Wall Street Journal: Money Meltdown
July 6th, 2007Following on the heels of the admission by the Council on Foreign Relations that the U.S. Dollar is, “An absurdity… supported only by faith,” the Wall Street Journal discusses the current “Money Meltdown.”
Let me consult my Magic 8-Ball: I see fewer national currencies in your future.
Via: Wall Street Journal:
Interest rates are on the rise in the Eurozone, Great Britain and Japan, as well as in India and China. But the Federal Reserve has again elected to keep its target rate on hold despite repeated assertions that inflation risk is still its predominant concern. Are central banks abroad recognizing a threat that their American counterpart has yet to acknowledge?
The Fed seems to believe that inflation has something to do with “excessive” demand. Although it admits that inflation is already running at an unacceptable pace, the majority of its policy officials cling to the belief (or hope) that the U.S. economy is slowing down, alleviating the inflation threat. Both of these assumptions are inconsistent with historical evidence.
What’s more, the recent rise in the euro and sterling relative to the dollar has obscured the fact that the world economy has embarked on another classic “run” on paper currencies that is driving inflation up everywhere. For several years now, as was the case in the 1970s, all the world’s currencies have been depreciating relative to stable benchmarks such as gold. Since the end of 2001, these declines have ranged from 38% (in the case of the euro) to nearly 60% (in the case of the dollar).
Why then has the pace of consumer-price inflation to date been so much less noteworthy than the pace of currency depreciation against gold? The answer lies in the timing: Gold is a fast-moving leading indicator, whereas consumer-price indices are slow-moving indicators that lag far behind. We all learned in the period between 1975 and 1985 that consumer prices do eventually catch up. It is the size of the move in the gold price, rather than in the consumer price index, that is a true and timely indicator of the magnitude of the inflation problem.
In 1975, Yale economist Richard Cooper described the process that now appears to be driving world inflation as “a general loss of confidence in money, a psychological mood that can be transmitted across national boundaries . . . [that will] lead individuals to try to convert their assets into physical form: goods or housing or real estate.”
…
Inflation is not intrinsically global — it is obvious that some countries experience more inflation than others. But currencies depreciating against gold across the board is a sign of world-wide inflation — and it has begun to set off alarm bells in many major economic capitals. But in Washington, our own central bankers remain placidly confident that everything will turn out all right.
Unsustainable peacetime spending is a much slower process than the unsustainable war spending. Far from sudden death, currencies these days are facing death by a thousand cuts. The unfortunate result is that the current crisis of confidence in paper money goes largely undiagnosed by the bulk of economists and policy makers.
Recessions usually occur every four years; the next one is a good three years late. How have things made it this far?
Worse, the delay has occured alongside massive deficit spending. It looks like when this hits, it’s going to be pretty disruptive.
Those sick of waiting for the other shoe to drop may not have to wait much longer.
“How have things made it this far?” — Former
“Plunge Protection Team”?
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
“[that will] lead individuals to try to convert their assets into physical form: goods or housing or real estate.â€
is this a push for those with liquid assets to get into real estate? seems an awfully bad place to be stashing cash right now… so where to turn?
Interesting conundrum, that (IMO) will exacerbate panic, should a trigger event occur.
Recessions only happen every 4 years cause they are engineered that way. Me thinks the “powers that be”TM are trying to sucker as many people into the markets as possible so when the trap closes they walk away with the remaining percentage of the worlds wealth they already don’t own.
The PPT only helps steady the boat so that the PTB can move the markets to where they would be optimal for the biggest fall.
Recessions don’t happen every four years. The hoary old business cycle model that spawned that and other such quaint notions is dead. Having said that, the data that would reveal that we are in a wobbly economic environment is so badly distorted that the truth about our economic circumstances is never likely to emerge except in a happy accident. Yes, the dollar is toast, absolutely destined to be inflated away to a point where it has almost no purchasing power. As a hedge against that eventuality gold and IMHO especially silver make a lot of sense. I also believe that between global warming and peak everything, agricultural commodity investments will do well.
All They’re doing is creating an opening for a new North American unified currency: the Amero. The globalists can’t wait for that one; it’s coming.
I’m going to stick out here, but I don’t think that parking money in real estate is necessarily a bad idea at this time.
Note that I’m not talking about overpriced 2×4 framed “Mcmansions”.
If I had the bucks and were staying in the USA (not to say that I’m either or neither), I’d be buying up tillable or timbered land with water thats not totally overpriced.
Its still out there and I figure its as good a bet as any. You can build on it, you can grow crops on it, you can timber it, etc. Generally the taxes will be low and it will serve to hold its value.
Also, if the foreclosures start rolling in, watch the big REITs (Real Estate Investment Trust) start gobbling up everything thats not nailed down.
With raw land you have value thats not based on fashion and mass psychosis (stock market, suburban housing market). You can graze X Cattle, raise Y bushels of corn, etc.
I still think its the best bet out there.
My 2 bits,
Tito
As long as the Fed keeps raising and lowering interest rates, cycle theory will have some relevance. The five year cycle is no crystal ball, but it does a reasonable job considering.
This site has a nice table of 20% drops in the stock index (search for “table 2”).
http://www.safehaven.com/showarticle.cfm?id=1399
A Dow chart with arrows placed in a cycle pattern.
http://www.tradersnarrative.com/wp-content/uploads/2007/05/4%20four%20year%20cycle%20dow%20jones.png
A slightly more recent chart for comparison
http://stockcharts.com/charts/historical/djia1900.html
I think the last recession was actually in 2002, so it’s actually only 1 or so years overdue.
Ok, so apparently tradersnarrtive.com doesn’t like hotlinking.
Here’s the original page; the chart in the middle of the article.
http://www.tradersnarrative.com/the-amazing-four-year-stock-market-cycle-867.html
Raw land is indeed an excellent investment, tito.
Land is a great investment but the assumption that taxes will be manageable is pretty much up in the air.
If you want your money to grow, invest in commodities…ie..grain, sugar, or other sources that have multiples of food, fuel or fibre.
If you just want to survive, buy sacks of grain, nuts, seeds and storage for fuel.
wait for the canadian dollar to hit 1.05 US and expect an announcement on ongoing SPP http://www.spp.gov/ http://mostlywater.org/the_plan_to_disappear_canada issues. one interesting point may be made regarding the high cost of counterfeit currency out there and the need to do something about it. followed shortly by a suggestion of a new currency to be used in the realm. just a late night musing on the need to refill the US tank 😉