Seeds of Their Own Destruction
All those new dollars being created by an apparently-still-panicked Fed are pushing up asset prices across the board (with housing the only exception) and pushing the dollar down to near-record lows versus other currencies. The charts look eerily like a replay of 2007, which, of course, is exactly what policymakers want. Rising asset prices, according to the prevailing logic, will get us spending and borrowing again and return the economy to self-sustaining expansion. 2006 and 2007, for the people running this show, were the good old days.
What they seem to be missing is that these trends contain the seeds of their own destruction, just as they did four years ago. Oil, for instance, is back above $100 a barrel, which translates into $4 a gallon gas, which amounts to a sizable tax increase on the consumers who are supposed to start spending again. CNBC just reported that gas sales have fallen for five straight weeks.
Same thing for food. Ag commodity prices are through the roof, which is gradually translating into higher prices at grocery stores and restaurants. Consumers, as a result, will be eating out a lot less in the year ahead — and will still have fewer dollars to spend on other things.
In the financial markets, precious metals are blowing away old records…
For policymakers, gold and silver occupy a kind of shadow world. They’re not “real” money like dollars and euros, but for some inexplicable reason people still respect them. Central bankers worry that they’re being unreasonably blamed for their inability to keep their currencies stable versus these atavistic lumps of metal. As masters of their universe, they don’t like being contradicted by the rabble in the marketplace. And as managers of fictitious currencies they’re terrified of an “emperor’s new clothes” scenario in which everyone suddenly sees the con they’re running. So they’re watching gold in particular with rising anxiety.
…and the dollar is approaching the low it hit just before the world fell apart in 2008.
This too is a desired goal of US policy, because it makes US exports more attractive for the rest of the world. But of course it also makes imports more expensive, which raises the question of how much lower the dollar can go before headline writers put currency depreciation and rising food/energy prices together. A series of New York Times articles speculating about the end of dollar hegemony (and explaining the nature of money) is the Fed’s nightmare because it will get people to thinking about what exactly a paper currency is. Once that train leaves the station its inevitable destination is the conclusion that a fiat currency isn’t really anything. It’s just a consensual hallucination founded on our trust for the people managing it. Which in turn leads newly-awakened citizens to check out those YouTube videos of Bernanke and Greenspan getting pretty much everything wrong, documentaries like Inside Job, and the ongoing hearings of Ron Paul’s subcommittee, in which Fed and Treasury officials are revealed to be mumbling incompetents and frauds.
As an understanding of the scam spreads, consumers and investors rush to convert their dollars into other currencies and hard assets and the game is over. A crisis of confidence sends the dollar into free-fall.
This of course is to be avoided at all costs, which makes the dollar’s recent decline versus food, energy, and other currencies such a dilemma. It can’t keep falling indefinitely, so if it doesn’t stabilize on its own — i.e., if gold, oil and food don’t stop going up — action will have to be taken to stop it. With Europe and China now raising interest rates, how long will it be before the Fed is forced to follow suit and start sucking liquidity out of the system? And how long after that before everything that’s been going up in concert starts to fall together?
What they seem to be missing is that these trends contain the seeds of their own destruction, just as they did four years ago. Oil, for instance, is back above $100 a barrel, which translates into $4 a gallon gas, which amounts to a sizable tax increase on the consumers who are supposed to start spending again. CNBC just reported that gas sales have fallen for five straight weeks.
Same thing for food. Ag commodity prices are through the roof, which is gradually translating into higher prices at grocery stores and restaurants. Consumers, as a result, will be eating out a lot less in the year ahead — and will still have fewer dollars to spend on other things.
In the financial markets, precious metals are blowing away old records…
For policymakers, gold and silver occupy a kind of shadow world. They’re not “real” money like dollars and euros, but for some inexplicable reason people still respect them. Central bankers worry that they’re being unreasonably blamed for their inability to keep their currencies stable versus these atavistic lumps of metal. As masters of their universe, they don’t like being contradicted by the rabble in the marketplace. And as managers of fictitious currencies they’re terrified of an “emperor’s new clothes” scenario in which everyone suddenly sees the con they’re running. So they’re watching gold in particular with rising anxiety.
…and the dollar is approaching the low it hit just before the world fell apart in 2008.
This too is a desired goal of US policy, because it makes US exports more attractive for the rest of the world. But of course it also makes imports more expensive, which raises the question of how much lower the dollar can go before headline writers put currency depreciation and rising food/energy prices together. A series of New York Times articles speculating about the end of dollar hegemony (and explaining the nature of money) is the Fed’s nightmare because it will get people to thinking about what exactly a paper currency is. Once that train leaves the station its inevitable destination is the conclusion that a fiat currency isn’t really anything. It’s just a consensual hallucination founded on our trust for the people managing it. Which in turn leads newly-awakened citizens to check out those YouTube videos of Bernanke and Greenspan getting pretty much everything wrong, documentaries like Inside Job, and the ongoing hearings of Ron Paul’s subcommittee, in which Fed and Treasury officials are revealed to be mumbling incompetents and frauds.
