Doug Casey, Casey Research
People believe they have little to lose, they’re eager to hang those they believe responsible for their problems, and they’ll listen to radical or violent proposals. We’re now just entering what will likely be the worst economic trough since the Industrial Revolution. A rioter is typically an angry person looking for vengeance because he blames someone else for his problem. So far, rioters seem to be directing their attention at governments. Correct target, of course, but they don’t have the rationale quite right. They’re not angry because governments inflated the currency, promoted fractional reserve banking, and nurtured all the cockamamie socialist programs that caused this crisis. Not at all; they rather liked all that. They’re angry only because their governments haven’t adequately protected them from the consequences of what they did. So as conditions worsen, we can expect governments worldwide to pull out absolutely all the stops to show they’re “doing something.” And round up scapegoats to satisfy the mob and divert anger from themselves. I fully expect civil unrest to spread everywhere, simply because the depression will spread everywhere. It will be worst in places that have been most overextended, most debt leveraged, most urban, and have the largest numbers of unemployed workers — the U.S., Europe, and China.
Terry Cox, Casey Research
It’s possible to train people to be crazy. If you’re acquainted with a psychotherapist (socially, of course), ask him to explain how it’s done. Training people to be crazy wasn’t what the U.S. government set out to do when it ended the dollar’s convertibility to gold in 1973. But it turned out to be one of the results.
Untethered from the gold standard, the Federal Reserve was free to create new dollars whenever it saw fit. But the policy it drifted into wasn’t steady inflation, day in and day out, it was rescue inflation. The Fed would step up the expansion of the money supply whenever it saw a risk of widespread defaults in credit markets. The unintended effect was to train both lenders and borrowers, by repeatedly rescuing them from damaging defaults, to appraise financial risk unrealistically and to regard what is in fact a source of danger as a manageable nuisance. It made the managers of financial institutions functionally crazy, and the longer rescue inflation continued, the worse they got. (When you read about investment bankers running a business with 30-to-1 leverage and tell yourself, “Those people must be crazy,” you’ve got it about right. But they weren’t born that way. They were trained.)
Karen De Coster, LewRockwell.com
The other prime mover spurring claims of sovereignty on the part of states is rejection of the Federal Reserve and its illiberal policies that enslave the citizens of states by locking them into its inflationary fiat money machinations and debases their currency. Legislators in some states, such as Georgia and Montana, have agitated in favor of throwing off the Federal Reserve in favor of instituting a sound money policy advocating the use of gold and silver as opposed to the Fed’s legal tender notes. In Montana, Representative Bob Wagner introduced a sound money bill (HB 639), though it later died in committee along partisan lines. As times go on and the economic landscape becomes even gloomier, we are more likely to see many more of these kinds of initiatives on the part of state legislatures.
Gold, as such, is a tool for protection against the collapse of the dollar, which is why opponents of the Federal Reserve desire to buy it and hold it. Guns are the tools with which you defend yourself, not only from the local criminal who wants what you have, but even more so, they provide free men with the capability for physical resistance from a federal government whose expansion of powers and oppressive tactics are out of control. Think Rahm Emanuel and Eric Holder, and ask why it is that they champion an agenda that puts guns only into the hands of the government and its approved agents.
Jeffrey Goldberg, Atlantic
It turns out that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart. Or so say the extremely smart—and wealthy—people I asked to help me figure a way out of my paralysis. One of these people was Robert Soros, the deputy chairman of the fund started by his father, George. I went to see him at his office, where he spent two hours performing an autopsy on my assumptions.
“You think a brokerage should be a place you go to pay commissions for fair and unbiased advice, right?” he asked.
“Yes,” I said.
“It’s not. It never has been.” He then cited another saying of Buffett’s:
“‘Wall Street is a place where whatever can be sold will be sold.’ You are the consumer of their dreck. What they can sell to you, they will sell to you.”
“But they told us—”
He went on: “You should be disheartened and disappointed. But don’t kid yourself. You’re a naive capitalist. They were never your advisers. Do not for a moment think that a brokerage firm is your friend.”
“So who’s my friend?”
“You don’t have one. This is the market.”
“Okay, that’s Merrill Lynch. What about the others?”
