Saturday, June 28, 2008

Economic gloom

Lou says it's freefall. I'd say he's right plus more. There are several very worrying signals worldwide, not just in Aotearoa.
Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."
I don't think Dr Cullen has any idea what he's talking about when he says this:
Finance Minister Michael Cullen reassures that the country's economic outlook is positive despite the contraction in the first quarter. "While the March quarter GDP data today are disappointing, it is important to remember that this is a temporary disappointment driven by an unusual set of negative overseas economic developments, but that New Zealand's medium-term economic and social prospects are very health and strong," Cullen says.
I think Cullen falls into this category quite nicely:

Ludwig von Mises observed that fiat money can be inflated as long as people think it will end one day. However, if people begin to think inflation will continue forever or, worse yet, if they think it will accelerate, it’s “game over” for the scumbag thieves who are in the process of robbing honest, hardworking people, who actually create wealth.

Who are the scumbag thieves I speak of? Primarily, they are the bankers and politicians, who form this unholy alliance of thieves. Politicians are always seeking to get elected by giving as many things away to voters as possible, without taxing them. The Federal Reserve-backed banking system provides the cover for the economic lies and dishonesty of our elected officials. As Ronald Reagan quipped, “They say politics is the second-oldest profession and I’ve been around it long enough to know it has a lot in common with the oldest profession.”

Like hookers, politicians turn their own kind of tricks. They trick voters into thinking they are getting something for nothing while they are having their pockets picked by $135 oil prices caused mostly by an increase in the money supply used to finance the exact giveaway programs that get these clowns elected time after time!

Sure, the government's books are in okay shape but this is not a public debt crisis, it is a private debt/credit crisis! What is the bottom line on the world situation?

  • The world will not go into a depression like the 1930’s which was a depression of productivity. The depression of the future will be one of purchasing power of the lower and middle class wage earners who will see their standard of living reduced because of the paper money system.

  • There is also a good article here.

    Lou is right, there are a lot of ducks in a row right now and they're all falling down. Our (NZ's) bottom line is this I believe: with no finance companies left able to lend money there will be no expansions by companies and employers. There will be redundancies. House prices will fall a lot (no crash, just a slump) and there will be no further development because there are no credible finance companies left willing to lend! To solve this 'crisis', money supply in NZ will have to be increased leading to high inflation for a long time. But with no demand to support higher prices (consumer confidence is slumping) prices will fall - deflation. We could then have deflation with very little economic growth.

    How to profit out of this? Buy Gold stocks. Choose companies that are un-hedged to the US dollar and are producing rather than exploring. Gold will go nuts in the next 2-3 years. At the very least don't get into debt, in fact reduce it as best you can.

    This is shaping up as a very good election to lose.

    Have a great weekend!

    3 comments:

    Adolf Fiinkensein said...

    Et tu Gooner? You are sounding like phil u. JUst one major flaw in your argument is the fact that finance companies are not the sole source of risk capital. Trading banks have been taking on more and more risk over the past ten years and have in this past year launched a major campaign to soak up the deposits which previously went to finance companies.

    What you are seeing is a weeding out of the weak, inept and corrupt from the finance industry. It's like climate change. Happens all the time and you can't stop it. Sometimes its a bit more obvious, that's all.

    Think back to 1990/91. This is a repeat. There's be another one around 2035.

    Clunking Fist said...

    "Sure, the government's books are in okay shape but this is not a public debt crisis, it is a private debt/credit crisis!"

    Two points:
    - the gummint hasn't EARNT the money it spends, so it's easy to be in balance when you can (within limits) take as much as you need.
    - with relative high taxes, the gummint has pushed the debt problem on to the private sector.

    So a massive cut in spending and taxes will solve the private debt issue in that we are kinda looking forward to the day when we pay less tax, and the day that inflation has eroded the real value of that debt or that bourgning gummint middle-class welfare will finally catch up to your income threshold...whilst praying that you aren't one of the ones made redundant in the mean time.

    Lou Taylor said...

    Adolf good point but trading banks are pulling their heads in that fast that venture capital is going to be like hens teeth. Cashed up people are going to clean up but the wise ones will wait till next year.

    Our best hope is to bury the Labour party as a political force for the next generation and rebuild the country so honest hard work is rewarded annd we have a government of necessity not policity.

    Gooners suggestion to buy gold is also sound.