"We Track the Financial Collapse For You, so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Safeguard your financial future. Get our crucial, daily updates.

"We Track the Financial Collapse For You,
so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

The Long Wave Versus the Printing Press

The fascinating thing about “long wave” analysis (broadly defined to include Kondratieff wavesElliott waves, and William Strauss and Neil Howe’s Fourth Turning) is that while each theory uses its own indicators and terminology to show how societies move through recurring cultural/psychological/financial stages, they’ve all reached the same conclusion: we’re toast.

2000 marked the theoretical end of an Elliott Wave Grand Supercycle — and of an even bigger wave that began in the Dark Ages…


…the start of a Kondratiff winter…

…and the beginning of a Fourth “Crisis” Turning. As Strauss and Howe put it in 1997:

Around the year 2005 [give or take a few years], a sudden spark will catalyze a Crisis mood.  Remnants of the old social order will disintegrate. Political and economic trust will implode.  Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire.…Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II….The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, total war

But a funny thing happened on the way to the Greater Depression: We’ve somehow kept it together, inflating the housing bubble and when that burst replacing it with the government debt bubble. Policymakers, talking heads, and most investors (judging by the past year’s stock market action) seem to think that a normal recovery is underway and that the hard times are about to  recede, like after the 1992 and 2000 recessions.

So did long wave analysis fail? Nah, it just bumped up against something new: an unlimited global printing press. Long wave theories are derived from history, and for most of history money has been sound — that is, gold and silver. In a sound money system, when debts reach a debilitating level they have to be liquidated, causing the 10-year contractions that follow 60-year booms. Past governments couldn’t derail this process because they couldn’t make more gold.

They still can’t make more gold. But over the past 40 years they’ve conned their citizens into thinking that paper, unbacked by anything real, is the same thing. Today’s central banks can print as much new paper as they want, and the global economy continues to accept it as money. This systemic gullibility allowed the US to nationalize its housing market, at a stroke increasing the public debt by half. And it’s allowing the EU to move Greece’s debt onto Germany’s balance sheet without setting off a panic.

But the monetary orgy hasn’t suspended the economic laws described by long wave theories. On the contrary, it has amplified those laws. By delaying the end of the cycle by a decade, fiat currency allowed the world to accumulate another $20 or so trillion of debt (more if you count unfunded pension liabilities and derivatives), which will make the coming liquidation that much more painful.

68 thoughts on "The Long Wave Versus the Printing Press"

  1. The inherent problem today is that the commodity prices did not follow the downward trend and by 2002 the commodities began a major bull market which misled investors to thinking that this was a beginning of an inflationary cycle. This mis-step was caught by A. Gary Schilling in his book The Age of Deleveraging brilliantly captured this bottom with his twelve investment to avoid:

    1. Big Ticket Consumer Items—prices are deflating and oversupply
    2. Credit Cards and consumer lenders- no discretionary income, ie. high unemployment, no spare money available, atm house
    3. Coventional home builders- oversupply and total deflation in housing market
    4. Antiques, Art, and other tangibles- these are inflationary in a deflationary world
    5. Banks and Similar financial institutions–where is the money? where is the demand? World of Decreasing assets.
    6. Junk Securities- high debt and no real valuation
    7. Flailing companies- high debt
    8. Low and old tech capital equipment producers- creative destruction
    9. Commerical real estate- no growth or snail growth and deflation
    10. Commodities- over-priced and over-supply and out of touch with deflation
    11. Developing country stocks and bonds- no real markets- developed countries are in no import enviroment
    12 Japan is the poster boy for deflation and will not recover for 10 years.

    Consequently, K-Wave were ahead of the wholesale prices and deflation has hit a new bottom in 2012 until 2017 with daring investors who will outsmart the market by going into inflationary investment. Will there be printing of money- yes but this is irrelevant during deflation because the amount of money avaiable to the consumer has been sucked out of the economy by Federal Reserve Bank Credit and Banks -who refuse to lend when they can receive an
    arbitrage credit for doing nothing. Run from the commodities or face the music.

  2. Just wondered if the use of CDS etc, in fact, allows the private market and banks to create debt just like gummint…….if you stack a pyramid (er…not a good word choice) of CDS on CDS, your earnings go up and based on reading some of the blogs, so does the ability of the bank to borrow because either the gummint/FED says “No” (which ain’t gonna happen), or they relax the credit or provide the cash…….so what was a pile of debt has created new capital…so the $72 trillion of new cash has been added to the market…seems inflationary to me

  3. Well, well…we already have this week’s example of another postponement of the long-wave inevitability via the printing press.

    Just as I was becoming inured to the fact that logical conclusions can take a while to play out, the EU gang outdid themselves and put together an even more appalling financial backstop package than the TARP boondoggle, and they did it over the weekend to boot! I should have stuck to my skepticism when Trichet announced that the ECB WOULD NOT buy the bonds of Greece, et al. Such an attitude was so unbecoming of a European I shouldn’t have been fooled. I figured that that capitulation wouldn’t have come until Thursday of this week at the earliest.

    The unintended (and unforeseeable?) consequences of this will be rich. For one thing, the entitlement mentality of the Greeks has been fortified, and the Spanish and Portuguese have taken note. Just a few weeks of selfish, irresponsible temper tantrums worked liked a charm. It’s a blueprint we’ll see fleshed out again soon if any more socialist governments try to change the rules.

    Notice that any mention of the “required” austerity measures have been dropped? The Irish must feel like chumps, ya know? And how long will that last? Just as the country with the very worst finances begins to show the way…

    Last week, as you may recall, everyone knew that if the Greek debts were monetized then the Euro was toast. This week it may be back on track, now that the ECB has decided to monetize ANY of the PIIG debts. I feel much better now that they “will do anything to save the Euro.”