“They’re not your friends,” Soros said patiently.
Eric Janszen, iTulip
Deflation expectations have over the past two quarters become so deeply embedded in investor’s minds that they now see a deflationary pricing environment persisting for decades, this despite the fact that only a year ago they could not shake the prospect of ever rising inflation, fed as it was by cost-push energy import prices, in turn driven by a weak dollar. Markets also expect central banks, as the economy climbs out of recession, to move quickly to respond to any sign of inflation with rate hikes before inflation price cycles set in.
In other words, the vast majority of investors believe that central banks and governments have so fine tuned fiscal stimulus and monetary policy that the economy can grow out of recession without significant inflation and also that our government is willing to risk sending the economy back into recession in order to halt inflation, if it re-emerges.
We think investors have it wrong again. Big time. We see a collective miscalculation as great as 1981, but in reverse.
We believe the current Fed and administration will embrace a nominal economic recovery, even if real growth is negative, that is, even at the cost of high inflation. As usual, the inflation will be hidden by the government’s inflation data indexing and computation methodology, but evidence will appear all around us.
My guess is it will first take the form, sometime after Memorial Day (but maybe sooner) of wholesale liquidations of everything under the North American sun: companies, households, chattels, US Treasury paper of all kinds, and, of course, the S & P 500. We’ll soon find out whether an organism the size of the United States can run an economy based on one family selling the contents of its garage to the family next door. My guess is that this type of economy won’t support the standards of living previously enjoyed in places like Dallas and Minneapolis.
The socio-political fallout from the inherent anger and disappointment in all this is liable to be severe. The public is already warming up for it, with cheerleaders such as Glen Beck on Fox TV News calling for the formation of militias, and gun sales moving out-of-sight. One mistake that the banking elite and their lawyer paladins made the past decade was their show of conspicuous acquisition — of houses especially — in easy-to-get-to places where anyone can see them, for instance an angry mob in Fairfield County, Connecticut, or Easthampton, New York. Unlike the beleaguered elites of South Africa (where I visited recently), who live behind layers of fortification, the executives of Citibank, Goldman Sachs, J.P. Morgan, and a long list of hedge funds, will be found cringing in their wine-lockers behind a measly layer of privet hedge when the tattooed minions of Glen Beck come a’calling.
This could perhaps be avoided if someone in authority like US Attorney General Eric Holder took an aggressive interest in the multiple swindles of the decade past, and commenced some prosecutions. But the window of opportunity for this sort of meliorating action may close sooner than the government and the mainstream media believe. Social phase-change, as in the formations of mobs, is nothing to screw around with. Once the first window is broken, all bets are off for social stability. My guess is that the various bail-out gifts to the bankers are long past having gone too far in the eyes of this increasingly flammable public.
We have no previous experience with this type of social unrest. The violence of the Vietnam era will look very limited and reasonable in comparison — in the sense that it was an uprising on the grounds of principle, not survival. And the Civil War was a wholly regimented affair between two rival factions. This time, people with little interest in principle beyond some dim idea of economic fairness, will be hoisting the flaming brands out of sheer grievance and malice. By the time [Goldman Sachs CEO] Lloyd Blankfein sees the torches flickering through his privet, it will be too late to defend the honor of his cappuccino machine.
Donald Luskin, Trend Macrolytics
The U.S. dollar is the world’s reserve currency. No other central bank has that status. So when anyone else in the world wants to save, as opposed to invest, you buy Treasury bills. It’s just what you and I would do if we wanted riskless balances: we’d buy Treasury bills.
But what does the Treasury buy? How does the Treasury save? That subtle logic paradox: Who cuts the barber’s hair? The Treasury has no capacity to save. It lacks the physical mechanism. It could invest, it could go out and buy an S&P 500 index fund, but that’s investing, and it’s not eager to invest, because at the moment, at least the culture is that the federal government doesn’t want to be an equity owner in private enterprise.
So with all this money being thrown at the Treasury from around the world, there’s really no choice but to spend it, so an $800 billion stimulus bill like we just rammed through in a rush to judgment a couple months ago is entirely feasible. In fact it was kind of a rational response to the world just throwing money at us, and so that’s the setup.
