Foreword
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In This Issue
The Crack-up Boom Series Part V, Introduction
It's Bigger Than Just the dollar!
Crack-Up Boom
Series Intro
The Crack Up Boom series is exploring
the unfolding "Indirect Exchange" (as detailed by Ludvig Von
Mises), that dollar holders will be using to exit their holdings now and
eventually is will be followed by all holders of fiat currency holdings no
matter which country is perpetrating the "crime" of confiscation of
wealth through the printing and credit creation process that all such
monetary schemes evolve into. The "Crack Up Boom" will drive an
inflationary global expansion to inconceivable heights over the coming years.
Asset prices will skyrocket as people do what they always do when threatened
they will modify their behavior and do the things necessary for "SELF
PRESERVATION" of their families, countries, economies and their wealth.
Let's take a look at Von Mises's description of the CRACK UP BOOM once again:
This first stage of the inflationary
process may last for many years. While it lasts, the prices of many goods and
services are not yet adjusted to the altered money relation. There are still
people in the country who have not yet become aware of the fact that they are
confronted with a price revolution which will finally result in a
considerable rise of all prices, although the extent of this rise will not be
the same in the various commodities and services. These people still believe
that prices one day will drop. Waiting for this day, they restrict their
purchases and concomitantly increase their cash holdings. As long as such
ideas are still held by public opinion, it is not yet too late for the
government to abandon its inflationary policy.
But then finally the masses wake up.
They become suddenly aware of the fact that inflation is a deliberate policy
and will go on endlessly. A breakdown occurs. The crack-up boom appears.
Everybody is anxious to swap his money against "real" goods, no
matter whether he needs them or not, no matter how much money he has to pay
for them. Within a very short time, within a few weeks or even days, the
things which were used as money are no longer used as media of exchange. They
become scrap paper. Nobody wants to give away anything against them.
It was this that happened with the
Continental currency in America
in 1781, with the French mandats territoriaux
in 1796, and with the German mark in 1923. It will happen again whenever the
same conditions appear. If a thing has to be used as a medium of exchange,
public opinion must not believe that the quantity of this thing will increase
beyond all bounds. Inflation is a policy that cannot last. Thank you Ludvig.
Unfortunately, for us all this is now
NOT an isolated currency policy as detailed in the last paragraph, as
globally virtually "ALL" governments are pursuing this policy at
this point. So first we will see the biggest offenders suffer from their
hubris AKA the "UNITED STATES" then it will rotate to all countries
who follow such monetary policies. Public Servants always and every time have
become Public Serpents robbing their constituents to further their personal
ambitions and collection of power and wealth.
It's Bigger
Than Just the Dollar
As regular readers know we have detailed
the central bank fiat money phenomenon that has accelerated during the term
of Alan Greenspan and now his successor Ben Bernanke. His prescription for
every financial and/or economic problem was the US treasuries printing press. He
has destroyed the dollars purchasing power enormously since his first episode
of irresponsibility, which was the 1987 stock market crash. As central
bankers and politicians worldwide observed his actions they too began to
emulate his irresponsibility. Inflation, which began its life as government
policy in the early 1970's, is doing what it always has done when in the
hands of politicians/public servants. DESTROYING THE VALUE OF WHAT YOU
HOLD YOU'RE WEALTH IN, THE CURRENCY AS IT SITS IN THE BANK!
As it created the illusion of prosperity
and short-lived soft recessions. Essential to reelection hopes of many a
politician; therefore they are hearty endorsers of this course of action
(rampant money and credit creation). The world's economies have just enjoyed
the best four-year stretch of growth since the early 1970's. At the same time
it has also seen the greatest explosion in debt issuance in recorded history.
