The Spring of Discontentment

Good points. The most recent spate of commodity price increases (everything from wheat to oil to gold) occured starting August 2007. This is when the Federal Reserve decided that the balance of economic risks had shifted from being evenly balanced between growth and inflation, to being more weighted towards the risk of an economic downturn. The hope was that cutting short term rates would prevent transmission of a financial crisis into the broader US economy, while inflation would be contained as aggregate demand cooled. Unfortunately the reality has been an upsurge in inflation and no contraction of credit spreads, so longer term interest rates haven't dropped like they should have, which means most interest rates in the economy have not gone down as much as Fed Funds have. Since credit is hard to get and the cost of credit overall hasn't come down much, we may be headed for a recession after all, but thanks to all the Fed rate cuts we will also have a reduction in purchasing power. In other words, stagflation.

This theme has been coming up more and more recently. Here is a link to a bit dated article with similar ideas … one which also explains the subtle reasons for going to war against Iraq.

WTH? … trying again …

Here’s the web address ….

http://www.energybulletin.net/12125.html

Here’s another attempt to post the live link …

Ejaz you have presented a more technical and if I might say a microeconomical view of the things. What I ahev presented is the fundamental analysis and the underlying reasons for this economic meltdown.

Its so ironic that only people without formal training in Economics are able to comprehend the phenomenon lucidly because modern education, that has effaced the basis of sound money, has just rendered modern economists incompetent and impotent.

As far as energy prices and outbidding of third world countries is concerned, Pakistan just experienced its Winter of discontentment with no electricity, no gas and no water in many parts of Rawalpind, Karachi, Lahore and Peshawar.

Once the scramble for Energy resources begin...the third world countries would find themselves outbid...even at $150 per barrel Indian and Chinese industries would coming to a grinding halt...moreover the cheap bonanza of cheap goods manufactured in Bangladesh, Malaysia, Vietnam, china and exported half-way around the globe to Europe and U.S. would come to an end...

Re: # 3
Von Mises would have the last laugh...down with Keyenes...down with Freidman...

Ejaz,

(but thanks to all the Fed rate cuts we will also have a reduction in purchasing power. )

Why wud rate cuts result in a reduction in purchasing power.

Regards

Re: # 6:

Loose monetary policy would likely increase inflation, resulting in reduced purchasing power.

Don't they have huge oil pools? Dunno if Gold can ever be considered as a measure, it is the advance in science and technology that still holds them in good stead.

We would have to go to the occidental nations for newer medicines and technologies and this would ensure their standing in the world.

I thought India is the largest consumer/buyer of gold in the world. Can't we assume that the citizens' wealth to be the nation's when the situation arises?

Dear Mr. Goldfinger, do invest in Gold, 20-30% I'd say. Countries do too! Reserves, you know!

The US governemt only mints cents, by the way!

Thank God, OUR women prefer 22K instead of the 14K trash that the liberated (?), rich, sexy(?) and fair-skinned (!) women abroad do.

We have something right at least!

Government is not the only guilty party. It doesn't simply print money from a mint. It borrows from the Fed which is comprised of private banks that create money out of thin air by the magic of fractional-reserve banking and then charge interest on it. These banks are also huge beneficiaries of this 'taxation'.

Re: # 10

And that my friend is the reason Islam opposes this INTERESTing terrorism!

For the guilty to delcare a war in return is true terrorism!

Sleep well.

Author,

You wrote:

"... and once again like every paper and/or political money ever circulated in known Human history the Dollar is fading."

What do you make of Bernanke's remark in the Senate Testimony on 28 Feb, and the related comment? (emphasis mine).

Bernanke also told the Senate panel that the dollar's depreciation is 'a positive factor' for reducing the U.S. trade deficit.

``This is the Bernanke shock, causing much faster dollar depreciation than expected,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``We are entering into another world of dollar weakness. The Fed is not unhappy about that.'' (Bloomberg)

Re: # 12
Bernanke is known as "Ben B-52 Bernanke"...he would carpet bomb the US with liquidity...the dollar is rapidly losing its purchasing power...and yesterday after Bernanke's naïve comment the Dollar traded at its three year lowest against the Yen as well (don't forget that the Dollar is also trading at its lowest against the Euro since Tuesday)...

Bernanke is really between the devil and the deep sea...should start looking for some good lubricant imho...

Ahmad Hayat

p.s. US has sent ships to eastern Mediterranean on the orders of Admiral Mullen (JCS who visited Pakistan three weeks ago as well)...today's breaking news...and as McCain said famously or infamously in a pretty bad imitation/re-rendition of Beach Boys Bomb, Bomb Iran...exciting if not interesting times to come

Re: # 9
Of course...I did that quite a long time...
As far as your statement "The US only mints cents" is concerned...I would have to disappoint you...No the US mints gold coins as well...and regularly for that matter...

(should start looking for some good lubricant imho...)

Not a very comforting thought especially when a Pushtoon gentleman advises such a course of action.

Regards

Hayat sahib ...

badi mushkil say hota hae chaman mein deeda-ver paida

Talking about the ills of a fiat monetary system among main stream media audience is like pissing in the wind. But still I'm glad that there is another, besides me, who feels strongly enough about the unsustainability of this system and writes about it.

I got burnt out casting pearls before swine, as this forum is full of MBAs and banker types who simply will not make the paradigm shift... What they do not perceive, they can not conceive.

I'm sure you've read Alan Greenspan's articles about the evils of fiat money and the necessity of having the gold standard to preserve liberty. I posted them in 2002.

http://www.chowk.com/interacts/5535/1/0/0#117586

This, of course, was before he became a whore and sold out to the devil.

In another piece that was posted on Chowk in June 2003,

http://www.chowk.com/articles/6252

I wrote the following:

"...Gold has entered a long-term bull market and in time we should see another gold rush. After three decade of fiat money reign and despite efforts by governments and bankers to discredit the yellow metal as an “ancient barbaric relic” that has no place in modern financial systems, gold has survived and is returning to reclaim its power and prestige. After 22 year of silence in the financial doghouse the yellow dog is barking again. Gold is coming back in fashion..."

There are many main-stream MBA-types who poo-poo such words, but now-a-days they are getting fewer and further between.

A bit further in that 2003 article I added:

"...one day, and that day may arrive sooner than any one imagines, we should see that the price (in U.S. dollars) of an ounce of gold and the S&P 500 Index are the same number. We shall go a step further and add that we should also see the day, in the not very distant future, when one ounce of gold is worth a unit of the Dow Jones Industrials. Today one Dow unit can buy 24 ounces. In 1999 one Dow unit bought 42 ounces. The reader may think that we have taken leave of our senses and have become delusional to make such a suggestion. It has happened a few times before, most recently in 1979-1980. We shall stubbornly stand our ground.

Gold, oil, grain, meat and other natural resources should outperform all paper assets for the next few years, not only in the U.S. but around the world..."

Further still:

"...Over the next few years the U.S. Dollar should continue to decline much more in value, thus further eroding the equity and debt markets in its wake..."

Needless to say, I agree with your overall stance.

We ain't seen nothin' yet...

...SR