As an understanding of the scam spreads, consumers and investors rush to convert their dollars into other currencies and hard assets and the game is over. A crisis of confidence sends the dollar into free-fall.
This of course is to be avoided at all costs, which makes the dollar’s recent decline versus food, energy, and other currencies such a dilemma. It can’t keep falling indefinitely, so if it doesn’t stabilize on its own — i.e., if gold, oil and food don’t stop going up — action will have to be taken to stop it. With Europe and China now raising interest rates, how long will it be before the Fed is forced to follow suit and start sucking liquidity out of the system? And how long after that before everything that’s been going up in concert starts to fall together?
There are too many wars draining oil and human labor and way too many politicians (poli tics = many blood sucking creatures).
How long? Not long
How long? Not long
At this point, or arguably since 2000, there are no good options for the Fed and all the rest of the central banks. Every action now has equally negative reactions. The re-inflation of asset prices increases costs to consumers and businesses which crimps economic activity and thus tends to deflate asset prices because of lower demand and corporate profits. Furthermore, when the cycle completes itself asset prices are again the same or lower as before but there is much more total debt as well, hence the steady increase in precious metal prices which are a proxy for global debt levels.
This process can no longer be stopped, if it ever could, no matter what the Fed or the Treasury or the Congress does or doesn’t do. Its demise can at best only be slowed down or postponed. Personally, I’m very interested in how QE 2 is handled in the next few months, along with the spin about precious metals prices. Treasuries may well sell better than one might think because of a lack of options. Maybe the US will assume Japan’s traditional role of “lender at the lowest rates” in the carry trade.
The premise is as you suggest – Fed tightening will force treasury rates (& thus the dollar) up, resulting in a drop in commodities & pm’s. Side effects could include a market crash and, if the “pain” becomes politically unbearable a resumption of QE or QE style policies.
Opportunities for investors and traders who identify this as the pattern playing out would be significant.
I do not think the families of the dead from WWI or WWII or the Cold War, all of whom kept Western Europe from a dictator of one sort or another, would agree it is “Time to move on”.
Andy, you couldn’t be more wrong about so much. Are you even aware of how many Arabs surround Isreal and how many Isrealis they have killed? I would never restrain myself the way the Isrealis have. Oh yes, those poor Arabs that live within occupied areas…Ask them if they want to return to te middle ages in their neighboring Arab states from which they came. And Gitmo? Okay, no sweat, lets put all of those nice middle eastern men in your neighborhood. You boys can hold hands and sing “Kum-Bah-Yah” together, while you discuss the finer points of that great religion of peace, islam. You are right about one thing, we have not defeated Al-quaida. That is because we are too nice to them. We should have already killed all known Al-quaida. But you see, we are not imperialists as you have been, and we have learned the lesssons from your colonial endeavors, that brutalizing a nation does not make for long term peace. So yes, it is messy work, similar to your experience in Malaysia, in which your SAS did a superb job I may add, but it took lots of time. Read, “War of the Running Dogs” for how to wage such a campaign. You Brits did great job there, seiously. You say that you (Europe), respected us more in the past, yet then we had basically no social welfare, a strong economy, a weaker central government, and a better sense of when to get involved in the world. Now our incompetent social welfare system has brought us to a point where many, if not most, feel like they are entitled and live off those of us who work. Our dollar is destroyed supporting all of that aforementioned welfare, and you Europeans have not had to cough up your real share of money for defense since WWII or perhaps even before. Folks like to talk about how much we owe the UN. I would like to know how much Europe has saved while the US military has protected them, allowing them to divert tons of money into social programs that are ineffectively managed in most cases? I was at a dinner one night, and our guest speaker, a very nice English chap, fell over. He was rushed to a hospital, his heart attack stopped, and a pacemaker inserted. Back in Jolly ‘ole England, he had been told he was not eligible for a pacemaker, though they knew he needed one. He was too old. He was only 62…They kept giving him pills to pop, as they are cheaper. Don’t worry though, soon we will adopt fully your “enlightened” system, where government decides who lives and who dies. There are many examples of the failures of British socialism, how you have sustained rolling power blackouts at times beginning in the 1970s, not due to shortages, but cost. How your government could not afford to bring your war dead home after WWII, as ours did for all families that chose such, and how your government asked ours to keep this quiet, so as not to cause a revolt in Britain. How we kept sending food, especially meat, to England for free even into the 1950s as your government could not afford it. How we sent privately owned firearms,(seperate from Lend-Lease, these were sent from citizens), thousand of them,to England to keep you