JohnAl

The Foundations of the Current Crisis: Don't Shoot the Messenger

"I will spend a brief moment defending Bernanke here. He didnt' make the decision that the federal gov't spend massively in excess of the tax take. I am long tbt and I follow Paco so I like a lot of what he says. But many of these discussions demonize Greenspan and Bernanke and I don't know if I buy it."

During the 80's and 90's I was a Greenspan fan, and thought of him as a free marketer. But then, I was fairly ignorant back then.

Greenspan certainly understands markets and economics. No doubt about that, so he clearly is NOT a free marketer. If he were, he would not have ever taken the job of Fed chair. In so doing, he bought into the system that feeds the growth of FedGov. Without the Fed, there is NO way the federal government could have accumulated it's level of debt, and without that debt, there is NO way the politicians could have grown FedGov to it's current, smothering size.

Greenspan enabled it, and he knew what he was doing. Bernanke is doing the same.

Neither of these men are free marketers.

The Foundations of the Current Crisis: Don't Shoot the Messenger

Another excellent article. Thank you.

As for questions about your patriotism, there's nothing unpatriotic about trading on the expectation that the future value of the FRN will drop when the government and the fed are doing what they're doing to my grandchildren.

Unless, that is, it's now unpatriotic to display common sense.

Nothing About This Economy Is Surprising

“The doorstep to the temple of wisdom is a knowledge of our own ignorance.”
- Benjamin Franklin

Our problem is that we are not being led by wise men.

We're being led by men and women who think that they are smarter and more knowledgeable than our ancestors, and thus that history cannot teach us anything.

If there is even one among us today who possesses the insights of Thomas Jefferson, then he is staying well hidden. Yet even the average Joes, not to mention the arrogant politicians, dismiss Jefferson's warnings about central banking as quaint. "Things are different now", they rationalize.

But things are actually the same. People will always try to find ways to exert power over others and steal from them. When you get right down to it, while we walk around in well tailored clothing and put men on the moon, we're just a bunch of well dressed uberchimps with the ability to build things.

History tells us that human liberty to the degree experienced in this country only comes around rarely. I count myself fortunate to have experienced it, even if only at the tail end of the run.

I'm afraid it's gone though, and won't be seen again in this country for a very long time.

De-Leveraging Is Not Deflation

"Consider_this", your conclusion says it all:

"None of that is sure, so don't be so sure to take a fixed position in this market. I wouldn't bet my fortune one way or another, the key in this market is to be either crazy nimble, or incredibly still and calm."

Here's what I see (and I'm sure I'm missing a lot):

We have consumers, their 401Ks decimated and their housing values in free fall, acting rationally (for a change) and saving rather than spending.

We have banks, having just been burned badly and not knowing who is and is not solvent, also acting rationally, and not lending (much... yet).

We have investors, both domestic and foreign, some in treasuries or simply cash for safety, some in gold or other assets, expecting inflation.

Finally, we have the fed and the government, trying desperately to reinflate the credit bubble.

And the way I see it, there are many possible next scenarios, but nobody really knows what's going to happen next or when.

If the consumer starts feeling chipper, he may start to borrow and spend again, banks willing, which will mean inflation. If that happens and it really heats up - given how loaded up the banks are with reserves - we may see raging or hyper inflation.

But then again, we may just be stuck in a Mexican standoff for awhile.

Inflation seems really likely at some point, but how much and how soon?

Best action now... wait... watch carefully... get ready to move quickly... and continue reading Paco's interesting columns and the insightful commentaries he draws out!

Gold Cannot Be Inflationary, But the Dollar Sure Can

Mr. Ahlgren,

Wonderful article. I find much to agree with in your analysis.

While I've recently added substantially to my PM investments, including both physical and mining shares, there's one thing that's keeping me from jumping in with both feet, and it has to do with the questions you asked here:

"The supply of dollars is increasing. Prices and rates are going to rise unless the Fed can miraculously find a way to bring all those dollars back in, very quickly. But how could they possibly achieve that? Are they going to borrow more? Are they going to print more money? The problem is so obviously and viciously unsolvable that I'm not quite sure how anyone thinks the dollar can survive."

The Fed recently announced that they're looking at issuing their own debt. Many analysts speculated as to why. I'm not sure it's even legal for them to do it at the moment, but of course Congress can change that in the matter of a few days, and will if the Bernanke says it's necessary.

I'm thinking that the reason they'll want to issue debt is precisely to avoid the raging, or even hyper, inflation scenario. If the market were to accept and buy Fed debt, (and this is by no means a given), this would be a way for them to pull vast sums of dollars out of the economy very quickly, even while their balance sheet contains crap that, were they to sell it, wouldn't otherwise do the trick.

Whether they would or could act quickly enough to offset a credit expansion that could be expanding at light speed, given the monetary base your graph depicts, once banks DO start lending again, is another question.