Economic Depression – Precisely Why and Approximately When

November 09, 2004

by Russ Randall

Why Expect an Economic Depression?
Imagine a herd of buffalo that was enticed by a persuasive Mr. “Buffeenspan” to graze in an easily accessible field of sweet weeds that had no food value. Although the activity was enjoyable, the energy they consumed to grasp and chew the weeds was greater than that gained from digesting them. Now thirsty, imagine next that Mr. Buffeenspan seduces the herd with a large sign having a beautiful oasis painted on it to follow him. Of course, the herd follows in an enthusiastic determined fashion having enjoyed the tasty weeds as a result of his initial guidance. After a journey they finally arrive at the destination oasis only to discover a small mud pit. From a weakened dehydrated state of exhaustion, the heard panics and runs away from Mr. Buffeenspan to follow an “Austrian” Buffalo that will lead them to a less convenient grassland near abundant water without the palm trees, knowing some will die along this now much longer journey. For fear of losing the herd Mr. Buffeenspan quickly paints a more beautiful, deeper oasis on a larger billboard asking the herd to stop the panic driven reversal-in-course and continue following him. That did not work, so finally, Mr. Buffeenspan quickly prints millions of dollars and, foregoing the aid of a helicopter at this juncture, spreads the freshly minted bills in a pathway that will encourage the herd to follow him.

Do we have a significant percentage of people employed in companies that would not be profitable under natural interest rate conditions (i.e. grazing in a field of weeds)? Do we have investors with financial and real estate equity assets who believe they are at fair valuations and will return 10-20% annual valuation increases into the future (i.e. the illusion of an oasis)? What should the herd do?

Most economics will argue recessions and depressions are caused by human or negative-shock aberrations (e.g. oil shock), which can be mitigated or prevented by means of “mechanical” monetary and fiscal intervention. The Austrians will argue just the opposite. Significant booms and busts are caused initially by excessive monetary expansion.

I would further suggest there are two clear human perception and behavior conditions that result from the excessive monetary expansion. Once extreme, they cannot be mitigated by monetary or government intervention means. First is aggregate asset overvaluation including equities, bonds (debt), and real estate. The investor’s belief is that his asset or real estate equity represents a perceived real “future stream of goods and services”. Second is that a significant percentage of work activity (behavior) is performed in “Market Unjustified” companies. These are companies that would not be profitable at “natural” interest rate levels. Regardless of asset values, interest rates, treasury spreads, derivative swap spreads, or any other financial instrument or metric, IF THE TWO BEHAVIOR AND PERCEPTION CONDITIONS NOTED ABOVE ARE AT EXTREME ABHORRENT LEVELS, THEY WILL RAPIDLY CORRECT at some point in time. They cannot be quietly diffused through any “mechanical” monetary means of inflation, deflation, or default.

We must search beneath the surface to understand what drives human behavior and fear in our economic world today. If we discover our work activity (behavior) is driven to areas for the wrong reasons on a large scale, and further, if we discover the “future stream of goods and services” that we are expecting to enjoy is largely an illusion, we become fearful and lose confidence in our governing system, our leadership, and ourselves. The more extreme these conditions become, the more severe will be the depression. Currently we exceed any level experienced during the past century in the noted areas.

We know:
· Wealth is created by work; not by artificially suppressing interest rates and increasing bond and real estate perceived valuations, nor by rapidly expanding the money supply enabling Ponzi momentum schemes to inflate equities far beyond real valuations.

· There is financial peace of mind in those who believe they can depend upon a “future stream of goods and services” from financial and equity assets they possess. Equity valuations generally provide a “medium” piece of mind, since we are conditioned to expect volatility. Bond and real estate valuations generally provide “high” piece of mind, since we are conditioned to believe they are stable. Note: An illusion discovery on bonds and real estate would be very unsettling.

· A business enterprise cannot continue indefinitely losing money, unless it is subsidized.

What do we mean by work activity driven for the wrong reasons and what is the result?

