Escape and Fantasy -- Economic Commentary by: Richard Russell

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

[Beck_isright]

"Call me prescient. ;^)"

Call you profitable come October.

[Tauzero]

"A third change will be employment. Jobs will be increasingly difficult to find."

On the bright side, customer service ought to improve...

[hopespringseternal]

Rather tangential, but I have a problem with someone who rails against the war on the basis that it is too expensive, yet largely ignores entitlements.

Yes, we got into this mess partly because we try to be the world cop, but most of the blame still goes on Islamic radicals who want to dictate foreign policy and everything else for the rest of the world. This war is not something we can simply shrug off. The biggest problem for serious politicians is how to wage it with such fickle political support and the nonserious politicians constantly sniping at them.

Entitlements, on the other hand, are an entirely different problem. Everyone has simply surrendered on entitlement spending, and it is a far bigger threat than war. These things are destined for a day in the near future where it is simply no longer possible to fund them.

And as far as "everyone" making insane financial and cultural decisions, that just isn't true. It is true that too many are, but a lot of people still know how to balance a checkbook and raise halfway decent kids. We too often focus on the one teen dressed like a streetwalker and miss the ten who are not.

[arete]

Wow, that was good. Both the currency and society in general is being debased. Got to remember to pick up those tickets to the circus at the local coliseum. I'm betting on Brutus.

Richard W.

[Soren]

I heard a guesstimate that worldwide, since 1990, something like $10,000 in currency has been created for every single ounce of gold in the world.

These numbers are off the top of my head. I believe they are ballpark correct. 130,000 tons of gold in existence (above ground) = roughly 4B oz. Global money supply 30T US$ (may be off on this number). Implies 30T/4B = 7500 dollars / ounce of gold.

[Soren]

Is Russell the one that says POG and the DOW are gonna cross at 3,000?

Yes. Based on market valuations, money supply, and an analysis of the Dow/Gold ratio over time (a return to 1.00).

[djf]

I'm inclined to think that long before gold or the dow get near 3,000 WWIII would break out, if for no other reason, than to mask the utter failure of the financial sectors.

[Beck_isright]

"I'm inclined to think that long before gold or the dow get near 3,000 WWIII would break out, if for no other reason, than to mask the utter failure of the financial sectors."

WWIII has broken out. The media is just masking it with more important stories like Kobe Bryant, Baylor University, and of course, Oprah's waistline. We are in a world war. Just ask all of our troops deployed in the 100 plus countries they are in. And look at how open to attack we really are. Too bad the lemmings won't wake up until an event 10 times worse than 9-11 occurs. If then.

[Soren]

defaltion/inflation:

The Fed can lower interest rates, but it can't force people to borrow. However, isn't the ultimate monetary stimulus mechanism having the Federal Govt run huge deficits and have the Fed monetize the debt? (ie. the govt runs a deficit, issues debt, the Fed buys it using newly printed money, and the money enters the economy as the govt spends it) Can't inflation be forced this way?

[Tauzero]

"I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be."

Inflation might -- might -- prevent the specific evil widespread of loan defaults. But inflation is a tax on the holders of all dollar-denominated assets, and really isn't any better than deflation, in the long run.

Inflation won't necessarily prevent defaults. It doesn't matter that principal and payments are declining in real terms if you are unemployed, or must devote more and more of your dollars for things like food. Those prices rise *before* the average person's nominal income rises.

And even supposing you are able to stay solvent, *inflating* your debt away is almost as big of a hit to your *bank* as an outright default.

Whether both the debtor and his creditor can survive a large inflation is an open question, IMO.

[djf]

In a way, you're talking about a sort of addiction to new money. It's as if the only way to cure the problem is to print more money and feed the problem. When the dust settles, things might be almost unrecognizable compared to what we see today.

[Fraulein]

Also, the next depression -- unlike the last one -- is going to hit upon a nation filled with citizens who have amassed massive debt.

[Soren]

For the record, I am not advocating that approach. Just seems that the govt can force inflation and that it is more likely they would try that than deal with deflation.

[djf]

I wasn't saying you advocate it, just pointing it out. Seems to me that the problem is not with "deflation" per se, but if even a hint of it shows up, there will be all these loans and items that are called in, a cascading collapse of financial instruments that have little if any relation to their face value. It would be the biggest collapse in history.

[Orangedog]

Amen! The marxists learned many years ago that the judicial branch is the weak link of the republic's chain. When the left could not get the legislatures or voters to support their socialist agenda, they did an end-run around them and found judges to make up laws from the bench. What most people are not recognizing are their efforts to get as much "public policy" issues that would previously require legislative action into civil courts. They do this because many civil courts are don't bother inconvenient issues like due-process and equal protection. Half of the kids in this country don't live with their fathers mostly because the left has turned divorce courts (civil courts) into a jobs program that only continues to exist and grow if more and more fathers are evicted from their homes and the lives of their children. Men are only tollerated as long as they pay up the arbitrary amount of money each month that the industry ordered them to pay...an amount of money, by the way, that is directly tied to the amount of federal subsidies that the states receive from Washington DC to administer the collection system, currently over $4 billion a year. The more they order people to pay, the more they get from DC, on top of the percentage they also charge the subjects of those orders. Can you say "conflict of interest?"

And that's just ONE racket the state, local and federal governments use to beat as many people as possible into apathetic surfs.

Look at how they use our own transportation infrastructure against us. All levels of government tax us to death to build and maintain roads that need replaced every 10 to 15 years. They pass laws that allow the police to fleece drivers out of cash for big, bad offenses like having window tint that's too dark (don't get me started on that one!). The insurance industry takes money that drivers are required to pay to them and buy radar and laser speed guns for the police, who use them to right tickets that go on a driver's record, which allows the insurance company to raise the driver's insurance premiums that the state compels them to pay if they want to keep driving.

I could go on and on and on. Of course people are trying to escape, even if it's only into something as utterly vapid as reality TV or professional sports, or the athlete of the month court trial.

[Orangedog]

50% of the people don't know what "50%" means.

Tell me about it. I never will forget an incident from about 15 years ago where I woman I knew asked me to take her to the bank so she could (I'm not making this up) get two 25's for a $50 bill she had. And yes, I did let her go to the cashier and ask for that. This girl was straight-through-the-skull blonde.

[Orangedog]

Given the high debt levels in this country, as well as the large amount of money that most people have invested in their real estate, I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be.

This is how I also see things turning out. Why? because it's like all government action...it will punish the people who worked hard and saved their entire lives while giving a pass to the idiots who run $50,000 on their credit cards.

[djf]

I don't see how it can work. You can't with one hand go on inflating real estate four, five, six hundred thousand, then with the other hand, send two million jobs to India. It's untenable.

[Orangedog]

Too bad the lemmings won't wake up until an event 10 times worse than 9-11 occurs. If then.

I'm not as optimistic as you are. The next 9/11 style event will send this country into a total frenzy. The main reason why there were no riots at the grocery stores and banks was because nothing like it had ever been seen before. Think about it. If you told someone ten years ago that a well organized, terrorist group could pull off hijacking four commercial airliners (or more...God knows how many didn't get off the ground when the FAA closed all air traffic), turn them into guided missiles and use them to completely level the World Trade Center and over 20% of the Pentagon...people would look at you like you just peed on their flower bed.

No, people have had two years to contemplate how bad the next attack will be.

[Orangedog]

I didn't say it would work. Just that it is the easiest way for the fed to get around the massive entitlement and debt situation. It's either that or stop sending out the social security checks, and that would be political suicide.