04/11/11 Buenos Aires, Argentina – Whoa! This is getting interesting.
Two major central banks are tightening – China and the ECB.
But nobody seems to care. These central banks are warning investors to sell their high-risk investments. Instead, gold hits new records! The dollar is at a 15-month low. And oil moves up to $125 a barrel.
Either investors don’t believe China and the ECB are serious…or they’re counting on the USA to come through again – with more money and more credit.
Speculators may be forgetting that we’re in a Great Correction. On the other hand, maybe it doesn’t matter. If the feds keep pushing enough money into the system long enough, the correction will take a grotesque, unusual and terrible new form – it will end in a hyperinflationary depression!
Gold at $1,470? You ain’t seen nuthin’ yet!
Only we, here at The Daily Reckoning, will appreciate it. It will give us something to watch…something to write about. Something to laugh at. More important, we’ll have yet another opportunity to wag our finger and say: “We told you so…”
And who sees it coming? Just us…and a few other cranks, eccentrics, outcasts and marginalized diehards…
But word is getting out. You can’t just add to the world’s money supply indefinitely…not without consequences.
Many mainstream analysts are now looking for gold at $1,500. But watch out, they say. Just wait until QE2 ends!
They may have a point there. The major, natural tendency of this market is towards contraction. The market wants to correct. No kidding. After a half-century of credit expansion, it’s time to pay up…to settle debts…to recognize bad investments and to write off mistakes. That’s what’s happening in the housing sector. That’s why about 12 million Americans don’t have jobs.
But that’s the way economies work. They “breathe out and breathe in,” says old-timer Richard Russell. Unless we’re wrong about it, the markets are holding their breath. They’re waiting to see what effect all this pure oxygen – coming from the Fed – will have.
Why are the feds so desperate to avoid a correction? Well, that’s where the story gets interesting.
It’s a tale of one part vanity, one part necessity and one part cupidity.
In their vanity, the feds think they can command the economy to do as they want. They’ve invested whole careers…and gotten Nobel prizes for their crackpot theories. They’re not going to give up now; they think their central planning can succeed, even though central planning by others has been universally disastrous.
But there’s more…they are running what is little better than a ponzi scheme. That’s where the cupidity comes in. We were delighted to see that Christopher Caldwell, writing in The Financial Times no less, sees it as we do:
“The story of the past half century is that Americans found a way to extract money from future generations and leave them with the bill. What they have been enjoying is not prosperity, but luxury.”
We would put it a little differently. What they have been enjoying is not prosperity, but larceny. They’ve stolen from those who can’t vote. Many of them haven’t even been born.
A study by the Urban Institute, for example, shows that the Medicare system pays out in “benefits” three times as much as it collects in revenues. This kind of thing adds debt fast. Mary Meeker calculates total unfunded liabilities of the US government at $75 trillion already.
(Estimates are all over the place…depending on what assumptions you make… But Meeker’s estimate is likely to be low…)
Congressman Ryan has begun to address the inherent problems in this scheme. It will be interesting to see what happens. He seems to think that voters and politicians will “come to their senses” and do the right thing. We doubt it. And there was no sign of it in the deal just struck to keep the government’s lights on.
Paul Krugman put his finger on the problem with democracy. He agrees, for once, with us. Writing in The New York Times, he tells us that Ryan will fail. As soon as the greedy old bast**ds figure out that they are going to lose benefits, the jig will be up:
“Mr. Ryan and his colleagues can write down whatever numbers they like, but seniors vote.”
Yeah, the zombies vote. Most likely they will vote themselves into an economic catastrophe.
That’s the necessity of it. If they want to keep this scheme going…they have to borrow. And if they have to borrow…they have to keep credit easy and cash plentiful.
Stay tuned…
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Bill,
You forgot to mention Silver. As a Coin Collector who has been collecting since the 90’s, I have never seen the value on my paltry collection so high. Sure it can be more fickle then gold, but I still believe it is a great hedge against the future and what is to come.
You are also right that there are blocks of voters that resemble what an economics professor of mine would have labeled Marching Morons. These groups remain blind by choice, deceit or other influence. Although a majority of seniors to fall into the Marching category, less we not forget those on social services or working for the government at any level. These people see their future at stake, as well. It has driven a wedge between Americans sick of paying for cradle to grave entitlements, sick of seeing those on food stamps push carts full of junk ahead of us in the grocery store check out lines, while we scrounge and scrimp to pay our grocery bill and keep our children fed, sick of seeing those on Medicaid at our doctors office getting free healthcare, while we pay huge premiums and still have to dig out twenty dollars to make a co-pay, the list goes on. I know many people say when is it my turn or my time, I say “Why is it anyone’s time.” When the class war starts, no doubt which side I will be on!! Thanks for letting me Vent.