    There is also the possibility that investors won’t be fooled (again) this time. The fact that no one in the official media is pointing out the painfully obvious analogy with the sub-prime mortgage contagion will not matter. The artificial framework is palpable. I predict that the small and medium-size investors will take the lead this time and sell out of the markets before it’s too late, regardless of any more “good news”, bailouts, or interventions. Any more market recoveries will be seen as fortuitous and temporary selling opportunities. For once, maybe the Big Money guys will be left holding the bag. We shall see.

  4. Bruce C., bankrate.com is generally considered the gold standard of bank rating services.


    John, at the expense of entering the roll your eyes zone, I’d prefer to maintain or expand the social safety net and reduce the military/industry complex and corporate welfare.

    BTW at a family function today a brother in law offered that in a worst case scenario, “Those with guns who are best organized, cops and gangs, have the best chance to survive.” It reminded me of watching post-Katrina news with a young neighbor who said, “It looks like what I saw in Somalia.” Perhaps the best lesson of Katrina is the speed with which society can break down.

    John nailed it, “Sad that we have to have this discussion, no?” Yes and good that we are. Thanks again for creating this site.

    All the best,

  5. Whenever a currency regime is changed, the old currency is confiscated by declaring it invalid. When that currency is made of a valuable commodity (like gold or silver), the currency must be physically confiscated – it can not be declared worthless. That was the reason for the confiscation of gold in 1933 under the administration of president Roosevelt. It that interpretation is correct, then there will not be any future confiscation of gold simply because there will never be a return to a gold standard. Returning to a gold standard means restricting the power of governments – a contradiction of terms since we live in times of steadily increasing power of governments.

    What will most likely happen is that every currency will be gradually phased out and replaced by 100% electronic money which will circulated via plastic money cards. These cards will be introduced in order to trace electronically every monetary transaction. This will be necessary in order to enforce taxation and to make tax evasion impossible. A measure like this combined with special tax rates for the purchase and sale of precious metals will make confiscation of gold completely unnecessary. The tracing of every economic transaction will be made possible by the cheapness of computers and the huge size of their hard disks. One could almost say that we will lose our economic freedom and privacy due to the spreading of computers. Computers will be seen one day as more powerful tools than military weapons.

    The introduction of fiat money is only one step in the ever increasing growth of government power and regulation. The next step will be the control of all banks in the world by a unified world government. Ultimately, this is a necessary consequence of the excessive growth of the human population on earth.

    One more point: If a scarcity of essential goods (food and fuels) does develop one day, the access to these goods may not be restricted by the availability of money (paper or gold). Instead, access to these goods may be rationed by government regulation again managed by computer networks. Nobody will be able to escape the coming hardships with a flight to gold and silver.

    1. A few thoughts on recent comments:


      We’re definitely heading toward the world you depict, but it’s not preordained. When fiat currencies and the welfare state are discredited there will be a global debate over what kind of system to put in its place. And there’s a chance — maybe not a good one but still a chance — that we’ll choose a return to Constitutional principals of sound money and limited government.

      And along the way, until everything of value is confiscated, real assets will tend to go up relative to paper, so holders of gold/silver/farmland will get richer. The question is, will they (we) have enough capital to win the argument.

      Thrash and Bruce on the offshore investing thread,

      For every investment choice there’s a worst-case scenario that makes it look like a terrible idea. But diversification isn’t about knowing what’s going to happen; it’s about recognizing that you don’t know and spreading around your risks. So yeah, the US could send the Marines into Costa Rica and take the condos of US citizens or force Swiss banks to ship their gold back to Fort Knox. They’ll do a lot of crazy things no doubt. But they won’t do every crazy thing, so if we have assets in different forms and different places there’s a better chance of some of our capital surviving, for a while at least. Sad that we have to have this discussion, no?

  6. Here’s another thought along the “asset protection theme”:

    I agree with Thrash that foreign countries/institutions cannot be counted upon to thwart US investigations or witch hunts. So, looking at things from the US gov’s perspective, they will go after the biggest fish, or asset classes, first. Things like, cash in foreign bank accounts, real estate holdings, maybe banks or independent vaults. Therefore, the safest vehicles could be the least “popular”, or ones that are exempted for some reason.

    For example, and I don’t necessarily subscribe to this, the main argument for the ownership of numismatic gold coins over bullion is that they are/should be exempt from confiscation, as they were in the 30’s. People who try to sell this on that basis will claim that the elite/wealthy/politicians/insiders buy old coins for that reason (so that they don’t shoot themselves in the foot). The Patriot Act does explicitly exempt “covered” goods from confiscation, that being any metal whose market value exceeds more than twice its spot price (or something like that). (Ironically, using that standard, even an MS 65 $20 St. Gaudens doesn’t quite meet that criterion, at today’s prices.) Nevertheless, it does provide a handy way for one to legally and easily avoid confiscation, assuming that the law is honored. Frankly, I don’t trust the government to honor much of anything any more (except pay outs to SS and Medicare come hell or high water), but the relative quantity of numismatic gold versus bullion is tiny, so for that reason alone the gov. may ignore it.

  7. Thrash,

    I posted the comment below before I read the latest ones.

    I agree with J.R., which is supports diversification. I also fear confiscation or conscription of my IRAs and 401ks but I don’t know what to do about it short of withdrawing the funds and buying more PMs. (Then it’s either pay the taxes and penalties or leave the country/go-undercover.)

    By the way, when you say “Better to bury cash in the backyard.” I assume you mean PMs (too), right? (Unless you want to preserve some dollars for a museum display in a few years.) Well, that may not be as safe as you think. A metal detector can find them. Just as census workers can show up at your house, so can “other” government employees with metal detectors to look for gold/PMs on your property. Heck, if that’s too paranoid for you, consider he possibility of marauding gangs or even individuals with metal detectors that break-in and rob you, or just go through your yard or property.

  8. G’day to you too, Thrash,

    Excellent points all, and I mostly agree with you. I actually don’t want to take money/PMs out of the U.S. for all the reasons you mentioned, but I was looking for a convincing argument to do so anyway in case I was missing something, but I haven’t found one yet, except in the name of basic diversification (“If in doubt, diversify”.) Maybe there really is no good reason, though Turk’s article referenced by J.R. is sobering. Turk seems to imply that “the Four Horsemen” could come to America just as they have elsewhere, but he doesn’t quite say that explicitly (except, perhaps, his concern for hyper inflation.) Hence, your point.