But here’s the thing. If this were a rational thing for the Treasury to do, then you could say it was rational for unqualified homeowners to accept subprime mortgages three years ago to buy inflated tract homes in Stockton, California, on the theory that three years from now when the mortgage reset, they could just walk away. So what the U.S. is doing with its Treasury debt is in essence the world’s largest teaser mortgage.
We’re funding most of this with debt that’s with an average maturity of around three years. So three years from now, if the world credit crisis is healed and you don’t have the world throwing money at you anymore, then this is going to reset and we’re going to have to roll this debt. We’re going to have to refinance. These three-year notes are going to mature, and what will interest rates be then, when people aren’t desperate to own Treasury bills because they’re afraid of owning anything else?
So this long detour to tell this story has really been about inflation. There’s going to be a run-up to this; it won’t wait until three years, it will be anticipated. So at the year-and-a-half point, when people start talking about it and it starts to be part of the dominant narrative, rates will start to go up, and the Fed’s going to say, “Oh hell, just when recovery started to set in!” And the fact that recovery is setting in is what’s causing these rates to go up.
So just when things are starting to look good, these rates will start looking a little scary, and the dollar will be falling in value, things will get kind of crazy again. But the Fed will say, “We can’t let this nascent recovery be killed by a 5% 10-year rate! That was the kind of rate we had just when the wheels came off starting in 2007. We can’t let that happen again!” So it’s going to be time for the Fed to buy another $300 billion worth of Treasuries and another $600 billion and another $900 billion.
James Quinn, Burning Platform
When I was ten years old my parents told me to never touch our stainless steel sink and the electric light switch above the sink at the same time. I couldn’t resist. I tried it and got knocked on my ass. I never did it again. Americans are a different lot. Last year we got knocked on our ass by $4.00 gasoline. Instead of learning, we have sauntered back to the kitchen sink and we’re reaching up for the electric light switch. I wonder what is going to happen this time.
Americans are used to making tough choices. They have made choices between the Hummer H3 (13 mpg) and the Hummer H2 (8 mpg). They’ve made choices between a BMW 650i (16 mpg) and a Mercedes S600 (13 mpg). The coming energy crisis will lead to choices between food or fuel for many people. The coming crisis is as clear as the housing bubble. Anyone with half a brain could see that home prices would need to fall 30% to 50% to get back to equilibrium. Therefore, no one in Congress, Wall Street, or CNBC saw it coming. Total world oil supply is in a permanent decline. Oil demand will continue to rise. Only a half wit would argue that prices will not rise dramatically in the coming years. Turn on CNBC to get the half wit view of oil prices.
Darryl Robert Schoon
Every experiment with paper money begins well and ends badly. In the beginning, excessive issuance of paper money gives a sense of economic security and expansion, albeit a security and expansion as false as the value of paper money itself. That this experiment lasted three hundred years did not mean it would last forever.
Eventually over time, the issuance of more and more paper money sets in motion a final reckoning, a collective summation of previous monetary excesses, and the longer and more “successful” the issuance of paper money has been, the greater and more destructive the subsequent and inevitable final collapse will be.
This is where we are today. The central bank model based on the Bank of England spread not only to the US but to the rest of the world; and, as central banking spread, so, too, did its credit-based paper money which turns into debt.
Today, trillions of credit-based paper dollars have now replaced the billions which before had replaced millions. The issuance of paper money is infinite because its issuance is not constrained by anything of value; and, because infinitely expanding credit turns into infinitely compounding debt, trillions of dollars of debt are now defaulting and collapsing upon us as the global economy slows.
Mike Shedlock, Mish’s Global Economic Trend Analysis
The idea that gold does well in periods of inflation and deflation is easily disproved. Gold fell from over $800 to $250 over the course of 20 years with inflation all the way. The reality is gold does well in periods of high economic stress (deflation, stagflation, hyperinflation, and periods of prolonged credit stress).
When it comes to trading, it’s frequently a mistake to look for reasons, because they are often not known until it’s far too late. In this case, there is no doubt we are in a period of extreme credit stress. Moreover, nearly every country on the planet is attempting to debase their currency simultaneously.
By those measures, gold should be acting well, and it is. Seasonals be damned.