Montreal, Canada

Venezuela joined the growing number of countries that are officially "basket-case" currency regimes in 2010. President Hugo Chávez introduced a two-tier currency system last week that basically sets the stage for serious inflation and a monetary crisis.

The Venezuelan bolivar, which doesn't trade freely on global foreign exchange markets, was devalued from 2.15 to 4.20 – a big shave. The government is struggling to rollover massive debt financing and despite a bull market in oil since 2002 has managed to bungle its balance sheet. Inflation is running at 27% over the last 12 months in Venezuela.

Chávez also introduced a second currency and fixed that rate at 2.60 bolivars to the dollars. This second currency regime is designed to protect the country's poor whereby imports for food, medicine and other essentials will be financed by a stronger bolivar rate.

What the government has done is screw the populace that holds mostly devalued and almost worthless bolivars while introducing a second currency that is likely to thrive in the black market at a much higher rate. Venezuela values its currency vis-à-vis the dollar – already in a secular bear market since 1971. Venezuela, despite its anti-U.S. and Western rhetoric, has failed to break away from the dollar since 2000.

Venezuela has aggressively boosted public spending, nationalized key industries, including oil installations and some banks while introducing several price controls over the last decade. The country is the epitome of the trend in what Bill Bonner calls the "Sovietization" of the economy.

The United States, supposedly the world's freest market-based economy, has also aggressively nationalized important facets of industry – mostly failed businesses or obligations like home loans, auto production and banks.

As this trend accelerates over the next few years as more governments seek to devalue their outstanding avalanche of deficits, the seeds of the next global crisis grows stronger with each passing day. Venezuela offers a microcosm of what possibly lies ahead for heavily indebted Western governments, including the United States, England and Japan.

If more governments fail to control fiscal deficits – a highly likely outcome – then hard assets like gold will only find a higher bid in a world obsessed with desperate credit creation and the expansion of the global money-supply. Historically, the world has never witnessed such a colossal and coordinated attempt to reflate the financial system at the same time.

The odds that the world's biggest inflationists – the United States, China, England – will drain this mountain of liquidity in time before inflation runs wild is highly unlikely. Central banks in these countries have already set a course to "overshoot" credit expansion and once banks start lending again, it's all over. This, more than any other economic variable, is why I remain bullish on gold.

The next financial storm will be currency-driven and I can't think of one country that stands to protect my purchasing power over the next five years – not one. Except gold.