    Basically, I think your right that we’re all in the same currency pot and the US is probably the least “bad” in terms of the potential extreme breakdowns that might occur. Or, put another way, if the US gets that lawless and unhinged than what practical difference will it make anyway. (That reminds me of a Twilight Zone episode in which some guy emerges from his own bomb shelter and the whole world is destroyed but he still has some gold coins.)

    So, I like your idea to “keep it local”. Thanks.

    In that case I want to find out the extent to which “well-run”, small (?), local banks and/or credit unions are subject to directives from the US Treasury and/or Federal Reserve Bank. I’m mostly concerned about the contents of a safe deposit box, say. I understand that in the 30’s one could access his box only in the presence of an IRS agent, and that creeps me out. It’s happened before so I assume it could happen again. Do you think confiscation of gold could or would happen again?

  9. Very good points John. Particularly confiscation of 401K/IRA and issuing IOU’s (bonds) against all or part of those assets. IIRC, Obama has discussed that very possibility. Ordering a bank holiday and using the opportunity to convert to a new currency is not on the Alex Jones/Mish Shedlock fringe either.

    These are essentially, last gasp, “looking under every rock” policies. My point is, do you really think a world class power like Costa Rica can deny the USA if it chooses to recall or attach the foreign, offshore assets of U.S. citizens when the Swiss can’t protect you? The Swiss are now cooperating with the IRS and have been for a couple-3 years now.

    I remain skeptical that foreign accounts are as safe from the reach of Uncle Sam as the sales brochures suggest. Gold/silver bars and coins in a private vault, not a bank is a separate issue.

    Better to bury cash in the backyard.

  10. The 120-year Kress Cycle is yet another cycle that parallels the ones mentioned here. It should trough around 2014. I’ve thought about why theses cycles seem to be stretched compared to the previous cycle. It’s not just that central bankers have figured out a way to delay the consequences of their own actions. I believe the recent, longer multi-decade wave may be due to longer life spans as well. Four generations take longer to cycle through now than previously. I feel like we’re watching an episode of “Bankers Gone Wild.” The problem is it’s an interactive DVD where we will all feel the consequences of their low living.

  11. P.S.
    As well stable, well run banks and credit unions it isn’t too difficult to find a well disguised private vault near you either. Think local. Much easier to know your neighbors than it is some clerk in a foreign country.

  12. G’day Bruce C.,

    Before moving money outside the country, ask yourself this, if the USA is no longer safe, is anybody? I was born and raised in Canada. Came here at age 28. People talk about Canada having weathered the Great Recession. That kind of talk doesn’t pass the laugh test. Anybody with an I.Q. above moron can see this is just the beginning.

    The Greater Depression started here. That’s puts us three years ahead of the curve. It has now, as long predicted, hit Europe. Even the famed Swiss banking secrecy is compromised. Who’s next is anybody’s guess. Fact is, do you play poker? We’re all all in, one giant currency pot.

    The Islands? You’re one Che Gueverra or Fidel Castro away from having your bank account nationalized and confiscated. Who here saw Hugo Chavez coming before he seized power in Venezuela? Do you really think you can keep your ear that close to the ground that you will be in the know regarding some island?

    Think local my friend. There are plenty of stable, well run banks and credit unions near you.

    Perhaps you noticed policing strategy during our most recent round of civil unrest following the OJ Trial or was it the Rodney King beating? Anyway the policy was and remains containment and let it burn within the contained area. I trust you don’t live inside a containment area but to be sure you might want to have a chat with your City Council rep, County Supervisor or the local Watch Commanders on your local police force.

    I am somewhat familiar with our federal courts. What is already in place to survive a period of civil unrest and even a brief period of martial law is impressive.

    We may severely scale back or perhaps lose some or all of the alphabet soup of non-constitutionally mandated government services; however consider that our brief history we have seen (1) four central banks come and go (2) civil war (3) two depressions upon one generation if you count the “Quiet Depression” of 1968-81, as Kevin Philips coined it (4) War in which we really didn’t know if we’d be forced to learn the Japanese and/or German and through all that our constitution and our treasury has survived.

    Hell just go for a walk and look around Bruce. You think long and hard before entrusting your hard earned currency in another land far, far away.

    1. Thrash,

      Agreed, the U.S. will probably be better off than a lot of other places. But diversification is still a good idea. We can’t know what will happen where, and the list of things that could happen here is terrifying. They could freeze bank accounts and replace old dollars with new ones, which makes a local bank just as risky as a Chase account. Or they could convert IRA and 401(K) assets to government bonds. Or they could impose capital controls to keep money from getting away and then inflate away the national debt. They could impose wealth taxes on real assets like land. They’ve already made gold ownership illegal once in living memory.

      I’m not predicting any of these specifically, just saying that when governments feel control slipping away they do crazy things to hold onto power. So maybe a Costa Rica beach house or some gold bars in a Zurich vault would make it easier to sleep at night.

  13. Duane,

    Studying Prechter’s Conquer the Crash and Elliot Wave Analysis sounds interesting. I haven’t done either, yet. Hope you continue posting on what you learn.

  14. Thrash,

    You wrote something recently that I meant to follow you up on.

    You said you planned to sell some (or all) of your gold at US$1,500. Why that price? I suspect that that will be reached within 6 months or less and, given what I think we’re all expecting by then, why would you want dollars? I don’t mean to probe and, of course, you don’t have to answer, but unless you need/want the cash for something else then that seems akin to jumping from safety into the proverbial fire. J. Williams of ShadowStats warns against the tendency to continue thinking in terms of dollar primacy. If gold goes to $4,800/oz, panic buying not withstanding, would simply mean the dollar has devalued by a factor of 4.

