-- Posted Thursday, 15 January 2009 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, January 15, 2009
“Phenomenally accurate forecasts”
Stocks showed remarkable pluck on Wednesday, buttressed by a Dow average that fell “only” 248 points on a day when the news could not have been much worse. Retail sales figures released by the Commerce Department had been expected to show a paltry gain of 2.2% over the holiday shopping season, but the actual number came in at minus 2.8%. This was not merely the worst number in decades, it was the worst number ever. Virtually every region of the country is weakening economically, according to figures released yesterday by the Government, and some big employers, including Motorola and Gannett, announced layoffs and furloughs that will affect tens of thousands of workers. Even Microsoft was talking about layoffs, although the company denied that the cuts would be as severe as rumored. Some had been saying that as many as 15,000 workers would get the axe, or 16% of the firm’s global work force. Unmentioned was the fact that Microsoft has already savaged the ranks of its contract employees, the first workers to feel the pain in Redmond whenever times are tough.
Even with all the bad news, however, the Dow was never down more than 300 points. True, it wasn’t able to rally much either; but with the blue chip average see-sawing most of the day between down 220 and down 270, it looked to us like buyers, not sellers, were controlling the action. Coincidentally, we had published a link on the subscriber page to a grim essay by Martin Armstrong that emphasized the disconnect between the stock market and the real world. Armstrong thinks we are entering a Second Great Depression that will last at least 23 years, but he also believes that the stock market could makes its bear market low as early as this year or next, albeit at much lower levels. To access the article, click here.
A Hyperinflation Scenario
We’ve been publishing letters from readers responding to our headline, “Calling All Inflationists…” Here’s a provocative one from “Paul of Los Angeles” that offers a highly plausible explanation as to how the current deflation could mutate into hyperinflation. He advances an argument that we had not heard before – that prices for luxury goods (and homes) could stagnate while staples like food and gas take off. (If you’d like to join in the discussion of issues raised herein, you can do so at the new Rick’s Picks forum.)
Paul write as follows:
“In the world of the fiat USD (and all others fiats), you need to distinguish between the numerical destruction of fiat wealth (a mathematical event now happening), and the destruction of BELIEF in the value of the fiat USD itself (a moral/perceptual event that is still in the future). These are two completely different destructive events (mathematical and moral/perceptual), and one has not happened yet.
“At first, the mathematical destruction of vast amounts of fiat wealth clearly makes the remaining fiat units more valuable (law of scarcity), and price deflation results. Your argument for years of monetary deflation is only based in mathematics. Very scary mathematics, but still, only numbers. You need to go further.
“The fiat USD (a debt instrument) ONLY has value in the first place due to a belief that it has value. This belief was ORIGINALLY (as in 1933) founded in trust and discipline. People trusted that debts would be repaid, and that the FED would exercise discipline in the creation of the USD. These two conditions are NECESSARY if the USD is to continue to retain “value.”
“It has now been four generations since the USD went fiat, and massive brainwashing and stupefaction of the general population has been perpetrated. The belief that the USD has value is now simply an ingrained habit. As evidence, I present the President-elect’s pronouncement that we can basically IGNORE a decade of annual trillion dollar deficits, in order to “stimulate” the economy away from collapse. In the face of this insanity, zero MSM alarm bells are sounding. Even two generations ago (the Reagan / Volcker era), people would be running for the hills if this level of monetary debauchery and incompetence were taking place in the United States. So, for the time being, the brainwashed illusion of USD value remains imbedded and stable in the collective USA mind.
“However, regardless of what people have been trained to habitually believe, debt is still the actual “backing” of our fiat currency, and people are generally either unable and/or too fearful to assume more debt right now (the fatal flaw of the New Deal). Therefore, the “backing” of our fiat currency is failing, and worldwide organized trade and commerce (in the words of Jim Willie) is disintegrating. Eventually (months or a couple years), shortages of basic goods and services will surface somewhere in a “first world” nation not accustomed to scarcity. Relative valuations will change. For example, a luxury Mercedes vehicle will be deemed less valuable, and a gallon of gas in a moped, or a loaf of bread in your shopping bag, will be deemed more valuable. Lots of fiat money formerly committed to large, expensive non-essentials, will flow towards essential goods that are in shortage, due to speculation, hoarding, and/or the ongoing breakdown of commerce. Money velocity will increase. Even housing prices will be less important, due to the relative ease of squatting in a vacant residence if necessary. (To answer your question, who cares if the median house price is $100,000 or $10,000,000, if a gallon of gas is $50?) Prices will skyrocket for essentials, and suddenly, the trained and habitual “belief” in the “value” of the USD will evaporate. Deflation will flip over to hyperinflation in the blink of an eye.
“To wax spiritual, in the Book of Revelation the “mark” of the beast is the collective delusional belief in the value of a piece of paper. The Apostle John saw that people could not buy or sell without it, and souls were sold and traded for it. And in the end, the wealth of the Whore ends up being destroyed “in one hour.” This is how I see hyperinflation. It is a collapse in a belief system, and not just a mathematical event. We have already seen how leveraged speculative hedging and Frankenstein-like financial instruments (both only possible in a fiat money world), can result in very fast fiat wealth destruction. Do not, therefore, discount the profound impact of people simply losing faith in an ingrained habit.”
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 15 January 2009 | Digg This Article | Source: GoldSeek.com
