my takeaways from Taylor on the Fed:
but first to share a neat Corollary to Gresham's Law I came up with.....
Gresham’s Law:
“bad money displaced sound and good money”
Now consider what I call Gresham’s Corollary:
"strong assets are destroyed if too closely linked to heavily indebted assets"
The Fed is clearly worried about the continuation of declining prices and the prospects for declining prices to continue to put downward pressure on economic activity. That of course has been a problem in Japan over the past 10+ years but it is likely to be an even bigger problem for the U.S. because of our enormous debt burden, not only among ourselves but also to the world.
.....
The dynamics of excessive debt are starting to reach the threshold of lethality. In fact, as I discussed with Tom Arnold on a radio program yesterday (go to www.TFNN.com and click on Tom O'Brien to listen) we are now at the point in the Kondratieff cycle where the cure is worse than the disease. Remember, debt is the problem. So whenever Mr. Greenspan lowers the interest rates by printing more money, he is essentially printing more money by creating more debt. In other words, at this point in the Kondratieff cycle, the cure is worse than the disease.
.....
You can print money but not wealth. Judging by the drubbing the U.S. dollar has taken again this past week, the rest of the world seems to understand that, even if we refuse to understand this very basic and logical concept. Notwithstanding the chart above, which measures the U.S. Monetary Base plus foreign holdings of U.S. dollars, this past week, the dollar index fell to 94.97.
.....
Like the Japanese policy makers, ours too will print more and more money and engage in more and more fiscal stimulation, but to no avail because the laws of nature and markets have been pushed to their limits. In the end, nature and market forces win. And with respect to the exponential growth in debt in relation to the linear growth of GDP, simple mathematical reality ensures that trillions and trillions of dollars of debt used to manufacture fiat money out of thin air will never be repaid which in turn means that our currency, like all other fiat currencies before it, will eventually become worthless. The Kondratieff winter will have its way in destroying debt which is why we must protect ourselves the systemic risk of fiat money by stepping out of our dollar liability system into an asset based monetary system, where the value of your money is not dependent on others to repay their debts. In other words, you need to own gold and perhaps silver, both of which have served as a store of wealth when currencies disintegrate in value.
/ jim |
