Escape and Fantasy -- Economic Commentary by: Richard Russell

safehaven.com ^ | July 29, 2003 | Richard Russell

[arete]

I think Russell pretty much nails it.

Richard W.

[arete]

FYI

Comments and opinions welcome.

Richard W.

[anniegetyourgun]

The goldbugs were/are right.

[grania]

What I see now is ESCAPE. Nobody's protesting -- Americans are just escaping.

The author really goes through the topics, but I like the way he connects the dots.

The beginning of this article brought to mind something that has been bothering me lately. It's those "reality shows". Well, they aren't reality at all. They involve rigged, contrived situations that people must live with. That's what surviving in today's society is about...even reality isn't real.

Again, inflation comes up. Suggestion...hold on to cash, pay off debts (especially those that have interest rates that can increase), evaluate what your real necessities are and where money can be saved. Then, when interest rates go up, put the money somewhere safe, hopefully at 6-7 % interest rates.

[arete]

Then, when interest rates go up, put the money somewhere safe, hopefully at 6-7 % interest rates.

That's a start but if we get the kind of inflation that Russell is talking about, rates will eventually be much higher than that.

Richard W.

[headsonpikes]

When the SHTF, I only hope that folks turn their anger on their own stupid belief in socialism and free lunches.

Pretty thin hopes, I know. My fall-back plan is for young people to repudiate all this socialist nonsense at one fell swoop.

Technically, that might qualify as a revolution.

[AntiGuv]

I'm telling you, it won't be hyperinflation for the United States, it'll be deflation. All roads to hyperinflation lead through deflation...period. You can't get from here to a hyperinflation or even a genuine stagflation scenario without plunging into a deflationary contraction. And, once such a development occurs, the economic dislocations will be so comprehensive as to render the very basis of these hyperinflation forecasts meaningless.

[arete]

I'm telling you, it won't be hyperinflation for the United States, it'll be deflation.

Russell obvously believes that the FED will be able to avoid asset deflation. I'm in the stagflation camp right now although that could change.

Richard W.

[Axenolith]

I only hope that folks turn their anger on their own stupid belief in socialism and free lunches.

I'd be willing to bet that the exact opposite will occur.

[expatpat]

You're right, AntiGuv -- the first 3 changes that Russel comes up with (saving vs spending, parsimony, and unemployment) are all deflationary as hell.

[Beck_isright]

"There are two choices. Repudiate a good chunk of this debt or at least cut it back drastically. Or finance the debt via the printing presses. Which one do you think the US government is going to choose? Look, if we're running the printing presses full speed now, and the BIG expenses haven't even hit yet, what do you think our leaders are going to do when the "debt hits the fan?" You guessed it, they're going to inflate at a level that has never been seen before."

And just what happens when we have a .25% Fed Funds rate, but the 30 year is still at 7.5-8% yields. This sounds like a trap of an unseen historical magnitude. We can print money, but it will be too expensive to borrow it. Imagine that scenario for a moment.

[boris]

Part of the problem is that everything changed on 9/11. We will be at war with Islam for the rest of my life--and that means more debt and more deficits into the foreseeable future.

We are at war, and nobody thinks about debt in wartime.

This is one reason I favor quick, nasty, terminal 'solutions' to the problem of militant Islam. Make it fast; get it over with, so we can get back to the job of saving Western Civilization--which may be unsaveable anyway.

--Boris

[Beck_isright]

"I'm telling you, it won't be hyperinflation for the United States, it'll be deflation. All roads to hyperinflation lead through deflation...period. You can't get from here to a hyperinflation or even a genuine stagflation scenario without plunging into a deflationary contraction. And, once such a development occurs, the economic dislocations will be so comprehensive as to render the very basis of these hyperinflation forecasts meaningless."

I agree. Even though money will be "cheap" on the short term securities and Fed Funds, the long term loans which drive real estate and economic expansion will become expensive. So we will have cash, but no one able to afford to take out the loans. Then prices will collapse across the board. I vote the short term inflation, long term deflation scenario. Especially since the earning and spending power of the consumer has not changed in real dollars (adjusted for inflation) since the mid 1980s.

[Beck_isright]

" We are at war, and nobody thinks about debt in wartime."

Which is why I am in the deflation camp. The next attack will cripple the US economy for 10 years. That is the only reason we are getting any cooperation from the EU crowd, and no cooperation from the Latin Americans. They want us to crash so they can default on all the loans. The EU can not let that happen. Someone has started a fire in Rome, but no one has the common sense to call the fire department. What will Nero Greenfickle do next, to pour gasoline on the fire, is the real question.

[arete]

We are at war, and nobody thinks about debt in wartime.

Well, I'm much more cynical about the war. If we didn't have a bad economy first, we wouldn't be liberating anyone. The war is a distraction from the real problems which are the economy. War provides the perfect cover for politicians -- "The economy is a wreak and we have to spend all the money because we're at war, dontcha know."

Richard W.

[Orangedog]

Russel is spot-on. Regarding gold and silver, in inflation adjusted dollars, the 1980 high for gold at $850/oz would be a little over $1800.00 and about $109.00 for silver. Let the polly-annas go ahead and scoff at us. Sure, I "might" miss a 20% upside in stocks (until reality takes over), but I won't have my ass handed to me like a lot of other people will.

[Orangedog]

Unfortunately, when debtor nations collapse, their government usually turns dictatorial. Governments will do anything and everything they can to survive. This won't be like the last depression.

[Orangedog]

IMHO, Greenspan is ready to do anything to avoid deflation, that includes running the "printing press" at high speed, 24/7. It is my belief that his efforts to prevent deflation will cause hyperinflation. In any event, gold and silver are going to be the safe haven of choice. I would expect the next administration in the White House to bring back gold and silver confiscation once the dollar quickly loses more than half it's value within a few weeks (or days) time.

[razorback-bert]

The future is going to be a flow of funds out of paper and into real wealth -- gold and silver.

I agreed with this statement once, but now don't. Too many talking pointy heads have beat the notion of owning gold as a wealth hedge down, saying it's so old fashioned, out dated, and simple minded.

Owning gold, paying cash, avoiding debt and putting money in the mattress for a rainy day are all passe in our modern society.

[Orangedog]

Owning gold, paying cash, avoiding debt and putting money in the mattress for a rainy day are all passe in our modern society.

Which is a large part of why we are in this mess. Let the pointy heads scoff. Gold and silver have been real money since the memory of man runneth not to the contrary. This is just more tulip-mania.