Hank Paulson’s bailout strategy will almost certainly cost $1 trillion or more. Bloomberg reports it will increase national debt by 6.6% to $11.3 trillion. Bill Bonner says US policy makers will eventually have no choice but to inflate away this debt. And this is when physical gold becomes worth much more than paper money… and even gold ETFs
This from The Daily Reckoning:

Our guess is that we will hear a lot more about gold in the years ahead. Because the world’s paper money system…a system that depends on hope, faith, and the kindness of strangers…is going bust. Maybe not this week. Maybe not this year. But eventually. And each day that passes brings us closer.

At some point – and here we are just guessing, of course – investors are going to put two and two together. They’re going to realize that every increase in the US government’s debts and financial obligations DECREASES the value of its paper – notably, the US dollar…and US Treasury bills, notes and bonds.

We don’t know…but it looked to us as though they were getting out their calculators last week. The feds announced their new bailout plan; and the price of the yellow metal suddenly shot up by $50. Again, yesterday, the $43 boost in the price of gold seemed to whisper in our ear: “they’re catching on…”As the correction continues, we expect more and more frantic efforts on the part of the government to stop it. Look for the Fed to cut rates. Look for more bailouts…more junk on the Fed’s balance sheet…more guarantees…and more intervention. Both candidates for president, along with the media, and the voters themselves are all in favor of “doing something” to prevent assets from falling to what they are really worth.

Mr. Market has something to say about what things are worth. The feds, however, want to serve him with a gag order.

They’ve already banned short-selling on 799 financial stocks. They’ve nationalized major industries. They’ve loaded the taxpayer with a trillion worth of Wall Street’s losses. And the Bush administration, supposedly a “conservative” government, will leave office having put in place such liberal programs that they would have embarrassed Franklin Roosevelt. What won’t they do?

Most likely, Mr. Market will have his say anyway. The Japanese tried almost all these measures during the ‘90s. Still, their economy sank.

In the end, US financial authorities will do the math too. How can we save the average citizen? We can ease his debts via inflation, will come the answer. How can we ease the debts on the US government? Inflation will help there too. And how about all that money we owe to foreigners…and all those dollars in the vaults of foreign banks and sovereign wealth funds; what can we do about those? At some point, the politicians and US financial authorities will put two and two together for themselves:

More voters are debtors…than creditors. Foreigners don’t vote at all. It would be reckless and irresponsible to print money, of course. Foreigners would stop lending; the dollar would collapse; treasuries would be wiped out. But…at some point, the math will be clear: they will have more to gain from inflation than to lose.

Of course, investors will smell it coming. They will push up the gold price…to $1,000…to $1,500…maybe to $3,000. And then, the financial authorities will prohibit trading gold. Franklin Roosevelt already set the pace; he confiscated it.

That’s when you will most want to have gold coins, rather than ETFs.

Source: Gold - Why the Real Thing’s Better than an ETF