Leif Peterson

Don't Be Fooled by Inflation

Regarding the uncoupling of foreign economies and the US economy, there are several parallels with the fall of Detroit. In fact, let's call this the "Detroit Syndrome."

The fall of GM, which blew 110b dollars over a twenty-year period and never once flinched, parallels the inability of the Gov't to regulate and prevent bubbles from bursting. Politicians can't solve problems -- but rather promise expensive deals in their election platforms. The high wages, benefits, and pensions for worker unions are a primary reason for outsourcing, which fuels foreign economies. Certainly, the Gov't knows what is happening, but the only solution is monetary policy (money printing).

I truly envision a shift to the East, another fiat currency for the oil standard, which will require hedging with gold, foreign stocks based on foreign currency, and inflation-protected US treasuries. Most of the current and future problems relate to dollar devaluation and inflation.

To summarize, the Detroit Syndrome is defined by a long-term chronicity of exposure to:

1. a long-standing trade deficit
2. unfounded expensive wars
3. unwarranted Gov't-backed sector growth
4. unbalanced Gov't budget
5. monetary policy (printing money)
6. no currency standard (e.g., gold)

When you add corporate and individual debt to the above, the result is failing economy. Hence, the Detroit Syndrome results in a failed economy. Detroit's economy happened to be hinged inextricably to the auto industry.