    I seem to recall that you suspect the dollar will be replaced by a new currency. If so, then why jump ship before then? If that happens then the majority – those still with dollars – will get a raw deal by comparison to those with gold, who’ll make the rules.

  15. John Rubino,

    Sorry, This last paragraph also didn’t make it:

    As an aside, what does taking money out of the U.S. really accomplish? Does that mean converting dollars to some other currency, or keeping dollars but getting it out of the control of US banks? What sort of scenarios would those actions protect one against? If the dollar collapses I should think all other fiat currencies will be trash too (Swiss, Australian, Canadian, New Zealand, Yen, etc.), and probably precede the dollar’s demise. I know about the theory that currencies of natural-resource rich countries would be safe or safer, but enough so to be worth the trouble to convert?

    1. Bruce,

      Here’s an essay on the rationale for offshore investing from James Turk, founder of GoldMoney, which stores precious metals in offshore vaults for customers (full disclosure: we’re friends and co-authors of a book — so I can vouch for him personally).


      You’re right that just opening a bank account in another fiat currency wouldn’t necessarily protect your capital, so you want real things like land or precious metals. I’ve been meaning to do a post on exactly how to store gold and silver overseas and to convert an IRA to a precious metals account, and will get to it pretty soon. In the meantime check out GoldMoney and BullionVault, and for real estate see International Living and Pathfinder.

      You’re also right that we’re past the point where a political/economic fix is possible. We’ve borrowed so much that our choices have narrowed to depression or hyperinflation (followed by depression). And it’ll all play out live on CNBC…

      Gotta go to my 12-year-old’s soccer game. More soon.

  16. John Rubino,

    The Q’s & C’s below were meant for you (or for any one else who’d like to respond.)

  17. A few comments and questions, if I may:

    I have to admit that it’s fun to see some predictions play out and to make some money off of them along the way, but the reality of what’s going on is pretty serious for everyone. Monday was pretty normal and then the markets suddenly freaked out. Riots are no joke, and I suspect that this is just the beginning and that civil unrest is going to break out all over the industrialized world in due time.

    Secondly, thanks for the reference to the Bloomberg article about the “7 Groupies” discussing back-up plans to calm the fears about sovereign debt problems. What’s so interesting to me about this situation is that they need to do, or at least say that they’ll do, something that most investors will think is appropriate and effective. It’s possible that investors may have learned that monetization of sovereign debts is not a good thing, so the old tricks may not work any more. Even surreptitious monetization won’t work now unless some acceptable official policy is put forth, otherwise investors will think nothing is being done. Trouble is, there really is nothing they can do to change the math. So, panic may be imminent, or mass denial will kick in and some irrational “solution” will be accepted, for a while longer.

    Lastly, I’d like to better understand the recommendation by some to “get some of your money out of the U.S.” I seem to recall you running a series of articles about such things, one part dealt with the caveats of buying real estate overseas. However, I’m more interested in something more vanilla, like storing precious metals overseas or having offshore bank accounts. Can you recommend a good source of info on that?

  18. All – the video of Representative Alan Grayson excoriating the Fed is really good. It is at the top of this page. The ending (post-Grayson) might disappoint you, though. It wasn’t part of the “agenda”…

  19. Very true Bruce C., and yes I’m lol at your Boomer rant. We barely have time to set it right lest Tom Wolfe’s tag, “The Me Generation” sticks for all time.

    Also appreciate your narrative on belief systems becoming self-fulfilling prophesy. Particularly so with regard to Steve Keen’s description of Bernanke’s neoclassic monetarist response to the present challenge.

    Keynes would be appalled to have such policy ascribed to him and his ideas. I’m not comfortable speaking for the dead but ‘privatizing profit, socializing loss’ is neither Keynesian or conservative.

  20. Bruce and Brad – I’m glad that you guys liked “The Roving Cavaliers of Credit” by Steve Keen. Maybe you saw some of his other stuff. He is now trying to focus on writing a book, so he stopped doing in-depth articles on his blog, for now.

    After today, I think I will get back to Robert Prechter’s “Conquer the Crash” and Elliott Wave Theory.

    You guys write some interesting stuff when you’re conversing.

  21. Hi Thrash,

    (The association of your nick’ and Canada reminds me of a song by Neil Young that I like called “Thrasher”.)

    I agree that Biblical prophecy is scary, and not just because it’s so apocalyptical but because I think people create reality in line with their beliefs, imagination, intentions, etc., so if a lot of people believe it then … well that energy will do something. (If it’s any consolation, though, I also think that reality is a lot more complex than we know, and that there can be probable splits in which parallel worlds develop along separate beliefs. After all, if you create your reality then you shouldn’t be subjected to someone else’s belief-experience, nor they yours.)

    Speaking of belief-experiences, many of the Boomers are brats who were taught the anti-intellectual, anti-industrial claptrap from the New Left. They were a cynical, spoiled and selfish group that disparaged their parent’s generation, took it for granted, and viewed it through the lens of what they were taught. They had the luxury of criticizing everything that supported them and that they enjoyed, but offered no practical alternative to what they criticized (“free love” doesn’t count). Consequently, when they entered the work force they themselves became what they claimed to abhor. All of the corruption, etc. today that you cite is their doing. Boomers were the “adults” in charge since the mid 70’s, and still are.

    The problem, of course, are not the Boomers per se, but the philosophical ideas that they embraced. When people believe that the inner self is bad then bad things happen. Beliefs create reality. – smiley face!

    Disclosure: I’m a late Boomer myself.

  22. John Rubino,

    You might be right about Britain, not saying you’re not. However, Moody’s downgraded Iceland’s debt from stable to negative today. Additionally, the “Baltic Tigers” are in free fall. I guess that’s what happens when you tax labor at 50% and real property at 1%.

    How will Germany react to the British election tomorrow vis a vis Greece? How will creditor nations, the BRIC’s in particular, react to getting paid in devalued currency?

    The Debt Wars are just beginning.