Easy monetary policy and cooperative foreign central banks will incentivize people to start up companies or change investment strategies in existing companies such that they may lose money under natural interest rate conditions. Two stories illustrate the point:

Junior and the Boomers; a Misdirected Work Activity
Once upon a time there was an island inhabited by a young Yuppie, “Junior”, and ten older men, the “Boomers,” nearing retirement. Junior wanted a $10,000,000 house, so he asked the Boomers to build it for him. The Boomers were discussing concerns about Junior’s ability to repay when suddenly “Godspan” spoke from the heavens and said interest rates are officially 0.1%. Elated, Junior quickly calculated that he could afford the house by paying an interest-only monthly mortgage of approx. $1,000, which he could readily afford. Concerned, the Boomers asked Godspan who was going to buy the mortgage-backed securities to fund Junior’s mansion. Godspan responded reassuringly not to worry…. “You would purchase the securities”. Once the house was completed they would each have bonds worth $1,000,000, thus they could all retire as millionaires. The Boomers expressed concern about the yield on the bonds. Godspan again reassured them not to worry…. Just look at the past 20 years…you will either gain in asset valuation, if interest rates drop, or gain income from higher yields, if interest rates rise. Either way you’ll be fine, if you just keep thinking long-term. Begrudgingly the Boomers agreed to buy the bonds. Keeping the vision of achieving millionaire status soon and having faith in the omnipotent Godspan motivated them.

A year later the Boomers had toiled and used their last bit of working-life energy to complete Junior’s mansion. Junior was ecstatic at closing. He gained ownership of the dream house that he could afford. The Boomers were giddy because they were all now millionaires…!

The next day one of the Boomers wanted to cash in his bond and spend some of his hard earned money. Much to his surprise there was no one interested in buying his $1,000,000 bond. He quickly learned that the $100 monthly stream of income was all that he was going to receive. Godspan was nowhere to be found. Godspan’s replacement, an Austrian economist, quickly calculated the real valuation of his $1,000,000 bond to be approx. $25,000 at market interest rates, and informed the bewildered Boomer that the difference of $975,000 was an illusion.

In fact, the Austrian economist explained to the Boomer that all he might physically receive is his 1/10th share of the future stream of Goods and Services that Junior was willing to pay to his creditors. If Junior becomes ill or loses interest in repaying his debt, then the repossessed house could certainly accommodate the shelter needs for the ten Boomers, but they were wondering who was going to maintain the home, grow and serve food, care for them in times of illness, pump the gas, feed the dog, and change tires on their motor homes…

Further, the Austrian explained, if they had not experienced Godspan’s monetary distortion of low interest rates and an abundance of liquidity, they might have actually calculated in advance the investment in a $10,000,000 home for Junior would have been unsound. Further yet, had they invested their time into building a sophisticated robot company that Junior could have run by himself to provide all the needed Goods and Services in the Boomers retirement, the story would be quite different. Now, instead of having a Goods and Service producing enterprise that could serve their needs, they have a massive depreciating home that produces nothing and needs significant maintenance to keep up.

The Boomers soon perished because they could not physically help themselves. Junior reclaimed the home because the owners were gone, and spent the rest of his life as a slave to his castle attempting to maintain and heat it…

Godspan preserved his legacy because he left a note reminding all that had Martha Stewart been more forthright in disclosing her insider trading source, the economy would not have collapsed, and he would not have been compelled to intervene with a flood of liquidity that encouraged the malinvestment and fatal misallocation of resources…

Blunter, Bow, and Arrow; a “Market-Unjustified Enterprise”
During the early years of man’s existence, there existed a small community surviving by individual means.

One day Blunter, an entrepreneur in the community, approached Mr. Bow and Miss Arrow with a wonderful new idea. He knew Mr. Bow had the skill set to fabricate a fine bow that could be utilized for more effective hunting. He also knew Miss Arrow had the unique skill set to fabricate straight and true arrows with precision crafted tips and feathers. Blunter, in his charismatic and persuasive way, convinced Mr. Bow and Miss Arrow to produce the necessary tools that would empower him to become a much more effective hunter. In fact, so much better that he was certain the rewards from his hunting ventures would significantly exceed the group’s total potential individual spoils of chasing field mice and rabbits with sticks.

