Which remains as thus: if the Fed raises rates to prevent a sell off in dollars, they’ll crush the highly indebted and already struggling populace and, in so doing, unleash a serious economic crisis. But if the Fed keeps rates where they are, or even lowers them, they’ll trigger a dollar sell-off and unleash a serious economic crisis.

Either way, the story ends the same: a serious economic crisis.

At this point, our bet remains that the Feds will go to default mode which means cranking up the printing presses into the red zone, letting the dollar move ever closer to its intrinsic value: zero. That they’ll follow this route is suggested by two inputs. First, a depreciating dollar means a reduction in the trillions of dollars in obligations now owed by the U.S. government. And, secondly, foreign holders don’t vote.

So, we are calibrating our investments toward a serious economic slowdown, but with high inflation. Some people would call that Stagflation. But given the severity of both sides of that formula, the situation may be better described in terms of Scorched Earth. Or, because people seem to find concepts ending in “flation” handy, Stag-flagration.

Businesses and personal net worth will be devastated at the same time that costs run out of control.

How to Play It?

Our strongest recommendation is to position your portfolio in anticipation of higher inflation and, in time, a turnaround in interest rates. The latter is because interest rates, which are still near a 50 year low, can only go up as the inflation rises to the point of banner headlines (at which point, the government is hoping, the economic downturn will have moderated).

In fact, we think the move towards higher interest rates is a trend that will surprise many, but, once it gets going in earnest (and corporate bond yields are already on the rise) last for at least the next several years.

In terms of other investments, it’s worth noting that in the last major bull market for tangibles, back in the 1970s, oil was the best performing investment, followed by gold, U.S. coins, silver and stamps.

Today the range of investment vehicles you can use to make the trend your friend is greatly expanded a wide variety of specialized ETFs (though an added layer of analysis is required to sort the strong, well structured, high volume variety from the thinly traded variety of suspect parentage). And while they continue to require patience, the highest quality junior Canadian gold exploration stocks remain one of the most prospective investments you can make. A number of these companies are now sitting on proven big discoveries, but thanks to the stop-start markets, are significantly undervalued. They won’t stay that way long.

Whatever you do, don’t be complacent at this point. If we are right, then the economic crisis will soon head into its next and most dangerous stage. Certainly, we should feel the heat, and maybe worse, by the end of the year. Therefore, at the very least, you’ll want to take measures now to protect yourself. For our own portfolios, we believe that the best defense is a good offense, and so are positioning ourselves in the sectors that will profit, and profit big, as the stag-flagration sweeps across the global economy.

Then it’s just a matter of sitting tight and being right.

David Galland is the Managing Director of Casey Research, LLC., publishers of Doug Casey’s International Speculator which provides unbiased research and recommendations on the highest quality junior exploration companies.