Economic forecasts are a funny thing. If they attempt to project anything beyond the short-run (one year), be very skeptical. But short-run forecasts are not iron-clad either. I have a great time on this site making fun of economists and their predictions. Guessing what the intricate convergence of millions, if not billions, of different economic agents and their decisions will be, is kind of an exercise in futility. So if I were to predict what crude oil will do in 2010, I’d give you some markers to help you make your own decision long before I took a specific barrel price and defended the position.

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:

Many people wonder what makes gold special as a store of value. When inflation fears set in, people flock to gold. One answer is that the dollar used to be backed by gold. An even better answer I will leave to Judy Shelton, an economist and director of the National Endowment for Democracy:

As of today, few things would be less appealing in your portfolio then dollars. As the Federal Reserve pours liquid-ity into the economy through TARP, stimulus and bailouts, and the Federal Government runs record deficits, interest rates stay artificially low. Depressingly low. In fact, a quick surf of Bankrate.com tells me the highest yielding money market account currently available (MMA) is 1.81%, while the average yield comes in at a whopping 1.113%. (1) That means if a person has $20,000 of hard earned money stuffed away in a MMA, he or she will earn roughly $30/month in taxed income. Nice.

Gold bullion futures touched a record high $1,045 in yesterday’s trading session in New York. If you believe in stock indexes breaking through resistance points, this may be just that for bullion.

Many on the left, such as hack journalist Naomi Klein, blame our current mess on Milton Friedman and his economic policies. Others, such as current Fed chairman, Ben Bernanke claim to be a follower of the Nobel prize winning economist. After admitting the Great Depression was the Federal Reserve’s fault, like Friedman and his colleague Anna Schwartz claimed, Bernanke said, “But thanks to you, we won’t do it again.” Since Friedman believed what caused the depression was rampant deflation, Bernanke presumably believes the Fed’s massive increase in the quantity of money will stabilize the economy. So is he following Friedman’s advice? Well not quite, you see, Friedman kinda thought we should go ahead and abolish the Federal Reserve:

But where does a real estate bubble really begin? With low interest rates and additional cash to lend. Now, remind me again: who provides additional money and artificially low interest rates to “stimulate” the economy? That’s right, the Federal Reserve. If the financial crisis, caused by toxic mortgages, derivatives, and credit default swaps, was a giant game, the first play was made by the Federal Reserve. Simply put, if there’s no additional money to be loaned, and no artificially low interest rates to loan at, a real estate bubble doesn’t occur. Speculative manias have to start somewhere. Without a steroid shot of demand, it’s tough for too much mania to ensue.

The public debt soared to $1.27 trillion in July, for fiscal year 2009. The current ceiling for the total public debt is set at $12.1 trillion, a figure the Treasury projects will be eclipsed by mid-October. This has Treasury Secretary Tim Geithner urging Congress to raise the debt ceiling, and raise it fast.

A vicious cycle is going on. The government engages in deficit spending, racking up a debt which makes any investor wonder if the U.S. is good for the money. Investors who loan money, require a risk premium to compensate for their risk exposure. As the risk to loan money to the U.S. increases from a ballooning debt, the required rates of return for the Treasury debt must increase. So, the U.S. government must pay higher yields to China and other creditors to finance deficit spending.

Basically, monetizing debt is a process of lending money to one’s self. The government spends, proceeds to write an IOU (debt contract in the form of a T-bill) and hands it to the Federal Reserve.