Cheap Money Isn't Wealth

May 05, 2011 4:29 PM ETSLV, GLD, CU, USO10 Comments
Karl Denninger profile picture
Karl Denninger

"But It's All Money Printing!"

Such has been the siren song for the last few months on commodities in general.

Despite my repeated warnings that markets aren't that simple, and that it has all been leverage - that is, cheap debt - that has powered them higher, nobody wanted to hear it. "Gold is money." "Silver is money."

Uh huh.

So are you going to tell me, my friends, that there has been an inflation and then deflation of roughly 20% - on the upward side in the last month or so, and on the downside in the last couple of days?

(Click charts to enlarge)

Gold is getting hit pretty good too:

Then, of course, there's oil.

How about "Dr. Copper"? What's he saying about the economy?

"Cheap money" - that is, unlimited leverage - will drive markets higher. For a while. It creates speculative manias. It creates the feeling of wealth. It creates a "high", much like an addictive drug.

But it is not wealth. It is not prosperity. And it is not sustainable.

The real economy, on the other hand, continues to suck. Gas prices have reached the point of demand destruction. It's $3.96 for regular here today, although I'm sure with oil off $9 it'll come in over the next few days.

GDP was soft as well. And the jobless claims numbers today? Horrible. Then there's all the "great news" over in Europe - Ireland, Greece, German production number misses and Trichet claiming "We have this guys. Really, we have this." Uh huh.

Are markets going higher? Based on what? Expectations on a forward basis and general bullishness are ridiculously high. Profit projections are for $100 on the SPX for the year. Really? With all the input cost pressures already in the cake and unable to

This article was written by

Karl Denninger profile picture
Mr. Denninger is the former CEO of MCSNet, a regional Chicago area networking and Internet company that operated from 1987 to 1998. MCSNet was proud to offer several "firsts" in the Internet Service space, including integral customer-specified spam filtering for all customers and the first virtual web server available to the general public. Mr. Denninger's other accmplishments include the design and construction of regional and national IP-based networks and development of electronic conferencing software reaching back to the 1980s. He has been a full-time trader since 1998, author of The Market Ticker (, a daily market commentary, and operator of TickerForum, an online trading community, both since 2007. Mr. Denninger received the 2008 Reed Irvine Accuracy In Media Award for Grassroots Journalism for his coverage of the 2008 market meltdown.

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