A debt bubble extraordinaire. Debt by its very nature is deflationary as it
is a call on future income. Oh and what a call it is. The future liabilities
of the governments of the industrialized western world (welfare states) are
unimaginable, almost uncountable and unpayable in current dollars, Euros,
British pounds, etc. So you can expect the to print more of them
Greenspan' and now Bernanke's money
printing has now beget fiat money creation worldwide as governments compete
to devalue their currencies in competition for trade advantages and to reduce
the value of their emerging liabilities. A competitive devaluation raceway, a
race to the bottom. Most monetary expansion is done through the issuance of
debt, mortgage, consumer, government, etc. We can see this inflation in the
in the value of assets of all kinds, financial, real estate, commodities as
their prices have skyrocketed in terms of paper "FIAT" money. Let's
take a look at Year over year money supply growth courtesy of
Financialsence.com:
GLOBAL MONEY SUPPLY
|
|
as of 07/09/07 Country
|
YOY %
|
|
Russian Fed.
M2
|
50.94
|
India
M3
|
19.70
|
China
M2
|
16.74
|
Australia
M3
|
14.05
|
United
Kingdom M4
|
13.84
|
Mexico
M4
|
12.21
|
Brazil
M2
|
11.92
|
Denmark
M3
|
10.62
|
Korea
M3
|
10.07
|
Canada
M3
|
8.08
|
OECD Total
M3/ EUROZONE
|
7.86/10.9
|
United States
M3 reconstructed
|
13.7
|
Germany
M3
|
6.16
|
Historically, in Argentina, Zimbabwe
and the Weimar
republic this can be seen as every thing went up except the value of the
money. This is now unfolding GLOBALLY as the "CRACK UP BOOM"
emerges. The purchasing power of the dollar has declined at an 18% compounded
annual rate since 2002. This can be seen in the price of gold in foreign
currencies as well, as gold is breaking out against all major currencies
around the world. Now let's look at the charts and do a little work using the
rule of seventy-two. The rule of seventy-two is that you can take the number
72 and divide it by an annual growth rate and determine how long it takes to
double the price asset on a compounded basis. For example, if something is
growing in price at an 11% annual rate, using the rule of seventy two it is
calculated; 72 divided by 11 = 6.54. The time it will take to double the
underlying number is 6.54 years. Now let's do this to money and credit supply
data from around the world.
We will start with the United Kingdom:
This chart was compiled in October 2006,
but recent money supply reports from the Bank of England confirm its
continued expansion at this rate. Using the rule of seventy 72, 72 divided by
14 = 5.14 years to double the money supply. This implies that asset prices
will double in terms of British pounds every 5.14 years and that savings will
purchase half of what they do now in 5.14 years. Since some of this plain old
money printing from which the government pays its bills with and most of this
new money is actually debt.
Therefore, reducing the money supply
growth rate implies some form of defaults
as the debts become unserviceable as the rate of money supply growth does not
support the additional new "PONZI" finance necessary to create a
new fool to buy the inflated asset value. It is also problematic that an
economy growing 4 to 5 percent per year is creating money at a 14% rate
indicating 3.5 British pounds of new debt for every dollar of new GDP.
United
States:
Of course this is through March 23, 2006
as the Federal Reserve quit printing this at that time. M3 has now been
reconstructed by a number of private economists and is now widely reported at
13.7%, and acceleration of over 50% since march 2006. Using the rule of
seventy-two; 72 divided by 13.7 the US is doubling the money supply
every 5.25 years years. Last October at an International monetary conference
Treasury Secretary Hank Paulson
"GUARANTEED" that the US sub prime and housing bust would not
evolve into a global liquidity crisis, now we know what he meant as this is
its definition. Bens helicopters are now patrolling the banking industry
dropping money into the holes as they occur. If you add the money that the
government borrows from the Social security trust fund the US deficit
soars to over 700 + billion on a yearly basis. The US government's unfunded
liabilities have grown from 20 trillion in 2000 to over 47 trillion today
according to the GAO, the government accounting office.
Real household incomes increased about
100 billion dollars in 2005, while consumer debt was up over 1 trillion. Bush
has increased government an astounding 60% since 2000 and with military
spending skyrocketing and the US government trying to dominate the world do
you think this money and debt creation is going to abate? No way. The recent
ascension of the NEW democratic congress presages even more government
spending on the near horizon as rewards to campaign contributors past and
future. The approaching 2008 elections are ALREADY front and center and the
buying of votes is already in their spending plans. All the candidates are
running on a platform of "FREE" healthcare. I hope they have sent
their orders for additional printing presses to the manufacturers.
