"Vicious Circles & the USDollar", by Jim Willie CB
May 22, 2003
321gold.com
first couple paragraphs:
Two weeks ago, an insightful article concerning our unregulated Structured Finance credit system came across my path. My reaction was as much intrigue as fright. The author was Edmund McCarthy, who described the Govt Sponsored Enterprises built atop Fanny Mae and Freddy Mac as a "credit centrifuge" which spins out mortgage finance capital in a manner totally out of control. Click here for article. He provides a frightening image of a system whose current design will continue to grow like a cancer and will not stop until it inflicts maximum damage on the mortgage industry and the economy. Few see anything as having gone awry, so why address a remedy in reform? And it struck me! The entire US economic, financial, and monetary system was designed to promote growth by means of clever leverage, ample governmental funding, and free-flowing investment capital. American ingenuity has been amazingly effective during the expansion cycles to produce stable multi-layered growth, envied throughout the world. But during its supercycle corrective contraction, those same dynamics will witness numerous vicious circles and momentum-driven processions toward crises. The entire system has entered reverse in destroying wealth, and will not turn off.
The entire US Economy shows clear signs of heading toward the same dead-end alley as Japan, the inevitable conclusion of Keynesian Monetarism, which succumbs to the limitations of human management. Soviet Communism failed for many reasons, not the least of which was lack of incentive and nonexistent flow of capital. Conversely and tragically, our system seems to have entered a dead end from an excess of both incentive and credit. Numerous feedback loops are evident, several based on the ailing USDollar, but a few others based on gold, corporate credit, and mortgage finance. No doubt exists among the enlightened that the liquidity trap is tightening, while low interest rates slow the economy, not stimulate it, as inept economists, central bankers, brokerage analysts, and politicians insist. In an expanding economic climate, low rates stimulate by encouraging pentup demand to be released. In a contracting climate, low rates propel the economy deeper into the clutches of the liquidity trap. We have learned nothing from Japan's recent history. Deflation is a structural phenomenon. No monetary medicine can successfully treat it. Monetary inflation cannot remedy deflation caused by structural problems.
/ jim |
