It's all nonsense. That higher interest rates means lower commodity prices, that is. All the chatter is just that - diversionary clap-trap. If the personal savings rate were to be viewed back to 1960, you'd see that only intermittently did Americans save less than 9%. Today we're setting aside a negative 2.75%! And that's the personal rate. The government's rate of "saving" (surplus) has long since gone down the slop shoe.
You can clearly see that it took a Fed funds rate of close to 20% in 1980 to break the back of gold, and retrieve the US dollar from the abyss. Of course, for Americans it meant a serious depression and misery from which many have not yet recovered. Even then the personal savings rate barely made it back to its former 10% rate, but from 1981 it never looked back and has trended all the way down to where it is today.
As we've pointed out repeatedly, this is an election year. The only goal of the Establishment is to get the incumbents who play ball returned to office. To accomplish that they must see to it that the "Feel Good Index" (Dow Jones) is trending upward, and interest rates are not sufficiently high to break the back of the housing market (voter piggybanks). Can they break commodity prices to forestall a building inflationary climate without harming the Dow Jones or housing? In the short term, it appears that way.
It only matters in the short term, and there is no fundamental political change in philosophy coming our way. The verbiage will become more shrill, yes, but in substance only enough to placate voter insurrection who will vote them another tour in Washington.
At some point the gold price will cross over the Dow Jones and interest rates, Fed and 10-year, will have to exceed 20% for the Federal Reserve to save itself and their political co-conspirators. The stress to accomplish this will fall on the American people to pay the bill.
Take a visual snapshot from the above chart of the period, say 1975 to 1981. Note that big spike in savings followed by a sharp plunge in 1975 is eerily similar to 2005 to the present. Gold began another leg up in 1977 with the savings plunge. That was gold's launch pad to its parabolic rise hitting $850 at one point. Will a Fed funds rate of 20% be enough to save the dollar this time? Can Americans who have no savings tolerate a "Feel Goods Index" drop to 2,500 with a commensurate gold cross at $2,500 per ounce?
I don't know about you, but it doesn't get me all tingly when I think about the outcome.
- - CV
-- Posted Wednesday, 8 March 2006