  23. Hey Bruce C.,

    My friends call me “Thrash.” I understand we differ on solutions due to our respective liberal/conservative leanings but I won’t hold that against ya.

    At the end of the day I’m hopeful for the USA. I firmly believe that the world needs America far more than America needs the rest of the world. Biblical prophesy for me, is the scariest story ever told. I enjoy hearing it in a kid at the movies kind of way. I don’t put any stock in it though.

    A wry grin passed my lips when Mr. Rubino compared this situation to the Dark Age. I’ve been posting that this Greater Depression will be worse than the Dirty 30’s but not as bad as the Dark Age.

    It wasn’t until the late 1940’s, early 1950’s that we really came out of the Great Depression. Faith in our institutions was at it’s apex. Government could do things. We built the highways. We landed a man on the moon. We created what Kevin Philips described as our “Golden Age” between 1955-65. We ended Jim Crow and passed the voting Rights Act.

    Government was good and the people trusted government to get it right.

    The Boomer Generation has had quite a different experience with institutions and our faith in government is rightly so at perhaps its lowest point in our history. We are the generation of political assassinations, Vietnam, Watergate, the Oil Shocks and currency debasement.

    My Dad called it way back in the 1960’s as he observed the rise and power of multi-national corporations exceeding that of nation-states. He also noted one evening as we watched news reports about Watergate that, “The worst that could happen has happened. The American people know they’ve been lied to by a President.”

    Is it any wonder our faith in our institutions is shaken? Yes Bruce C., we from Wall Street to Washington corrupt to the core. The corruption is systemic. It is not as John Dean once noted merely,”A cancer on the Presidency.”

    The corruption is such I call this period our 2nd Gilded Age. Thankfully we can learn from history and I do pray for another TR. I thought Barrack Obama was that guy but I too was fooled. Maybe it’s just too soon in the process or cycle.

  24. Brad,

    Yes, I am interested in the timing of things. I admire your ability to reach a conclusion (like the stock market is a casino and lies, fraud, and theft abound), act on it (buy gold), and then just kick-back and watch the show.

    I need to accept that human thought is a lot faster than human action. When I learn something, or figure something out, it suddenly seems obvious AND imminent. Neither may be true, or at least not the imminence.

    If ALL human events were donkey slow then I could chill a little, but not all of them are. Things seem to build slowly and then deconstruct quickly. For instance, it’s taken DECADES for the (obvious?) inevitable, unsustainable nanny-state socialistic policies of Greece and the Europeans to reach the tipping point, and it may take only a few MONTHS for the EU to collapse. (But when? Has it already started, or is Greece just an early rumble and it will be years for the next country to capitulate, despite all the blather about contagion?)

    But why so long when the philosophical fix is in? I think the span of time it takes for bad ideas to manifest themselves is the bane of human existence. No wonder most people aren’t able to make the connections – the consequences take so long to develop that people forget the premises that seed them.

    Another example is in John R.’s article. A financial Armageddon is in the cards (or the charts, or the numbers, or the “mass psyche” (lots of people subscribe to Bible prophecy)) and it seems pretty inevitable by all accounts. And, yet, I read articles talking about 2015 this and 2020 that. (Did you know that by 2030 SS may experience shortfalls?) As they say on ESPN, “Come on, Man!”

  25. John Rubino,

    I want to thank you for your suggestion to use VXX to short the market. I bought some when it was below 20, along with a few other inverse ETFs, and they’ve kicked-ass for the last few days. Today was incredible. I tried to sell when the DOW dropped over 900 points and VXX had gained about 30% but they blocked the order. Still, another 12% on the day wasn’t bad.

    1. Bruce re VXX:

      Nice trade! Volatility turned out to be a fun thing to own…and these inverse leveraged ETFs are addictive.

      Now the question is how much more unstable things get in the short run. Briefly during the day the Vix was up like 60%, which would have set a record if it had ended that way. With riots now live background video on CNBC, the atmosphere can get very surreal very fast. And this is just Greece…a couple of British friends are telling me that now that their election is over it (Britain) is the next domino.

  26. Interesting development today. The USD and gold continue to be seen as the safe havens in troubled times. However today, gold surpassed the USD in gains.

    CNBC’s Larry Kudlow called gold, “The new reserve currency.” Kudlow is as usual wrong of course as are all the Freidmanites. Gold is not currency. Gold is money.

    They just don’t get it. Gold is real. Currency is merely a virtual representation of value or lack thereof.

  27. Certainly, Steve Keen’s “Roving Cavaliers of Credit” filled a couple blanks I’d missed. As I posted here previously, I understood declining demand was primarily the result of demographics in the developed world. Additionally, as I’ve previously posted the “credit crunch” is in large part due to the fact the banks aren’t lending. All this new money the central banks are giving away is used to increase reserves. Duh@me for not putting 2 + 2 together and understanding we have a credit money system. So thank you Duane.

    M3 is contracting simply because the banks aren’t creating money from credit. Why should they when the spread between free money and treasuries is provides an acceptable low risk return.

    Bruce C., keeps returning to the question of timing. Perhaps, as Nouriel Roubini suggests the primary signals of impending doom is government exhausting its ability to tax and have no alternative but to depreciate the currency or as I expect, recall the currency and issue a new one.

  28. Duane,

    I want to thank you for your reference to the article “The Roving Cavaliers of Credit” It was interesting and provided the best explanation I’ve read about why the massive increase in bank reserves injected by the FED has not increased the money supply, as intended. I also agree that from everything that I’ve read the (M3) money supply is now decreasing.

    Also, I thought you did a good job in describing symptoms of a deflationary recession/depression for Jim V. I would just add that intentional supply-reduction by a business is another way that prices can increase for some things in a generally deflated environment.

  29. Jim V. – I’ll try to address your questions and comments. I believe you are right in that people are “reverting to the mean” in personal spending habits, i.e. Personal Consumption Expenditures (PCE) is up – and this is inflationary. Yes, gas and food are up – both indicators of inflation.