They all agreed to the plan. Bow and Arrow completed their parts brilliantly with excitement, and in the process expended nearly all of their energy. Blunter then took the fine bow and arrows on his first hunting venture. The next day Blunter returned with nothing; no bow, no arrows, and no game. Surprised, Miss Arrow asked Blunter what happened. Blunter said he shot all of the arrows (expenses) and wore the bow out (capital depreciation), but was not able to see the game well enough to hit any. Miss Arrow exclaimed, “You’re blind?” Blunter said, yes, he could not see very well so that explains his name.

The rest of the community sympathized with Blunter, Bow, and Arrow and subsidized them until they could re-hone their stick skills chasing field mice and rabbits. What course of action could the community now take?

A. Encourage Blunter, Bow, and Arrow to continue with the same process hoping Blunter will get lucky? In the interim they recognize a subsidy(or a “nothing down; “0” interest loan) will be required to keep them alive.

B. Inspired with the concept, encourage Blunter and his team to keep trying as well as encourage Blunter’s identical twin brother, Blunter II, to organize another team and hope for better luck?

C. Encourage Hunter, a clear-sighted hunter, to work as a team with Bow and Arrow to improve the likelihood of success (a “Market-Justified Enterprise”). Blunter would be encouraged to work in some other capacity and generate another idea that might have a successful outcome.

Clearly, market-unjustified enterprises (businesses that do not make a profit under “natural interest rate” conditions) exact a toll on the community. Our hearts and spirits go out to them. However, the guide for their survival should be based upon the successful return of more goods and services than would be generated if the enterprise did not exist. By the way, “C” is the best course of action.

In our two stories the Boomers, Mr. Bow, and Miss Arrow were incentivized to perform the wrong activities. The Boomers trusted Godspan, and Bow and Arrow trusted Blunter. The Boomers’ construction company and Blunter’s hunting company were Market Unjustified. Neither company, each for different reasons, will survive long term.

1. They must stop the work activity they are doing and redirect to a Market Justified enterprise (i.e. profitable at "natural" interest rates). The Austrian economists refer to this as malinvestment and misallocation of resources. When easy monetary policy is in force long enough to become systemically imbedded into our financial infrastructure (e.g. GSE's), then extraordinary numbers of companies spring up or change to become dependent upon artificially low interest rates. The transition return to economic health will be a long and painful process as all economy metrics overshoot their averages in negative directions before returning to normalcy


2. The balance of the community must agree to permanently subsidize them. A critical point here is that during the formation stage of these companies a future subsidy by the community is not anticipated, thus there is no structural support planned in the community budget. An eventual tax increase must pass. Of course, another alternate is to subsidize them via inflation, such that all holders of dollars and dollar-based assets indirectly fund the subsidy.

Why Did Such an Extreme Bubble Form?

· Political survival. The collapse of a bubble would be devastating to a party in power; so all efforts are directed to avoid such.

· Federal Reserve Bank directives. Their directive is to adjust monetary policy to achieve stable employment and prices. Unfortunately, the money supply expansion has channeled into financial and real estate equity assets globally, and has not become visible in our CPI indexes due to competitive pricing pressures.

· The inherent optimism of people. Our natural tendency is to believe asset valuations will only increase in the future, even if we are in extreme bubble conditions.

Graphically, What Does the Illusion Look Like?

Note: There are two key issues: One is asset overvaluation, and second is the overly optimistic expectation of annual asset value growth. The conditions combine to create a “double whammy” expectation of future wealth.


“Expected” by the Average Investor:
· An expected “real” asset valuation growth of 5% annually; excluding inflation.

“Reality Based upon History”:· A -21% current asset base adjustment to reflect historical asset-to-GDP ratios.
· A real productivity increase of 1.7% annually going forward
· An annual employment increase of 0.57% (1.0% increase in population less a 0.43% dependency ratio adjustment).
· An annual repayment of foreign investment and debt beginning in 2009 @ 2.0% of today’s outstanding net direct investment and debt.


What Conditions Were Necessary for Our Bubble?
There are three key conditions that were critical to be in place for the upcoming depression, which enabled our asset valuation illusion, and our extreme work activity misallocation into Market Unjustified businesses:

· Fiat money. It would be virtually impossible for a significant bubble to form, if money was based upon a commodity of value (e.g. gold, silver, etc.) without a fractional reserve system.