Bill said:
they (the Fed) are running what is little better than a ponzi scheme.
And little different. When old debt is paid off by borrowing new money, that is an institulionised Ponzi scheme, No?
The Fed and most people will have no trouble paying their debts. Just as long as someone lends them the new money to make the payments on the old debt, that is.
This could carry on for quite a while…
Bill said:
“Speculators may be forgetting that we’re in a Great Correction. On the other hand, maybe it doesn’t matter. If the feds keep pushing enough money into the system long enough, the correction will take a grotesque, unusual and terrible new form – it will end in a hyper-inflationary depression!”
Speculators do stupid things. This wouldn’t be the first time.
As for all the hub-bub over social security, the program is still basically sound. The Republicans are, however, shitting nickels over the possibility that someone’s taxes may have to go up to repay the money the gov’t borrowed from the program.
Social security is basically sound. But the GOPers are worried they will have to raise someone’s taxes to repay all the money they borrowed from it to pay for things (like that little $3 trillion adventure in Iraq).
Und So. How do you expect peoples without jobs to repay their inflated debts?
How do peoples with out jobs even buy stuff?
? –
You have to ask yourself who is financing the present administration’s open-ended military campaigns. Not you, I am sure.
Right on.
Seniors are zombies? I recently retired after paying social security taxes since I first got a job after school behind a soda fountain at the age of 16. After paying in all these years I’m a zombie to ask for what I’ve been promised for more than 50 years? Come on now Bill. During those 50 years I’ve paid taxes to support all the government workers and their pensions. Social security recipients have gotten no raise for the last two years even though congress gave themselves hefty pay increases. Until I see an across the board wage and benefits cut of 30+% for all government workers, I’ll be voting against any politician who wants to cut my Social Security.
John deserves a raise -
because congress gave itself one, and congress will never cut its own pay, and John will vote against anyone suggesting a cut.
What Bill said … and then some.
Continuing on what John said.
If I hear one more person call Social Security an “Entitlement Program” I might have to kick them in the perineum. I’ve had no choice but to pay into Social Security for the past 35 years. I’m still 17.5 years away from “official” retirement age. I look at my statement from the SS administration and imagine how nice it would be if I could have put that money I’ve paid in into an IRA or 401k instead of giving it to a program that was robbed repeatedly by government clowns.
I doubt SS will be there when I retire although I feel that I’m “Entitled” to receive the money I paid in.
“The market can stay irrational longer than you can stay solvent.” ,,,…and vice versa(!) Or at least that’s what the Fed and most everyone else is trying to achieve.
Perhaps in this case, you can stay irrational longer than the market (the United States) can stay solvent.
If they are so serious about rate hike, what about increasing interest payment?
For every 1 percent rise causes an additional 100 billions interest per year???
Indecisiveness at the end would only fatten the zombies alone. One minute calling for QE and hardly the next calling rate hike, slash deficit, austerity. If austerity is insisted then QE should not be initiated at all. Or, once QE is fired, let the QE series 2..3..4..5… enter the moon trajectory.
Cmon. We are man. Be decisive and get problems solved down to the root.
“As soon as the greedy old bast**ds figure out that they are going to lose benefits”
ugh. Now I am greedy and called nasty names because I want some of my 40 years worth of annuity payments back as promised by my government that I am supposed to trust. How can you journalists not see the injustice of this?
And thus the class warfare begins. It will be an interesting study…..the old half saying that they blindly trusted and paid in, the young half telling them they should have paid attention to the stewardship of the various social programs. Likely outcome? The voting bloc (old people) wins, b/c for the most part they saved little to nothing and must have the benefits. And the future looks very ugly for their progeny. The good news? The kids get to move back in with their parents! Should be some nice Thanksgiving discussions.
neal: it’s always been a Ponzi scheme.
You were an unfortunate sucker to not see it.
John and Social Security
With the greatest respect for John, he has become a slave. Worse, he wants to inflict damage on those of us who don’t want to be slaves. It’s analogous to saying, “I was raped so now it’s your turn.” As for me, I am free. No one is taking my silver and gold that I’ve hidden away to pay for you John. I made no such promise to you. I mean you no ill or no harm. Just crouch down and lick the hands which feed you and may God forget that you were our countryman.
Even without witnessing video or intrigue
column, one could visualize how grave the economic syndrome is at this very moment – Karl Marx woke up on several occasion amid his sound sleep to address his economic doctrine. “Ladies and gentlemen, please wash your ears throughly and listen attentively to my only special delivery.”