|
The man on the street is
increasingly beginning to figure it out that the Government has been lying to
him and, in effect, stealing from him. The retired person is finding out because after his cost of living adjustments he is
just not making ends meet. The purchaser of inflation-adjusted securities is
noticing that after his return of capital the capital does not purchase what
it once did. The sender of a Federal Express letter can find a fuel
adjustment charge of $4.13 now for just a single letter! Even producers of
gold and silver, the ultimate defense against inflation, notice the price of
steel and fuel are rising even faster than their end products. These are all
dead giveaways that inflation is higher than reported and the masses are
waking up in larger and larger numbers that it is a matter of survival to
keep pace with inflation.
All of the government
manipulations have largely worsened the situation by not only deceiving the
masses, but also the allocators of capital which has resulted in serious
misallocations of capital. Do we really need more retail stores or housing?
Would we even come close to needing what we already have if it weren't for
free and easy money? (In real terms money has in actuality been less than
free unless you believe the ridiculous measures of low inflation that have
been bandied about over the past few years.) The credit-based emphasis on
consumption and asset bubbles to drive economic growth has gutted the
longstanding, self-sustaining infrastructure of the US economy that
had been its greatest strength.
The differences between our
economy today with the centrally-planned economies of Russia in the
past are less decipherable every year. The neglect of savings and investment
that is crucial to a solid foundation for economic growth has been replaced
by central planning of the economy by economic illiterates. While paying lip
service to free markets and free trade, markets are manipulated and
consumption is now entirely dependant on foreign capital. On top of all of
this the foreign capital is precluded from investing in assets of its own
choice but rather are directed toward more US debt; debt that is unlikely to
be repaid in real terms. It is becoming obvious that the free money phase has
played out, and as foreigners refuse to provide more capital except with
higher compensation for the increasingly necessary monetization, more and
more monetization will become necessary. The seeds of hyperinflation have
been sown.
The US economy is heavily dependent
on keeping asset bubbles from deflating. Just think how many people are
employed as real estate agents, mortgage brokers, stock brokers, and other
paper shuffling activities, not to mention the huge employment in the
retailing industry that is totally dependent on the US continuing
to consume more than it produces. Unemployment probably already exceeds 10%,
yet, again government statistics assure us everything is sound. With such a
heavy dependence on stocks and real estate never going down again, it makes
sense to look at the Weimar experience and the
great inflation in Germany
in the early 1920's. Wall Street and the Government have the masses fooled
that everything is just fine since the market never goes down. Yet if we look
at the German experience the stock market went from under 100 to over 26
Billion in five years' time. A lifetime of savings and retirement funds were
wiped out in a matter of months and people were forced to live from hand to
mouth. With $50 trillion in present value of future benefits promised to
workersm do Americans really believe they will get anything close to that in
real terms? They may get it in nominal terms but it will probably not buy a
bologna sandwich.
So, what to do to protect
yourself from this cataclysmic possibility? Our recent administrators of the
financial system are incredibly similar to John Law, a notorious financial
alchemist that resurrected the economy of France before bringing it to its
knees in the 1800's. The difference is that today's charlatans are equipped with
much more powerful weapons through computerization and financial derivatives
which in the end merely allow for vastly higher degrees of leverage and
obfuscation. This has prolonged the day of reckoning to an incredible extent
yet also guarantees the unwinding will be ever more painful. The typical
financial planner today should be completely ashamed of his lack of knowledge
and ability. While it is not surprising that bus drivers, plumbers, and the
bulk of society are not conversant in the dangers prevalent today, it is
totally unacceptable and disgraceful that financial people whose business it
is to know are so completely in the dark. For example, it is common to hear
advisors recommending municipal bonds as completely safe to investors while
the municipality has huge deficits, debts, with a need to raise taxes that
will kill the local economy. The land mines out there are clear to see with
stocks like; FRE, FNM, GM, GE, F, JPM and a host of others. Don't be
surprised if one of these firms is used as a toxic dumping ground to bury as
much of the defaults as possible. All
of these problems lead back to the same thing; the replacement of real money,
gold and silver, with fiat money that is in the early stages of failure. "The
Rude Awakening", an in-the-know free daily economic commentary, posted
the following chart showing how in real terms gold has barely taken off.
Comparing yesterday's gold price
to todays is apples and armadillos.
 
Don't be impressed that the Dow
is closing in on all-time highs. The charts above from Robert Prechter's
"The Elliott Wave Theorist" show a much truer picture. If measured
in a stable measure of value such as gold, the Dow hit a new six-year low
early this year. Do the recent multi-year highs in some of the major indices
mean everything is strong and running smoothly as the talking heads on
Bubblevision proclaim? We should soon see. The wisest defense in this
environment is to have the bulk of your assets in gold and silver yet the
vast majority as yet have none. What are YOU waiting for?
Richard
J. Greene
Managing Partner,
Portfolio Manager
Thunder Capital Management
More articles by
the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. It is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the author and are
subject to change without notice. The information herein may become outdated
and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
|