free as you faced invasion…etc., etc… We send more food aid, more medical aid, more doctors, more money, we help more than any nation during any time of need anywhere in the world. And we should. But now it is time for us to pull back, let you Europeans deal with the continued after-effects of your rape and pillage of the poorer nations, excuse me, colonization, yourselves…As for George Washington, you know nothing. He was offered a kingship, and denied it so that we Americans could be free. I don’t expect you to understand, but we have been allowed to have lots of property and wealth here, as we refuse to bow to a king or queen, and be servile as the serfs of Europe have been and are. Your comments about black Americans are hilarious. We fail to have any truthful conversation in this country about race, due the politcially correct nature of things here, just like in Europe, but in America Andy, blacks really do commit a majority of crime. They are slaves within a social welfare system that robs them of their pride and ability to achieve. They have been old out by their so-calle “leaders”, who take millions to run around our nation and rabble rouse. I know of no nation, and I have been to several, that protects minority rights like ours does. I know of no real racists, except for plenty of black people who have been taught to hate white people, believing the same marxist drivel that you have parroted. A former President, Lyndon Johnson, summed up why the Democrats in this country switched from being the party of racists, to supposedly embracing blacks…He said, “If we vote for this bill (what would become the Civil Rights Act, a bill that Republicans tried to pass in the 1950s), them niggers will be voting for us for the next 200 years!”. And so it is, hooked on welfare, as are many whites now sadly to say. I really like you Brits, Andy, and would love to share a pint and have a friendly debate about the merits of freedom vs socialism, but it likely won’t happen due to our distance. Have a great weekend, and open your mind to the possibilities of what would happen if you and other Britishers demanded real freedom…We have almost lost ours here, but I believe we will take it back. America may be guilty of being naive, and true, we have many of the issues that writers here describe, but we are still basically a good nation, one I am proud of. As the people awake, get involved again in their politics, watch us overthrow the Soros’ of the world, and the other globalists. You can all have your one-world government, but we my friend, are waking up.
First of all, there needs to be a distinction recognized between the scope and actions of the US Federal government and the principles of the US Constitution. Similarly, there is a difference between the “soul” of the federal government and the soul of its citizenry. I can understand or imagine how any foreigner can conclude that the the official political face of a country’s government accurately represents the desires and intents of its citizenry, but that is not always the case, as you may attest for your own. From my vantage point I would say that any one living in the US who is paying any attention to politics and governmental actions and policies feels betrayed and alienated and scared. The US Federal government has become a monster that bullies and threatens everyone far and wide. US citizens are doing the best they can, having been double-crossed – arguably for their own lack of education, vigilance, and “devil’s bargains”, but also for their perhaps naive trust in government itself. In any case, feeding the fires of insanity and hypocrisy and all the rest of the negative comparisons dooms everyone. Do you really think it an exaggeration that if America falls humanity is doomed? There is no “new world” to escape to. There are no “new ideas” that will be able to spread, never mind take root. The philosophical foundations of a greater state of humanity and life on earth are in danger of being expunged. The actions of the US government – or any national government – are not the will of most people, so stop conflating the two.
04/16/2011 Dateline San Bernardino, Ca. Yesterday evening Retired Hockey Mom, my bride of 27 consecutive years and I drove smack dab into what we assumed was a sobriety check point this evening. This was no sobriety check point. This was asset seizure. We witnessed no sobriety. Merely a sign directing all to have license, registration and proof of insurance ready for inspection. Those who lacked the proper paper work had their cars impounded.
A few blocks ahead, we passed a rather well dressed hitchhiker.
Moral? There are no cops, just revenue agents.
1) The USA will be forced into savage austerity
2) The market in US treasuries will collapse (they predicted this last month)
3) The US dollar will devalue by about 30% in a matter of weeks (after perhaps growing stronger one last time first.)
They see all these things as interconnected and feeding on each other. They are scathing about the UK government too and see the UK as being very vulnerable. (I agree with that)
Now of course they are being very French and having a go at “les Anglo-Saxons” but they
did say late last year that 2011 would be “l’annee impitoyable” – a “merciless year” of troubles and upsets, and predicted the coming economic crash as long ago as 2006 so they cannot be dismissed as total idiots.
As for the difference between the US goverment and the American people, that is obviously the case ,and perhaps as all this drama plays out they will summon up the courage to take back power from the oligarchs, bankers and corrupt politicians and demand real deomocracy.