have some city governments and businesses done to combat this? Well, they’ve decided to print their own money. MSN Money highlights one such example:

We haven’t seen inflation on the whole during the financial rescue efforts, despite the Federal Reserve’s easy money policies. If you wanted to cherry pick certain assets, the argument could be made that $140/barrel oil, during a recession, coinciding with a dump of liquidity on the economy, could be related. Global oil transactions are denominated in US dollars. It is hard to imagine any other factor being solely responsible for such a historic, and counterintuitive, rise in petroleum during a recession.

The question is, can the Fed take enough money out of the economy without sending us back into a severe recession, or will the excess money lead to high inflation. Personally, I’m predicting some pretty vicious stagflation is coming our way.

Will the massive increase in money cause hyperinflation? I certainly think that high inflation will come when velocity picks up, however, YouTube user ramzpaul makes a good case that given the way our economy is set up, one thing we won’t have to worry about is hyperinflation. For the Austrians out there, it’s worth taking a listen to:

But no computer algorithm or breakthrough in nano-technology could prepare our species for this latest blow below the belt: Eggo waffles will be rationed until mid-2010! Kellogg’s, the maker of these toaster delights, reported grocery stores will experience a shortage due to flooding of an Atlanta bakery during heavy October rains, as well as mechanical problems with equipment at it’s largest waffle facility in Tennessee. (1)