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A speaker from the Dines Newsletter (a gold bug) on the Nightly Business Report last night on PBS said that deflation is caused by the fall of the dollar.

Most central banks around the globe keep their reserves in dollars or gold. The fall of the dollar especially against the Euro has caused a major reduction in the buying power of those reserves. The result is a worldwide contraction in global money supply. That is driving deflation.

The Fed can fight deflation by increasing money supply. Or logic suggests they might be forced to raise interest rates to defend the dollar.

Of course, central banks who sell dollars and buy Euros or Yen exacerbate the overall problem.

The speaker is recommending buying gold or gold stocks for the forseeable future.
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