· Cooperative foreign central banks. As long as their countries are motivated to produce goods and services to satisfy an endless US demand for their products, and their citizenry is content to accept US "paper investments" with higher perceived yields and valuation increases than alternatives, then they will remain invested in US dollar based assets

· A baby boomer population profile. A substantial support base of working people supplying those not working enables a condition where a financial asset bubble may form without being tasked or tested for value. Once the ratio of dependency shifts, and the real goods and service production capability diminishes, then there will be a more realistic valuation placed upon assets based upon the actual profit increment of the stream of goods and services they produce.

When Will the Depression Start?
Why will the illusion discovery happen in 2008?
As long as the ratio of those not working to those working is decreasing or stable, then it is possible to have an ever-expanding bubble. The stream of goods and services may continue unfettered transferring at modest CPI increases as long as most excess money created expands financial asset and international reserve asset bubbles instead. When the dependency ratio begins to increase in 2008 as the Boomers start to retire, the attempt to cash in on the illusory assets will bring the bubble to light. The actual profitable stream of goods and services yielded from an asset will be surprisingly low, thus the recognition of a lower valuation will become apparent.

What will be the expectation of foreigners holding US assets?
They will begin their attempts to cash in the "fruits of their labor" beginning in 2008 as well because of their own "Boomer" population profiles. They will expect to receive the same real value in return for goods that they have shipped to the US, plus a reasonable return.

Will the “X” and “Y” “Gen’s” be able to repay the foreign obligations or expectations in real terms?
No. Since we are operating at a current deficit rate of nearly 6%, the US dollar is at least 100% overvalued based upon empirical experience from the Plaza accord where the dollar exchange value dropped 50% (I.e. 100% overvalued) from 1985 to 1988. As a result, the current account trade deficit reduced from 2.8% (in 1985) to 0% (in 1991). Additionally, the US equity, bond, and real estate markets are approx. 35% overvalued. Combining both factors, the foreign investors will only receive 20-30% of their investment in real terms, and will become extremely upset.

What Can We Do?
Can the asset illusion be diffused over the next 26 years when the last Boomer retires?
Not likely. Once it is discovered, people will tend to "run for the gold" or tangible assets in place of fiat currency or "paper assets" depleting in value. Bubble formations can be gradual, because the conditions that create them are very popular, and resistance to their formation is easily suppressed. However, upon discovery it is a natural human reaction to act quickly and liquidate the paper assets before value drops significantly.

“To Do” List:
· Consider elimination of the Federal Reserve Bank.
· Recognize we have approx. 30% of our employees working in Market Unjustified enterprises, thus….
· The noted employees will have to either stop what they are doing and go work for a Market Justified enterprise, or reduce their wages to become a Market Justified enterprise. As with any bust, there will be a devastating impact on nearly all companies. Unfortunately, the economic chart trends will swing far below the historic median for most metrics before legitimate recovery begins.
· Get out of the business of interest rate manipulation by letting the free market set rates.
· Return to a gold and/or silver based monetary system with no fractional reserve. This will have a devastating impact on the dollar exchange rate, but must be done.
· Above all, do not continue with the traditional Keynesian government intervention means that created the bubble we now have to diffuse, and the fatal misallocation of resources that must be corrected.
· “Fasten your seatbelts” and support a rapid malinvestment and resource misallocation cleansing that will get us back on track as quickly as possible without deteriorating to a permanent socialistic, tyrannical, or chaotic state. Hopefully, a renewed respect for capitalism, property rights, rule of law, free markets, and a cooperative spirit of pursuing a common purpose will flourish…!

By by Russ Randall

Posted by manystrom at November 9, 2004 03:06 PM

If the economy were going to collapse, it would
have collapsed already.

1) Trade defecit
2) Jobs defecit
3) Tax cuts for the rich defecit
4) War defecit (Iraq,etc.)

Just like Rome, a fiat currency can last as long as the military. Rome went into the Dark Ages because her military failed. Same as US. But
I don't see that happening soon. And certainly not in 2008.