    Some claim that the increase in spending is largely explained by 8.9 million strategic defaulters who have stopped paying monthly mortgage and property tax, but are living in their houses free for a year and more. That’s a lot of spending money, comparable – as Bruce pointed out – to Pres. Bush’ stimulus. I believe the defaulting is deflationary; but the sudden “raise” the defaulters granted themselves is inflationary in terms of increase in demand for goods and P.C.E. But home values and rents will drop because of lowered demand – which is deflationary.

    Regarding “David Ziffer says labor rates have got to drop here,” – we have seen and are in the midst of wage deflation. You are correct – that is deflationary.

    There is a lot of controversy about which way gold will go in the near term. The inflationists believe just as you stated – and I do believe the government would overwhelm all of us with liquidity, mainly to protect their power. If they can inflate, they will. Deflation is bad for gold prices, but I’M NOT SURE THE GOVERNMENT AND MEDIA WOULD LET US KNOW IF WE WERE IN DEFLATION. They like to pump the mildly inflationary picture. We’d have to figure it out for ourselves.

    Basically, some economists and finance types believe the money supply is contracting and will continue to contract due to the massive decades long expansion of debt resulting in instabilities in the marketplace. They believe the govt can’t inflate fast enough to counteract this contraction. So far, the money supply is contracting, according to what I’ve seen.

    Take a look at what Japan did:
    That is mind blowing. In 1996 private debt was 5X bigger than public debt. 14 years later, govt debt is 50% higher than private debt! Yet, overall, their debt is contracted since 1996, due to much faster collapse in private debt. That looks deflationary, but that graoh does not tell the whole money supply story, so I don’t know. In modern developed countries, money in the form of debt is king. But, still, govt is doing their best to create inflation and may win (at least in some sectors where the money is flowing, albeit temporary).

    Which do you think is better, inflation or deflation? Deflation is healthier, insofar it can get us back toward being a creditor nation. … (I’ll wait for the laughter to subside) … Inflation is more of the same, which the establishment believes is healthy, expansive and sustainable (and makes bankers rich). To carry your question a little further: deflationary depression vs. hyperinflation? Unemployed or low wages versus working for peanuts, i.e. LOTS of them, but not nearly enough of them…? Some say we will see deflation first, then hyperinflation. I guess one sets up the conditions (lowered money supply) for the other – and the govt can pay their bills! (Scott wrote about this on the last thread). I don’t know which of those two extremes is worse, Jim, so what I want to do is figure out which is more likely, but in the end perhaps prepare for both.

    Prechter’s “Conquer the Crash” has tips on how to prepare for both. Even though he’s a deflationist, he says put 10% (of what? I’m not sure right now) in gold, as a hedge against currency collapse. Whew, long post. I hope you’re stll out there!

  30. Jordan, back in 60’s my Dad spoke often about the rise of multi-national corporations and that eventually corporate power and influence would exceed that nation states. No better reason to break up the banks but sadly nobody is making the argument with such precision as you.

  31. Duane, I’ve only ever made 3 investment decisions. In the 90’s it was stock funds. In 1998-99, about 6 months before the “dot gone” crash we switched into a government bond fund and in 2003 to gold.

    I wouldn’t trust one dollar in somebody else hands anymore. That’s kinda sad really. But between front running, plunder protection or central bank market manipulation I have lost all faith and trust.

    Read a satire, at least I hope it was satire, about Somali pirates confessing that they were in fact GS employees enhancing short positions on shippers.

  32. Jin V. – maybe the Economist.com dictionary will keep you busy for awhile. I’ll think about your followup questions in a while. Meanwhile, this article is good: Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit” http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
    Also, Prechter explains everything in “Conquer the Crash” book and if you register you can get free e-books at ElliottWave.com.

    Brad – you bought at the right time. Our decision is a bit more difficult. I actually envy your approach to things. Longterm, I plan on following Prechter’s (the deflationist) advice and put 10% in gold. He may revise that figure upward. I figure I have until the election.

  33. I’ve been watching these long waves as well and I have to extend and modify your analysis: if you work backwards, for us to experience a drop of the magnitude that is predicted by these various waves, the scope of what is disrupted has got to be huge. If you look at what Per Bak’s work on criticality, for a really really big crash you have to have lots of little zones of instability link-up.

    In this context, it all makes sense. The movement from equities to real estate to sovereign debt has simply been the “storing up” of the energy of the crisis in ever more profound structures so that when the dam finally breaks, it breaks with enough energy to drive that downward trend. The logical conclusion is that the name of the game in this crisis is the end of the “Nation State” as an organizing principle. Truly a game changer.

  34. @Bruce C., you guys crack me up. Always looking for the exact answer. After reading Kevin Philips “Wealth and Democracy” and confirming many of his footnotes, I was convinced we had embarked on an unsustainable economic policy. Then in 2001 a nation turned to its president and in one voice asked, “What can we do?” following the attack on 9/11. His answer, as you know, “Go shopping.” Not even a war bond. Worse he lowered taxes. Even the economically I.Q. challenged new Dubya was going to borrow to finance the wars. Seemed to me bin Ladin’s stated plan of sucking us into the Middle East and bankrupting us had finally found a willing partners in Bush/Cheney.

    My Mom, a staunch, dyed in the wool true blue conservative once said, “The worst thing that can happen to a country is to wake up and find its leader is a reformed drunk who found religion.”

    It seemed to me the ducks were in near perfect alignment and that’s why I bought gold. No charts. No broker’s advice. Just common sense fueled by healthy scoop of fear.

    @JimV. The Economist has a great online dictionary. It ‘splains real complicated stuff so that even I get it. Here’s a link to the deflation definition;


  35. Duane,

    Thank you so much for such a long and thoughtful answer. (“We have to work for somebody. I wonder who” – you’re funny!).

