Saturday, January 31, 2009

Why Has Gold Soared?

My view is that what is driving gold higher is the ever louder death rattle of the entire post Bretton Woods system whose soft underbelly has been badly, more likely, fatally exposed by the European and American banking system collapse. And speaking of the banking system, whatever is done going forward will involve more, much more, quantitative easing, to the point of engaging in thoroughly unsterilized monetization if need be. That, to me, is a given. The only question now is who will foot the bill for the removal from the bank's balance sheets of those holdings which are deemed "bad assets." In such an environment, when so much currency debauchery has already occurred, but hardly run its course, owning gold, and even silver, makes a great deal of sense. And though there will certainly be volatility going forward in the precious metals markets, the path of least resistance, over periods of months and years, is higher, much higher.

Wednesday, January 28, 2009

Sarah Palin Watch.

Word has it that The Whore of Babylon has formed her own PAC. And while this should come as no surprise, it is nonetheless unwelcome news. A sane and modestly intelligent nation wouldn't allow such an empty headed creepy non entity as TWOB to get on the ballot much less hold office.

Wednesday, January 21, 2009

Meet The New Boss!

Will he be the same as the old boss? Of course not. President Obama is clearly a vastly different and superior character to his reviled predecessor. Having said that, I do not necessarily expect a successful four years of governance by our new Commander in Chief. I will now observe what has been observed here before, and is being observed at many blogs, Secretary of Treasury nominee Tim Geithner, who would be the nation's chief tax collector, is himself a tax evader of egregious proportions. His appointment belies (and how) the Obama mantra/brand of "Change we can believe in." There's really not a whole lot else to say on this point, as the proof is (and will be) in the pudding. And while the aforesaid concoction is baking in the oven, where it will remain for some time, the oven has a window and a pilot light to see how the pudding is progressing. What I see so far is, at best, mixed.

Saturday, January 10, 2009

Speak of the Devil...

Two posts ago I commented that the U.S. would, in essence, dare the rest of the world to do something about its dreadful custodianship of the currency of the ream. I offered that the rest of the planet, with the exception of a few rumblings, did not appear to be prepared to do much to address the status quo. Here is a report just out that indicates the trend away from the dollar, one now in its infancy, is picking up momentum.

My Letter to Rick Ackerman.

Hello RIck,

I understand you would like a detailed analysis regarding how we will recognize that inflation has returned? I'd be happy to oblige except that inflation must disappear first before it can re-emerge. You see, inflation is alive in well in the monetary aggregates and the trend towards more money creation is confirmed by that most nettlesome canary in the coalmine, gold. And despite all the efforts to suppress gold by the authorities, it manages to maintain a rather elevated price. Until gold kicks the can, inflation cannot be pronounced MIA let alone dead.

Gold is the ultimate arbiter of whether inflation is lurking in the system, and if inflation were utterly absent, gold would, like the stock market, be trying to avoid being cut in half instead of off a mere fifteen to twenty percent from its all time highs. Furthermore, the weekly technical setup looks like gold is preparing to challenge last year's highs sooner rather than later. That is most strange behavior in an environment where inflation is said to be absent. What's more, I posit that gold isn't merely reacting to the prospective creation of yet more U.S. debt for the purposes of untold domestic bailouts, but to enormous amounts of fiscal stimulus being planned by other nations, particularly the Chinese, who will be spending their massive dollar surpluses to shore up their own faltering economy. We will have to wait and see to what extent they succeed, but it is certainly far too early to bet on their failure as the Chinese are much better candidates than we to hold the line with the sort of neo- Keynesian strategies they likely will be resorting to in the coming months and years.

In a broader sense here is why placing your money on long lasting deflation is a losing bet. Short of a massive die off, recall that despite all the tumult in our domestic markets over the last year and a half or so, that there are still just as many souls on planet earth as there were before sub prime mortgages became part of everyone's lexicon. Six and a half billion souls exist on the planet, and they still need to eat, transport themselves, and generally live, as best they can, their lives. Where and how do we Americans fit into this grand picture? I maintain that the U.S. with its outsized influence in world affairs is well on its way to taking a far less prominent role in the activity of the other 6.3 billion inhabitants of planet earth; I further assert that part of that process will involve the eclipse of the dollar as the world's reserve currency. This will, by necessity, entail a great deal more inflation here in the U.S., perhaps hyperinflation, as this nation is no longer able to game the global system by virtue of controlling the monetary medium of world trade. The day when we are removed from our lofty perch is already in process, and the point of recognition that we are just a hulking monetary leper can come at any time, but like the incipient rise in gold, it will, in my view, occur sooner rather than later. The signs are all around us.

Tuesday, January 6, 2009

Obama's Stimulus Package

Well, we knew it was coming, and apparently Nobel Laureate, and most certainly not my favorite economist, neo Keynesian, Paul Krugman, apparently is less than impressed with the numbers that are tentatively being put forward by the incoming Obama Administration. Here are my thoughts. Well, some of them.

As is so often the case, with institutions and individuals alike, the one thing that needs to be done is the one thing that will NOT be done.

What needs to be done is to NOT spend that which we can only raise via issuing colossal sums of debt.

To continue:

Here is the premise, or the raison d'etre upon which the proposed spending program is based.

1.) A severe economic contraction here in the U.S.


Is this, in fact, true? Try not to laugh, when I suggest that a collapse in the financial services industry (the F in the FIRE economy) may not be tantamount to a general economic collapse.

Let us assume a 12% unemployment rate and then let us assume the kind of workers who have lost, or are about to lose their jobs. Putting aside the absolute certainty that we can not pay for this program honestly- (by honestly, I mean without recourse to yet more deficit spending by an economy that looks nothing like America circa 1932), does what we know about Mr. Obama's program address our primary ills with respect to unemployment?

Now on to a somewhat different perspective on matters. Government in our time has, by my lights, clearly become an instrument for looting, and while it would be comforting to believe that the Obama Administration will, in this regard, somehow comport itself differently then its predecessors, experience, to put it gently, lends to skepticism. Any proposed massive spending programs ought to be planned and administered in a way that we have not borne witness to for a very long time. This means a sizable government bureaucracy. And with that we are already behind a big, fat, neo WPA eight ball.

Another thought: (please forgive me for not wrapping the various strands of this post into a cohesive, nifty whole). Even if there were no term for what we now know as Keynesian deficit spending, we would have had it as an accepted staple in our nominal Democracy for generations because short of making war and taxing the citizenry, governments must always be seen to be doing something productive in times of crisis, even if upon close examination, the activity is demonstrably counterproductive. In short, liquidationists, however sensible their austere nostrums may be, need not apply.

And yet a few more thoughts:

Expect a lot of shape shifting from the Obama Administration as regards the still murky "stimulus package." My read of Mr. Obama is that he is, like President Clinton, a thoroughly political animal in the manner of "here are my views, if you don't like them I'll amend them...and quickly."

It is highly likely that Obama's apparent low balling on the stimulus package numbers is nothing more than a bit of misdirection. I am reminded of some of Clinton's jiggery pokery with the military budget where he managed to make the Pentagon seem frugal even as their budget was being increased.

Last thought, I promise. My view is that we will spend money, as we have so far, in epic amounts going forward and dare the rest of the world to do something about it. So far, except for a few rumblings here and there, the rest of the world doesn't yet look ready to do a damn thing about our atrocious custodianship of the world's reserve currency.