Eurozone:
Since this chart was created last
October EUROZONE money supply growth has accelerated to almost 10.9%! A 42%
increase in the rate of growth since last OCTOBER. Using the rule of 72; 72
divided by 11= 6.60 years to double the money supply. Growth in the Euro zone
is good if it approaches 2% using the rule of 72 its economy doubles every 36
years!!! This will accelerate as the new Euro zone entrants are growing
considerably faster. It is a disaster for the old EU. The politicians are in
full control of this supposedly INDEPENDANT central bank.
Australia:
Since this chart was created Aussie
money supply growth has accelerated to over 14.7% in recent Central bank
reports. An increase in the rate of expansion of OVER 40% Using the rule of
72; 72 divided by 14.7 % the supply of money is doubling every 4.89 years. Australia has
gotten its external debts in order and has budget surpluses.
China:
In April 2007 money supply growth was
equal to what we see in this chart. Look at this explosive growth, wow. Using
the rule of 72; 72 divided by 18.4% they are doubling the size of money and
credit every 3.91 years!!! A blistering pace. Remember they sit on over 1.3
trillion dollars of reserves, and are turning away from more dollars. They
are on a worldwide spending spree before the dollar really gets clobbered.
Bond market debacle anyone? Think of the danger we face from modern day Smoot
Hawley's; Senators Chuck Schumer and Lindsey Graham, and their idea for 27%
tariffs on Chinese imports. This is their idea of protecting the poor,
raising the costs of what they buy at Wal-Mart and other discounter by 27%.
New legislation been introduced Presidential candidates Clinton and Obama
targets this critical funding source for the US deficit spending. Can you here
the trade Unions in the background?
India:
India,
just like China,
sit on huge reserves of 220 BILLION dollars, using the rule of 72; 72 divided
by 19.1% = doubling of the money supply every 3.76 years. Phew. Gold anyone?
Russia's
money supply growth is 45% year over year; 72 divided by 45 = doubling the
money supply every 1.6 years. Once again huge reserves of over 400 BILLION
dollars on their books.
I could keep on going but you get the
idea, anyone holding cash is in danger. On the surface nothing bad can happen
at this point, as there is lots of cash in the proverbial cookie jar.
Pullbacks in markets will be only temporary as this flood of money has to
find a home to try and preserve purchasing power against the powerful central
bank money printing machines. Do you really think these governments state
inflation accurately?
It is a booming economy courtesy of the
illustrations above. It is the theft of savings by government as they destroy
the values of those currencies held in bank accounts and fixed income
instruments. It is the cheating of retirees "current and future"
who get pensions that constantly lose value. The purchasing power of the
currencies they are paid in mimicking the action the proverbial ice cube in
your hand. It is the destruction of purchasing power of current workers as
they only can buy less with each new paycheck.
It is the destruction of lenders
"BOND HOLDERS" who lend money based upon government inflation
measures. Take a look at this chart courtesy of John Williams' at www.shadowstats.com ,
this is CPI (Consumer price index) from before Clinton took office.
Let's recall Von Mises's description
from above:
But then finally the masses wake up.
They become suddenly aware of the fact that inflation is a deliberate policy
and will go on endlessly. A breakdown occurs. The crack-up boom appears.
Everybody is anxious to swap his money against "real" goods, no
matter whether he needs them or not, no matter how much money he has to pay
for them.
The first wave of the public the
"SMART MONEY" has woken up and is leading the charge to exit
through the "indirect exchange" provided by "STUFF" and
Units of production called stocks, and of course some the liquidity you see
being created is making a direct beeline for stocks as well, a new government
created stock market boom to offset Investor balance sheet losses in the
unfolding sub prime, CMO (collateralized mortgage obligations), and CDO
(collateralized debt obligations) debacles.
You can expect inflation to accelerate
as this dawns on people and they seek the safe harbor of the unfolding
"CRACK UP BOOM". The definition of inflation is spending your money
now because you believe prices
will be higher in the future; this is the definition of inflation!!!
