Monday, June 30, 2008
Aaron Krowne over at Implode-Explode Heavy Industries, purveyors of the world famous Mortgage Lender Implode-O-Meter has written a lengthy piece on the future of the world as he sees it - hopefully this will land in the hands of a few elected officials in Washington so they can at least start to think about some of the real problems they are facing.
Titled Debate Over: It's Hyperinflation (and US Economic Collapse), it should make for some good morning reading for anyone seeking to make the real connection between cause and effect, namely, an unsound monetary system and potential economic disaster.
But any attempt at anything like a New Deal now will simply run into the same financing problems that have gotten us into this mess in the first place. The US dollar reserve currency system is ending, so the same system of borrowing backed by the dollar obviously cannot be the solution. And a war will be no good for stimulus because, well, we already have one (and it's now the most expensive war aside from WWII, and gaining fast). Also worth noting is that many Depression-era programmes -- Fannie and Freddie, FHA, Social Security, to name a few -- are still in place. In fact, Fannie and Freddie basically are the housing market right now.Sound money for the U.S. Government? That's certainly a tall order.
So despite all this support, our system is breaking down. There is something fundamentally wrong with it that needs to be fixed and reformed. I would argue that that thing is the monetary system (including both currency and banking). We simply cannot keep having all this borrowing and debt be such a structural part of our system. It always reaches a point of exhaustion and collapse. We need sound money, which places natural controls on government spending and dramatically curbs mal-investment and bubbles.
Throughout history, these sort of problems seem to have a way of fixing themselves - think Rome, Imperial Spain, the Dutch Republic, and the British Empire - while politicians sit idly by.
Well, maybe "fix" isn't the right word there...
The entire piece is well done and well worth reading.
Interestingly, on the subject of soaring food and energy prices, the same theme that appeared here recently in Gold, the solution to high commodity prices popped up:
If by some miracle (oil) prices were to correct back to $100, not only would it likely be temporary, but extreme inflation would probably show up in some other commodity, or even (God forbid) precious metals. The need to preserve these trillions of wealth from ailing areas of the financial economy is not going away any time soon. It is going to get worse. In fact, if the authorities had any brains, they'd encourage investment in precious metals to divert immense pressure from food and energy. No one ever starved from gold skyrocketing in price; though it did end a political regime or two.This will likely happen without any intervention from Congress - there are a lot of smart people out there with a lot of money that they need to do something with.
Buckle up, the ride is going to get a little bumpy.