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A Kondratieff
Winter is the correction of a credit expansion. During an
inflationary credit expansion capital moves up the pyramid. During the deflationary credit contraction,
or Kondratieff Winter, capital burrows down the pyramid to safety. This
is why stock markets have been crashing as investors flee into T-Bills.
Ultimately, investors ensconce themselves within a deflationary but invincible
and immoveable golden forcefield.
Alan
Greenspan understands the risk a Kondratieff Winter poses to central bankers
as they are impotent against stopping it. On Nov 6, 2003 he said, “Indeed, the Federal Open
Market Committee has judged that the probability, though minor, of an
unwelcome fall in inflation exceeds that of a rise in inflation from its
already low level.”
Greenspan
is not the only central banker who understands what is going on.
Legendary
investor George Soros recently said in Davos, Switzerland, “”The current
crisis is not only the bust that follows the housing boom, it’s
basically the end of a 60-year period of continuing credit expansion based on
the dollar as the reserve currency. Now the rest of the world is increasingly
unwilling to accumulate dollars.”
Soros said,
“I think we do have to rescue markets, otherwise we would go into a
depression like we did in the 1930s.”
There
are hundreds of trillions of dollars in derivatives that are evaporating.
Asset price deflation is intensifying. There are about $1,400
trillion of asset values but I doubt anyone can
really accurately measure worldwide assets. Most of that
notional value of both real and illusory wealth is in derivatives. The
vast majority will evaporate during this deflationary credit contraction.
Of
course, such intervention is what has gotten the world into this mess to
begin with. If the United States followed the free-market money of the
Constitution instead of establishing the Federal Reserve that manipulates the
supply and price of money, always inefficiently compared to the market, then
this financial train wreck would never have happened. More government
intervention and regulation will have the same effect as in the 1930s; more
capital will retreat to gold in a deflationary spiral.
I
think the current crisis is even larger than Soros does. The current
world monetary and financial system has grown over 600 years into fiat
currency and fractional reserve banking via an inflationary credit expansion.
The zenith was reached and a deflationary credit contraction has ensued
and is intensifying. The
tides have turned and what will likely result is a commodity currency and
100% reserve banking. The current system will not so
much collapse as evaporate. Yes, it could take years or even decades or
it could happen extremely quickly because of technological innovations.
For
example, there is an alternative to the current system. Watch this
video for an Introduction
to GoldMoney. As the current system continues its implosion
alternatives will become more attractive because they are safer and more
liquid. These types of services will become more prevalent as
holders of capital seek safer and more liquid investments.
As the
chart shows, investors are buying T-Bills no matter what the cost and
accepting negative real returns. The negative real return marks the
first snowfall of the Kondratieff winter. The next level down is either
physical fiat currency or bullion. Unlike physical fiat currency the
bullion has no counter-party risk.
httpv://www.youtube.com/watch?v=ExYyUzcg6k8
The
earth (US$) revolves around the sun (gold). When Dr. Paul says the US is
broke he is not referring to the $10T debt but instead Fort Knox being empty
of gold because it has been sold to keep the US$ strong. This is the
‘strong dollar policy.’
The
only truly safe and liquid assets are gold
and silver.
I like GoldMoney because
it is an alternative to the current monetary system and eliminates payment
and counter-party risk. To get a copy of The Great Credit
Contraction eBook then click here.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
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