Economies will continue to grow on the headline number after stated
inflation, not real inflation. There is lots of money around so any market
set backs are temporary as money is seeking returns, no matter how much risk.
Just look at the spread on treasuries versus junk bonds or emerging debt.
This cash hoard is chasing RETURNS. If you buy a US T Bill that yields 5% it
takes 14.4 years to double the money while the governments double their money
supplies every 2 to 9 years, and of course M3 is a lie!!! What about holders
of 10-year notes and longer dated treasuries of any government, these people
are big LOSERS, bonds are BOMBS.
There is more paper sitting in bank
accounts denominated in currencies of all Stripes (American and Aussie
dollars, British pounds, Euros, Rupee, Rubles, Yuan, Yen,etc.) than can be
imagined. Paper Fiat currencies are under a full frontal assault to their robustness, store of value, and
their ability to retain purchasing power, the thought that these various
foreign currencies can rally against the dollar while being created at the
rates outlined is simply mind-boggling. It shows you how much of the coming
debasement is being priced into the dollars market value!!!
What is supposed to be the safest
investments in the world "government bonds" are actually government
sponsored theft! These bonds are rated AAA and institutions, pension funds
and big money gobble them up, are they smart money? NO, as this monetary
debasement can NEVER be withdrawn or the world's financial system will suffer
SYSTEMIC failure as the Asset backed economies and financial systems would
IMPLODE if is was. The world is booming on the back of a wave of fiat money
and debt creation. IT is going to continue to BOOM! Bonds are bombs for
anyone holding them, as the unfolding crack up boom caused
by the aforementioned CUBIC money creation, but non printables (precious
metals, commodities, raw materials, energy, real estate, etc.) or units of
production (stocks) are in as they will just "REPRICE" upward in
the constantly melting paper in the unfolding "CRACK UP BOOM".
In conclusion, there's a lot of people
that are just waiting for a deflationary collapse, I urge you not to hold
your breath for this. This boom has a long way to run, the US may be
broke, but the rest of the world is in the pink. US money printing reconstructed
at 13.7% growth demonstrates to you the Federal Reserves play book for
handling coming banking crisis. Next week the CRACK UP BOOM series will be
covering the "SMOKE SIGNALS" in the numbers and markets. It will be
an interesting look at what various markets are signaling in chorus to on
another. We will also be doing an interesting piece of the stock market and
years ending in 7, the back side of those episodes is FASCINATING.
If you are looking to find an investment
that is up to meeting the challenges of today's markets contact me through www.TraderView.com ,
thank you for reading Tedbits, if you enjoyed it send it to a friend, and
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By : Theodore
“Ty” Andros
www.traderview.com
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Tedbits is authored by Theodore "Ty" Andros, and is registered with TraderView, a registered
CTA (Commodity Trading Advisor) and Global Asset Advisors (Introducing
Broker). TraderView is a managed futures and alternative investment boutique.
Mr. Andros began his commodity career in the early 1980's and became a
managed futures and forex specialist beginning in 1985. Mr. Andros duties
include marketing, sales, and portfolio selection and monitoring, customer
relations and all aspects required in building a successful managed futures
and alternative investment brokerage service. Mr. Andros attended the
University of San Diego, and the University of Miami, majoring in Marketing,
Economics and Business Administration. He began his career as a broker in
1983, and has worked his way to the creation of TraderView. Mr. Andros is
active in Economic analysis and brings this information and analysis to his
clients on a regular basis, creating investment portfolios designed to capture
these unfolding opportunities as the emerge. Ty prides himself on his
personal preparation for the markets as they unfold and his ability to take
this information and build innovative professionally managed portfolios.
Developing a loyal clientele.
This
report may include information obtained from sources believed to be reliable
and accurate as of the date of this publication, but no independent
verification has been made to ensure its accuracy or completeness. Opinions
expressed are subject to change without notice. This report is not a request
to engage in any transaction involving the purchase or sale of futures
contracts or options on futures. There is a substantial risk of loss
associated with trading futures and options on futures.
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