Thursday, October 14, 2010

Gird your loins because the next economic shock will be much worse than the first

Its been 17 months since the world was caught holding its breath as the S&P 500 was dipping deep into the 600 range. Monetary stimulus followed and the market rejoiced. Accounting rules were relaxed, automakers where bailed out causing markets to roar ahead. In May of 2010 those pesky Greeks gave the Dow Jones a cardiac arrest with the flash crash causing a 1000 point intraday plunge. The federal reserve (read: authorized money printers) came out with statements referring to "increased monetary support" and "accommodating policy" and the markets again went off to the races. But so did corn, wheat, oil, gold, silver, copper, sugar, soybeans and every other commodity that the world uses and consumes on a daily basis. The dollar has fallen like a stone, sending the Euro, British Pound, and the Japanese Yen through the roof. Even the Aussie dollar neared parity with the USD toilet paper at .998 last night. Just a few years back AUD/USD was trading at .50, a 100% increase.

The federal reserve, the printing press authorized with controlling the supply of dollars, is now being used by congress for driving not only monetary policy, but also fiscal policy. Wall Street is convinced that nothing terrible can befall the US economy because the big bad fed is holding their hands. Even your main street Joe who knows what the Fed is has confidence that Bernanke knows how to steer the ship. The only problem with this thesis is that the Fed has the power to create dollars and purchase "things" with said dollars. In effect, the Fed is limited to purchasing bonds, stocks, municipal debt, residential mortgages, student loan, etc, with DOLLARS. What happens in the event of a dollar crash? In the event of a dollar collapse, the fed will be rendered powerless, as its authority to create dollars would be equivalent to creating toilet paper.

I have observed the parabolic spike in the prices of EVERYTHING priced in dollars and it is frightening. The price of 50 pound flour bags for the Greek donuts we sell have increased by 35% since May of this year. This means that workers wages buy them less commodities as the purchasing power of the global medium of exchange continues to be diluted by the counterfeiter in chief- Bernanke. Are states and cities broke? Call Bernanke. Are student loans in a deep sea of red default? Call Bernanke. Does the Pentagon need more funding for the wars and its 650 billion dollar budget? Call Bernanke. Is Social Security going in the red this year and money has to be borrowed in order to meet rising expenditures? Call BERNANKE!! Do longer term interest rates need to be suppressed lower so that over leveraged American households and corporations can lower their debt service ratios? CALL FUCKING BERNANKE!!! I bet Uncle Ben himself is sweating bullets, knowing that in the end the dollar will implode and the savings of millions of people denominated in dollars will be rendered worthless. This is the end game.

You see people, America currently has the benefit of issuing the world reserve currency, and as such has the ability and the power to abuse said currency much more than any other nation could. But even the reserve currency has its breaking point. This is why our wages and "dollars" purchase us items that workers in the rest of the world would only dream of having. All wealth is based on trade. Trade of goods and services. I make apples and trade them for gasoline. You make pies to trade them for shirts. America trades DOLLARS in order to obtain gasoline, consumer goods and $650 billion of other items it imports more than it exports in any given year. This will come to an end sooner rather than later. This is why silver and gold have gone into the stratosphere.

Because the Fed has put itself on the hook for ensuring that our fraudulent financial institutions don't collapse, the Fed itself will collapse, along with it the dollar. I want you all to think very deeply about this topic of wealth and money, what it is and how it will exist. I believe in the very short future we will all have to work much harder for a whole lot less. We will slowly join the emerging world and with it its travails and hardships. Already some 50 million Americans are dependent on Food Stamps, and even this luxury will come to an end as the government won't have the wealth to distribute this food as it goes broke. Some say by 2020, others by 2014. Some analysts forecast that the US will be in a currency crisis by 2012. I have no idea when. But I believe without a doubt that the day will (soon) come when the USD purchasing power will be so utterly wrecked that the consumption we enjoy today will be greatly diminished. Hence why I am in the process of getting out of dodge. Just because the US will go to shit doesn't mean that the intensity of the greatest depression will be the same all over the world. I have chosen my sanctuary. Many will choose to stick it out here in the states. I wish you all the best of luck. Just please for the love of God prepare accordingly. Buy guns, buy gold, buy God (bible). Stock up on food stuffs such as flour, beans, rice, oil, and any other necessities that you can think of. The transition phase from the old dollar to the new dollar can last anywhere between 3 months to 2 years. I can't speak with confidence on this matter because the last time the world currency collapsed was the fall of the Roman Empire which brought about the dark ages.

Consider the last few months of 2010 as the hiatus period of the great global destruction. With the fed's life on the line, this period of low rates and relatively low inflation can only last so much longer. Unless a massive economic revival in the US comes about there is no escaping the destruction of the dollar. And so I look around, see the super markets full and bustling, the mall packed with shoppers with some holding bags, enjoying these last days of American over consumption.

6 comments:

  1. Uplifting news. The fact that the Australian dollar has reached parity with the US dollar is a good example of the storm. Too bad, mainstream economists, i.e. "economic cheerleaders" are not bringing more attention to this development.

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  2. Interesting Article. I was a Finance and Economics major and I think it will be interesting to see how things turn out in the future.

    Also, since your parents own several burger joints, you are better off taking them over and growing your small business empire. Leave the legal profession behind! Seriously, the legal profession has no fucking jobs and at least you can make more money by owning several restaurants!

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  3. The restaurants are definitely an option, but there are problems. 1) We opened a new location in Riverside County in 2007 and still haven't turned a profit. 2) Two large notes on the house that take up a substantial amount of our depressed profits. 3) Mom, dad, brother and me all need to draw off the restaurants to live. To date, both my brother and I live at home with our parents. Until we resolve the mortgage issue and the red lining new restaurant, I won't be able to start my own life. Hence, my idea to go to Perth for a few years where we can both work for some good coin. Wifie is getting offers for 60k. If I get admitted to a certain Uni out there I may take off for a few years. Otherwise my fate lies with the restaurants.

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  4. Well no offense but this isn't the case. The conditions that would cause those levels of inflation, that would cause a currency devaluation of that magnitude, have yet to manifest themselves.

    Our public debt, while a concern, is nowhere near 100% of our total GDP. . Interest rates > inflation ratio at the moment. That can lead to devalued savings and wipes out the value of people's investments. I would doubt it though. The consumer price index (CPI) has risen to the effect of commodities but not what I would call an alarming change - taking into account factors like weather and political changes. Even though the S/T interest rates are near zero. If there were any danger of such a event taking place, they would very quickly move to make adjustments.

    There is a feeling of doom. I'm sure we all have it deep down. The feeling decline and that there will never be anything new to hope for. I can't argue with feelings. No one can. But we all just have to ride this out. Not vote crazy people into the congress like that whore running in Nevada. Or that witch in the Dakotas. They won't change the political situation for the better. They have no knowledge of economic policy or how to fix the problem. Tax cuts for the top .1% and letting the private sector "do everything" is not the answer to the crisis for 99% of Americans.

    The unprecedented wealth we experienced post war was a run off from good policy creation during the depression years.

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  5. Gonzalo Lira, in these two articles provides the best analysis I have read on this topic.

    http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html

    and

    http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html

    Tell me what you think about his ideas.

    ReplyDelete
  6. eToro is the best forex trading platform for rookie and advanced traders.

    ReplyDelete

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