Comrade kodiak_bull:
It certainly wasn't my intention to indict capitalism. As an American born child of first-generation immigrants, few should feel as privileged to live within the free market system as I do.
However, the phrase "modern financial system" brings to my mind the following characteristics:
1. Extensive use of derivatives, sometimes to bizarre excess.
2. Extraordinarily high levels of debt, with few seeing the risks inherent in such.
3. Great liberties taken with the reporting of financial data, including the "pro-forma" corporate earnings trend and wanton adjustment of BLS statistics.
4. Large presence of "dumb money" in the capital markets, which is viewed as somehow healthy or necessary for the system.
5. Growing involvement of political leaders and Central Banks in the "free markets" which has led to imbedded moral hazard and a loss of the essential creative destruction process.
6. Equities markets that have become more important than the remainder of the economy, rather than a reflection thereof.
7. Consumption (including the debt-financed version) being viewed as noble, while production (especially industrial) considered relatively unimportant.
These are not characteristics that will stand the test of time, IMHO. I don't know if gold can help an investor hide from the possible negative results of the above factors, but if it is the modern financial system that has rendered gold as useless, I'll rate gold as a hold just upon that alone <g>.
The greatest problem, by far, are debt levels. The "new era" crowd appears to embrace debt as some type of warm, fuzzy panacea - including everything from monetary expansion to credit card debt. PVN and ENE are but small bricks in this wall. The risks are now enormous, by my view, and the instance of complacency pervasive.
My comment about wealth destruction was aimed at the system which allowed many of these economies to become so over-indebted, so deluged with foreign "hot money" and the role of derivatives toppling the unstable result.
From reading your subsequent posts, I get the idea that you view much of what troubles me as simply a stage of economic evolution. That's certainly fair enough (and I'd agree with you), if I'm at all in the ballpark on the matter (please correct me if I've misunderstood you). But, with our leaders working to arrest the hands of creative destruction I fear that the process has been greatly perverted. Our modern financial system is beginning to seem more as sophisticated socialism (yes, the FRB has their hands in your pockets too when they inflate the money supply) than the free market system that has treated us so well in the past.
<<Let's look at what people are willing to save and spend on: fine houses, cars, airplanes, yachts, luxury space in tall buildings, hobby ranches, designer clothes, fine shoes, silk underwear, ski vacations, computer software, hardware, electronic entertainment. How much was invented, invested in, produced in and marketed from the West? That's right. 100%.
Except for the odd vacation to some exotic place (now, pretty much a bad idea) like the Pyramids of Egypt, or some silk rugs from Persia or one of the 'Stans, what is worth exchanging part of your net worth for that doesn't come from the West?>>
There is some merit to you thoughts here, but I ponder how it is then that the U.S. has compiled such a record of trade deficits over the past decades, and how it is that our manufacturing base is now eroding at such an alarming rate. Are you all that comfortable with the financial flexibility that may leave us Americans dependant upon foreigners for the production of basic items? As long as the remainder of the world continues to play along, the system works in favor of the Western consumers. But, alas, sooner or later creditors will want to be repaid. The financial system is way overlevereged, IMO. This may lead to the mother of all wealth destruction in due course, and/or the realization that much of the wealth has already been squandered.
I could be way off base here (always a possibility) and for reasons of time don't want to belabor the issue. There are many fine authors who expand upon these points much better than I ever could. Just thought that you deserved a response. Sorry that it took so long.
BTW, no nasty PMs from me during the holiday season <g>.
Cheers!
T |
