   |
|||
Easy Money and Happy PeopleSam Mathid In the mid 1990's easy money from the Fed poured into stocks. They boomed, particularly the Nasdaq. The public was very happy. In 2000 the stock market tanked and the Fed eased rates and made money even 'easier' in an effort to re-inflate the stock market. It created the largest real estate boom in human history. The public was very happy. By 2007 the real estate market was tanking. The Fed eased rates and made money even easier in an effort to re-inflate the real estate sector. The money flowed into commodities. Now more and more money is flowing into commodities. The vast amounts of surplus US$s printed in the last 37 years is all going to end up in commodities. As fast as it pours out of general stocks and real estate and others of the asset class, will be as fast as it flows into commodities. The commodity bubble is about to begin. Except that it will not be a real bubble because the word 'bubble' implies a temporary phenomenon that will one day burst. For as long as the US$ survives, commodity prices will now march relentlessly higher, toward a far higher stable equilibrium that truthfully reflects the prior currency and credit inflation. Food and energy are commodities. The above scenario is how every single monetary inflation in history has played out. First of all it manifests in the asset classes which everyone loves. Speculative booms and bubbles abound. Corporate takeovers and mergers dominate the headlines. The names of the principal wheelers and dealers become household names. Luxury items become sought after symbols of prestige. Thus it has been for the last ten years, thus it was during the grand inflation of the Weimar Republic and thus it has always been and always will be. Government gets to have its cake and eat it too. It gains by the use of inflation as a stealth tax, which is the sole reason that governments inflate. The public in the meantime becomes giddy with excitement because they naively believe that they are becoming richer, whilst in fact they are becoming poorer. Government ministers preen and posture and pompously waffle on the subject of solid and responsible financial management, whilst all the while putting the public purse ever deeper into debt. All fail to understand the simple and obvious truth which is that their houses and other assets are worth no more than they were last week, last year, or even last century. It is the value of the money that the assets are being purchased in that is falling, not the value of the assets that are rising. It is taking more money to buy a house, not because the house is worth more, but because the money is worth less. The larger the numbers attached to their stocks and houses become, the more people come to believe that they are getting richer without actually having to do anything. It is an extraordinary thing that such a delusion should still be able to grip so many people. At the end of the twentieth-century not one of the major media organs mounted a dissenting voice at the rampant inflation of the U.S. Fed. 'Economists' and financial commentators lined up to prattle platitudes as one of the most egregious inflators of all history, Alan Greenspan, was knighted for his efforts. Central bankers play their part with gusto. Both Greenspan and Bernanke believed that wealth and prosperity could be summonsed into existence by clever financial management. They believed that they could create wealth by lowering or raising interest rates at appropriate moments that only they were capable of divining. They believed that they were wiser than any that came before, and that they were so clever that they could suspend the iron laws of economics. Their smug sense of personal brilliance extended to the small investor who also began to feel delightfully superior to all who came before. The talk was of a 'new age' and 'sophisticated investors'. Buzz words like 'flipping' were brought into being to describe the 'new' phenomena. The first part of the inflationary cycle is always a wonderful and heady time when the annoyance of having to produce and save is put to one side like an embarrassing photograph from a less sophisticated time. Savings, and a reluctance to take on debt, are sneered at as being the action of someone who just doesn't 'get it. The first part of the inflationary cycle is the part that everyone loves. Toward the very end of the initial period when the inflation is still restricted to the asset classes the man in the street starts to borrow sums that he could never hope to repay because he believes that he will never have to. He also starts to believe that there will always be someone else to sell the asset on to for a nice fat profit. That is the beginning of the point where it all falls apart. By the time that this charade has slowly filtered down from the politicians, bankers and financial elites who are first to swill at the inflation trough to the man in the street, then at that precise point there is no 'someone else' left. Wealth without production. Fantastic, unbelievable! Exactly. Alas, inflated money and credit eventually ALWAYS departs the asset class and end up on the supermarket shelves. At the precise moment that people's assets are collapsing in value and they are becoming poorer (and wiser), the cost of day to day living starts to rise by extraordinary amounts. Meanwhile, people start knocking on the front door wanting their bills paid. This is the part of the inflation cycle that no one likes. Nothing is so bound to debauch and degrade a society and precipitate its slide into self-implosion as the fantasy that wealth can be separated from savings and production. Inflation has been utilized by modern governments to a ruinous degree. For years the damage was masked by an illusion of prosperity brought about by the assumption of ever greater indebtedness on the part of governments, corporations and the public. Now we are at the part of the cycle where the debts have to be paid. That is not possible. Every single inflation since the original Roman currency debasement has run this same ruinous path. "The national budget
must be balanced. The public debt must be reduced; the arrogance
of the authorities must be moderated and controlled. Payments
to foreign governments must be reduced, if the nation doesn't
want to go bankrupt. People must again learn to work, instead
of living on public assistance." Those who don't know their history are condemned to repeat it. Politicians, public servants, bankers and the rest of the rascals who were first at the inflation trough should be very scared. The few genuinely clever ones amongst them will still manage to hang on to their symbols of prestige, but they will have to keep them well hidden. The public is not going to be happy. *** Professor Antal Fekete, one of the great minds of our times, is holding another session at Gold Standard University Live. The dates are July 3rd to July 6th and the venue is Hungary. Contact: GSUL@t-online.hu Rumour is that the peripatetic Professor Fekete will also hold a seminar in Australia before the end of this year. May 25, 2008 © Sam Mathid 2006-2008 321gold Ltd |
