Goodbye Dollar, Goodbye Normalcy

April 25, 2011 06:33

In my opinion, the next two or three decades will have a more profound impact on the world than the Great Depression and perhaps the two World Wars.

From Monty Pelerin’s World

Chris Martenson interviews Axel Merk and covers some of the following topics:

  • Why Ben Bernanke is hell-bent on debasing the US dollar to spur economic growth
  • How the politics of the Fed work, where the power lies and which arguments and actions are likely to carry the day
  • Why inflation expectations actually matter more than actualy inflation, and why the Fed will not rest until it is satisfied the market expectations for inflation are higher
  • That the US is on its way to a fiscal trainwreck – a reality our political leadership continues to lack to backbone to address honestly
  • The Fed’s powers are prodigious, but not as great as the market. If and when the market moves against policymakers, nothing will stop it. The growing risk is we quickly tip into the inflation the Fed wants, which then quickly leads to runaway prices
  • His outlook for gold and why he thinks this “ultimate currency” can go much higher from current levels
  • How the US is caught in a Catch-22: our loose monetary policy continues to encourages credit consumption that makes us increasingly vulnerable; but we’re so indebted already that if the Fed tightens rates, the economy could easily fall into a full-blown depression
  • How currencies mutal funds can responsibily reduce their risk exposure to the US dollar while offering investment gains.

An interesting interview by two gentlemen who understand what is happening. A good listen, especially to understand the Fed, what it can do, what it thinks it can do and its internal politics. A quote is “The math simply does not work” which refers to the fiscal situation of the US.

One of the pertinent points is that gold will continue to rise until we pursue policies that foster savings and investing. A necessary but not sufficient condition is interest rates higher than the inflation rate. Martenson states he is not a gold bug; he is an anti-dollar bug. I think that is a reasonable way to express how many of us “non gold bugs” rationalize our current interest in gold.

People frequently ask how high gold can go. Others throw out numbers: $2,000, 5,000, 25,000. The reality is that there is no way to predict the future price of gold. Such a prediction is a political rather than an economic one. If you can predict political behavior, then you might be able to predict the price of gold. Any number could be correct, depending upon what the Fed and Government do.

In a separate article, Chris Martenson issues a warning that the next upset condition is likely very near and will be bigger than the last:

In order for the financial system to operate, it needs continual debt expansion and servicing. Both are important. If either is missing, then catastrophe can strike at any time. And by ‘catastrophe’ I mean big institutions and countries transiting from a state of insolvency into outright bankruptcy.

We are near or at the point where the worldwide demand for debt exceeds the capital available or willing to meet it:

When both big banks and sovereign entities are simultaneously facing twin walls of maturing debt, it is reasonable to ask exactly who will be doing all the buying of that debt?  Especially at the ridiculously low, and negative I might add, interest rates that the central banks have engineered in their quest to bail out the big banks.

We are cursed in the sense that “we live in interesting times.” In my opinion, the next two or three decades will have a more profound impact on the world than the Great Depression and perhaps the two World Wars.

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