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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Keith Feral who wrote (93552)	4/14/2008 10:26:55 PM
From: bart13	Respond to of 110194

The value of the currency is an effect, not a cause indeed. Although I'm far from a big fan of Friedman, he got it right on inflation - "Inflation is always and everywhere a monetary phenomenon", and caused by excess creation of it... by every central bank. Same with Keynes: "By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." -- John Maynard Keynes (the father of 'Keynesian Economics' which our nation now endures) in his book "THE ECONOMIC CONSEQUENCES OF THE PEACE" (1920). (this is in the context of speaking about the ability to control money supply) And its not a recent phenomena: "The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was every invented. Banking was conceived in inequity and born in sin . Bankers own the earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in . But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit." -- Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920's, speaking at the University of Texas in 1927 "The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance." -- Cicero, 55 BC Banks can also print all the money they want, but they can't control where it goes (if anyone has that quote, please let me know - and I don't have the ability to respond to private messages)... and when there are very real and long standing supply issues, as with food and various commodities, its almost inevitable it will go there since the returns are good. And then there's also the extremely long term fact based very high correlation between inflation and tangibles as shown in my partially tongue in cheek "the one chart to rule them all":

To: Keith Feral who wrote (93552)	4/15/2008 12:06:11 AM
From: glenn_a	Read Replies (1) \| Respond to of 110194

Hi Keith. ((It's so interesting that everyone is getting pulled into the great belief a lower dollar is causing inflation.)) Keith, I really find in hard to comprehend how you cannot understand this basic equation. As bart13 correctly stated, the value of a currency is a "result", not a "cause", of inflation. You are completely confusing cause and effect. But the extraordinary expansion of US credit has indeed been a significant contributor to inflation globally. The basic mechanism is that (i) the US extends vast amounts of credit in the form of various credit instruments, (ii) many of these credit instruments end up in the coffers of foreign central banks, which (iii) swells their monetary base, and thereby (iv) serves as the foundation to extend credit in local economies aboard, which (v) results in broad-based monetary-driven inflation for financial assets and in this particular historical episode the prices of commodities broadly. ((I wonder how many people in the food riots outside the US are blaming the lower dollar. Probably not too many.)) Yeah, I would have to think if you struggling to make ends meet, living day-to-day, that you would not necessarily comprehend the mechanisms of monetary policy and credit mechanisms. That's party why the gang of monetary thieves can get away with it. Most people don't understand. ((We like to keep blaming ourselves for the massive increase in global demand for commodities in ag and energy. To me it's a simple supply and demand curve that is destined to keep growing higher.)) But hang on, it's not ONE OR THE OTHER. There's both (i) a DEMAND-driven component - the failure to increase supply to meet with rising demand for food, energy, base metals, etc coming out the middle classes emerging in India and China, and other emerging economies, AND (ii) a SUPPLY-side component - the debt-fueled explosion of credit that stemmed from the policies of the Fed and other central bankers globally. It is this credit bubble, and the financial system that has underpinned it, that is now at risk of imploding. ((The greatest problem with our policy makers is that they are totally unwilling to encourage coal to liquid, alternative energy, or anything that might reduce our dependence on foreign crude.)) No, I do not believe that is our greatest problem. I don't know any energy analyst that I follow that is of the opinion that alternative fuels can replace cheap liquid fossil fuels. Far more important problems are (i) a financial system that is insolvent due to a "ficticious" base that is severely undercapitalized, and (ii) the limitations of mother nature herself in a world approaching "peak everything" IMO. It remains to be seen if we can discover new deposits of "cheap" fossil fuels that can replace the decline in the world's existing major deposits. We shall see. ((I think the key to the ongoing debate between the dollar and the commodities may be resolved by the clear recognition that this economy needs massive monetary stimulus to get things rolling again.)) Well, yourself, Ben Bernanke, and Hank Paulson are certainly in agreement here. Which is why I wouldn't touch US-denominated debt if my life depended on it. Good thing that the Central Banks of China, Saudi Arabia, Japan etc. are willing to hold the junk. Because I can't see any reason why a profit-seeking private investor would go near it. It's also why my entire investment portfolio is structured around precious metals, oil and gas, agriculture, and non-US cash equivalents. Precisely because I feel the Fed will attempt to do exactly as you suggest. ((I don't see the problem ... so much as where are we going to get all the capital to rebuild the infrastructure.)) Indeed. Where ARE we going to get all the capital to rebuild the infrastructure? We certainly aren't going to "print" capital out of thin air. Our banking system is insolvent, and is significantly UNDER-capitalized as it is. Our consumers are loaded up with debt, and are currently faced with decling prices for a core consumer asset, their home. We can either (i) create new claims on capital by debasing the existing claims, or (ii) come by it honestly by borrowing at much higher rates of interest from people who are willing to trust their hard-earned money in our prolifigate hands. Unfortunately, I feel the policy you are advocating will be the path of least resistance. Which is why, I hold NO US-debt, and my portfolio is structured around precious metals, hard assets, and strong currencies. BTW, really enjoyed Russ's rant today: wallstreetexaminer.com Regards, Glenn