Wikinvest Wire

The debate is over

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.

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.
Sound money for the U.S. Government? That's certainly a tall order.

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.

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Anonymous said...

I see Krownes article as being similar to a Business Week cover or Economist or NY Times, in that it is a contrary signal.

We are headed into a deflationary spiral.

Chuck Ponzi said...


I agree with Anonymous! Nietzsche is rolling over in his grave.

You and Krowne have it all wrong, IMO. We ARE heading towards a deflationary spiral like a frozen chicken shot from a cannon at a brick wall. It's 1929 all over again (and I'm not very dramatic, but the seeds of deflation were planted with the "global productivity miracle", which was really just global wage arbitrage). Sooner or later, you'll be able to hire someone in the US for the same amount as someone in India. Try that one on for size!

Chuck Ponzi

Anonymous said...

Not really your classic inflation per se, but a rather nasty hybrid (for Americans) that inflates essentials, especially and primarily oil, while deflating their wages, stocks, and real estate.

Economists are going to have a really hard time from this point forward. In an era of increasing energy scarcity, mandated entitlement programs, and psychotic debt levels, exponential growth is impossible. For a great mind exercise, run all the economic activity since rock oil was first utilized back in the mid nineteenth century, in reverse. At 2x speed. Accelerating.

Greyhair said...

Tim, you're my market contrary indicator. The worse the news, the more cynical you become. We must be getting close to a bottom!


Troy said...

I agree that necessities will go up and luxuries will see downward price pressure.

Industries whose workers have salary negotiating power -- doctors, lawyers, etc, essentially the professional class -- will see their real incomes maintained. Everyone else is truly fuxxored.

Rents & home values collapsed in the 30s, we'll see that movie again, just like Japan too.

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