    I’d like to ask you a few more questions if you don’t mind…

    Everything you wrote makes sense and I guess I can see that happening now to some extent, but it doesn’t jib with with what some individuals I talk to say. People say they’re living off of their credit cards (to me that means more debt not less) and they’re spending because they can now and want to feel better. I guess most aren’t living off cc’s but many have definitely said they’re not saving any more, minimum debt payments, etc. And, gas prices haven’t dropped, or food prices ( can you believe how much burger costs these days?)

    Anyway, why do you think some people say to buy gold, that the dollar is devaluing, if deflation like you describe seems to be happening (in which the dollar is worth more)?

    Also David Ziffer (at the bottom) says labor rates have got to drop here, and that would be deflationary too, right? Which do you think is better, inflation or deflation?

    Hope I’m not being a pain. Thanks.

  36. Now that I think of it , probably all assets are speculated into a bubble in the U.S., and maybe in the west in general. Trading and outsourcing labor with the emerging markets is probably the only dampening effect on our asset explosions. Eventually, all assets will be so expanded, and we will be in so much debt to the banks, that eventually bubble collapse(s) will result in loss of our wealth, assets will lose value, and the bankers will take them off our hands. Of course we’ll have to work for somebody. I wonder who.

  37. Jim V. – In deflation, currency goes up in value. So the dollar is worth more. People hold onto their cash, and borrow less. Some prices will go down, to the extent that they are determined by the value of the currency. However, not all prices will go down, and some may go up, because they are determined by other factors, such as international supply and demand. Also, govt attempts to pump money into the economy will raise some prices, such as stocks in the latest rally. Also, demand anomolies occur in a deflationary recession/depression, because people shift their buying patterns. Incomes go down (wage deflation), and unemployment goes up, because there is less demand for goods because people are conserving cash and paying down debt. More important today, there is less borrowing and lending, because people don’t want more debt (what with currency going up, and with lower wages), and lenders don’t want to lend to riskier borrowers. So there is less buying of most things and selling and business slows down. Monetary policy is to reduce interest rates to encourage borrowing and increase the money supply. Fiscal policy is to spend more to stimulate demand.

    This can happen today because for decades we have been transformed from a net creitor to an increasingly large debtor. Private debt has increased the most, by far. Low interest rate policies have, for decades, resulted in debt being used as money to speculate in a manner that is inherently but not necessarily obviously risky, looking for capital gains more than cash flow. Eventually, some asset class is speculated into a dangerous bubble, where defaults occur or asset values collapse. This results in wealth destruction and credit contraction – both deflationary. One major school of economic thought claims that expansions in debt eventually have to eventually result in debt deflation.

    To glue this together, realize that debt=money. The money supply is as large as it is mainly because of money being borrowed into existence by people and businesses, with gov’t debt not quite as large. Private debt is so large today that attempts to inflate the money supply are weakened because of this. Also, attempts to inflate the economy meet resistance, because the banks don’t want to use the Fed’s money to lend to risky borrowers, and we and businesses don’t want to borrow. Additionally the govt spends more in (politically?) targeted areas to stimulate demand. However, it has been shown that the benefit of each dollar in govt spending is decreasing over time, and the latest data show that each $1 increase in govt spending (i.e. deficit spending) has a slightly negative effect on GDP! I believe the govt and the Fed are targeting the stock market, with effect, because they and the media have brainwashed us into thinking the stock market valuation is the bellweather of our economic health, so it may motivate us to revert to spending and borrowing.

    The Great Depression was deflationary, but had a different root cause, though once the money supply contracts, the results are probably much the same.

    Something like that.

  38. Brad,

    In 2009 the the value of gold was only 4% of the value of all financial instruments (in 1980 it was 20%). Maybe 25:1 is more likely.

  39. It will be interesting to see, as the sovereign debt contagion unfolds, how much money goes into Treasuries versus gold and silver. Even though most of the scared money leaving European banks is going in to safer European bonds now, I think that as the contagion spreads it will move over to Treasuries, or gold/silver depending upon the faith in the dollar at that time.

    Ironically, the US may benefit from that in the short run. The dollar index should rise, Treasury bond prices should decrease due to demand (thus holding 5 to 30-year interest rates down) and providing a market for the additional bond issuances this year (“short-term lending needs not a concern”), oil/gasoline should drop, and otherwise further delay signs of inflation. That could be a reason for the day of reckoning for the US to be postponed but also worsened when it arrives.

  40. Read or heard a report that estimated finance to be 40% of the U.S. economy. Expect that part of the solution will require issuing a new currency. David Ziffer’s estimate of 10:1 redemption rate seems conservative.

    We may even go to a two-tiered currency. One domestic and one for international settlements. However it plays out we won’t give up our franchise as the world’s reserve currency without a fight.

    At least it’s not like we’re out of options.

  41. Dave,

    Thanks for the download. Unfortunately I can’t read it now because I don’t have Adobe or whatever I need. Have a Mac. (Also couldn’t send a reply to your E-mail address, so I’m posting it here.)

    Anyway, I think the wild card in the whole subject of gold prices over-valued/under-valued is whether or not the US will have a currency crisis. If it does gold prices will rise significantly. I know that seems unlikely, not for fundamental reasons like too much/un-payable debt, but because everyone has so much faith in the dollar. It would be a monumental event. Most people are not doomsayers right now. But that can change quickly, triggered by something amidst a backdrop of fear. Question is, will that happen? It’s hard to say how far down the path we are now. I think the US debt situation has to get more worse in percentage terms than Greece because of the reserve currency status, etc. We shall see.

  42. David – I wonder if long wave theories would work well for the price of gold?

    Also, I worked out a P/E ratio for legitimate producing gold miners – mostly Canadian. I posted it in the previous thread. I wonder if this P/E ratio is an indirectly useful in your attempt to valuate gold? There would seem to be a correlation, and one could perhaps judge, at least qualitatively, whether gold is overpriced or underpriced according to this data.

  43. On gold and paper, I like to summarize it this way…

    In 1933: people were denied gold in exchange for fiat paper
    In 1971: the World was denied gold in exchange for our fiat paper

    Now, to “satisfy” gold demand, paper gold (ETFs) has been created.

    In all cases, there was/is not enough gold to back the paper. I’m anxiously waiting to see how the story ends.

  44. I have a question for anyone who would be kind enough to respond: I really don’t understand deflation but I want to.

    Inflation I get, one symptom being currency prices increase. In an inflationary recession/depression prices go up and incomes don’t so much (or income inequalities grow) so less there is less economic buying and selling and business slows down. I think interest rates are raised and credit is withdrawn (like credit limits on credit cards) to reduce the money supply to correct the imbalances. Got it. Have even lived through that.

    But what is a deflationary depression? Do prices drop? Do incomes fall? Either? Both? Does economic activity slow down? Are interest rates high or low? Is the dollar strong or weak? If so, how can that happen (today at least). Help?

    Sorry to be off topic, but I’m new to this site and I don’t know anything about waves (but it sounds interesting). I just want to understand what people mean by we might have deflation.

    1. Vastly oversimplified, an inflationary bubble peaks when consumers and businesses have the majority of their income committed to debt service and must, therefore, restrict new debt-based consumption. Demand slows, causing retail prices to fall. Businesses cut costs by slashing wages or laying off workers who then find it difficult to meet their debt obligations. They also slow the buying of inputs, causing suppliers to slash as well. When consumers and businesses default, banks incur losses and have to restrict credit and raise adjustable interest rates, which locks in a self-reinforcing cycle of default and credit restriction. This continues until those who still have money see assets as cheap enough and buy them up at steep discounts.

  45. It all seems baked in the cake – but the question is, how long does it take to bake the cake?? Even a ballpark estimate would be nice..

  46. Thank you for this web site. I am just a goof ball red neck, all of you give the the ammunition to go out a scream the regulars are out! The regulars being the corruption that is out system.
    Trying to hunker down out in the southwest and spread the word. The nation is sleeping once more. The worst is over we have been saved and I am an idiot for not thinking so. This is how I am viewed. Keep up the great work folks.

  47. Two comments:

    1. Considering the sweeping claims that are made by the wave analysis theorists, that fundamentally predictable cycles and patterns of human behavior and social phenomena subsume whatever underlying mechanics (i.e., “causes and effects”) may be involved, I don’t think that it’s consistent to consider massive “money printing” to be an exception and, therefore, an excuse or valid explanation for any predictive errors. Unless these wave “theories” are really just a posteriori anecdotal observations (i.e., that patterns are imposed on the past events in ad hoc manner), the underlying social/political/economic/emotional, etc. reasons for the money printing were long in the making, the theoretical seeds for its occurrence existing from the early 1900s at least. The manifestation of massive currency devaluation may be recent but the timing of that should be within the purview and predictive capacity of wave theory just as so much else seems to be. The fact that currency devaluations have occurred regularly throughout history (albeit relatively mild) is proof that the sentiment to do so has always existed, so I should think wave analysis would have to account for it “blowing up” at various points.

    I’d like to know if wave analysis has been applied to the histories of other countries who devalued their currencies into oblivion (post-revolution France, the US with the Continental, Zimbabwe, etc.). There ARE precedents to check this out.

    2. Id like to call attention to something else that’s going that tends to be ignored as irrelevant, and that is the “emotional storms” that are brewing all of over this country and the world. I don’t claim to know exactly “what” emotions are but I do believe, based upon a lot of things I’ve studied over the years, that emotions do affect physical reality. Supposedly they create “ghost chemicals” that are expelled into the air/atmosphere through respiration and tend to accumulate much like the formations of clouds. Then, again using the cloud analogy, once a certain “density” is reached literally trigger or form both geological and meteorological events. The increasing frequency and severity of storms and earthquakes ARE connected to what is going on with people emotionally all over the world. Why, when, and what happens I can’t say, but I’m convinced that such disruptive mass events are indicative of underlying angst, fears, and angers and will take their toll. We’re in for some interesting times to say the least.

  48. Thanks for this excellent article. The Kondratieff (Kondratiev?) wave graph is truly jaw-dropping. If we are doomed to have the red line ultimately follow the path the the blue line, the violence of the crash will be unprecedented.

    During the buildup of the housing boom, for about 20 years I found myself continually wondering how all this building could simply go on indefinitely. I live in Batavia, IL, at the western edge of the development wave emanating outward from Chicago. The sheer speed at which this wave was moving was incomprehensible. I now understand why I was so perplexed. The boom and all the financing (i.e. the justification) behind it were totally bogus.

    I now have the same feeling about the inequity of the respective values that the world places on Americans’ labor and others’ labor. You can have a man’s suit tailor-made in Thailand, for example, for about $25. An American tailor would charge at minimum $500 for the same work. Indian programmers work for $5 to $10 per hour, whereas in America they make $50 to $100 per hour for essentially the same work. This just can’t go on. The disparity between American pay and worldwide pay can’t keep widening … some cataclysm must reconcile this.

    Of course, I can’t think of anything better than a staggering dollar collapse. It’s gotta be on the order of about 10:1, I’d say.

    1. You can’t get a suit made in Thailand for $25. A cheapo suit will cost you at least $100 (polyester trash) A good custom made suit out of Hong Kong (made in China of course) will cost minimum $300 – I just had a jacket made using Italian fabric – USD800.

      Here’s a good article as to what is failing in the world. One word: Democracy


    2. “Indian programmers work for $5 to $10 per hour, whereas in America they make $50 to $100 per hour for essentially the same work. ”

      Except….. it isn’t the *same* work.

Leave a Reply

Your email address will not be published. Required fields are marked *

Zero Fees Gold IRA

Contact Us

Send Us Your Video Links

Send us a message.
We value your feedback,
questions and advice.

Cut through the clutter and mainstream media noise. Get free, concise dispatches on vital news, videos and opinions. Delivered to Your email inbox daily. You’ll never miss a critical story, guaranteed.

This field is for validation purposes and should be left unchanged.