Posted by: Robert Herron at November 9, 2004 04:47 PM

Will a 2ND WORLD GREAT DEPRESSION OCCUR? YES! Its 200% guaranteed! When will it occur? Well things take longer than people realize sometimes but I say definately by 2010 because of "many" reasons. Our democrat and Republican Politicians are incompetent and inept. Just like CNN & FOX News and Financial News shows they are "OUT OF TOUCH" with reality. Do not listen to their BS lies & lame theories. Think for yourself and look at statistics and History. People forget history so it repeats itself because people die and their offspring are not warned by their ancestors or they do not learn from history books. Economies go up & down and Depressions usually occur in 60 year cycle so were overdue. The world-U.S. has had it good for too long.Its not right-fair that we have borrowed to excess & our kids will have to pay the debts they did not make. People used to save for a rainy day and the Bible (a history Book) used to warn people to prepare for famine & droughts. People used to can-preserve food yet today people only have enough food in their pantry for probably 1 month tops. Modern society has fooled citizens into believing that hard times will never happen again because of technology?? Fact is the earth is overpopulated when you look at acres of farmland needed to produce food per 1 person. Fresh water is even more important than food in that a person can survive without food for days but you cannot survive long at all without fresh water. Today most peoples water is brought to their home by pumps driven by fossil fuels a finite resource which eventually will run out. The oil age in which fed and grew our population is coming to an end this century and governments will need a changeover period to convert current energy plants, & vehicles to new power sources which will be very costly for govt. and their economies diring the conversion. Our out of touch 2 major party system is ignoring the coming crisis. If you look at the 2004 Treasury Report{which was covered up! why?) our Govt. will have a Big Baloon payment of $44 Trillion Dollars coming due starting in 2008 when ageing americans-baby boomers start to retire and they will expect-demand the money that was taken from them by force.Social security money has been spent in the General fund each year & medicare costs will be too much for govt to handle-fund. We now know the The new medicare prescription drug benefit will cost more that we were told! The govt tells us that devaluing dollar is a good thing? OK I will remember that the next time I go to the Food store.Our currency is not backed by gold standard anymore no! today its backed by a debt ridden govt. Look up the Fed. Reserve Consumer Price Index "calculator" and you can see our Medium of exchange is collapsing. since 1964 it takes 6.04 Fiat paper Dollars (monopoly toilet paper money) to buy the same goods and services today than it did in 1964 with a lawful silver dollar. 1/ divided by 6.04 = .16 cents! .16 cents is all a dollar is worth today. Thats an 84% LOSS! YET 1 ounce Gold in 1964 was $35.00 today 1 OZ. gold is worth $430.00. an increase of 1200% 430/35=12. Our govt officials lie to us that our economy is getting better yet our currency that we buy "EVERYTHING" NEEDED to support our families has virtually collapsed and soon will. Think!that why everything costs so much today. The average american has to borrow to buy even small items that our parents paid outright for 40 years ago.The Federal Reserves website says our Paper money has "NO INTRINSIC VALUE" SORRY BUT our Founding fathers were afraid of central banks controlling our currency. Whatever happened to "WE THE PEOPLE" being the bosses telling our "public Servants" what to do? The constitution states only Gold and silver shall be used as payment of debts.Paper is not a precious Metal it is renewable and not rare. The u.s. Govt. went off the gold standard because the gold std. kept them honest and they could not "excessively borrow" more money than the system had. TODAY our Fed. dollars are not backed by gold "NO" Today our money is backed by a bankrupt Govt. promise. Right now our govt has hit its debt ceiling of $7.4 Trillion so technically its bankrupt until they borrow more play-money. Fact they cannot keep this up for much longer. When average americans and world citizens realize their paper money is a fraud and they do not believe in it and trust it the games over! That is occuring NOW! already citizens cannot afford to support their families . From 1924 to 1964 inflation only rose .77 cents not $6.04 dollars like today. Think will cars cost $50,000 in 20 years homes $500,000 1 loaf of bread $20.00 people paychecks will not rise that much to compensate.
Our out of touch Congressmen (Kerry was a senator) in Feb. 2004 Voted themselves a "PAY RAISE" WHEN WERE AT WAR IN IRAQ, & Millions of americans have lost their jobs due to bubble burting under clinton Jan. 2000 and sept.11. Do they feel your pain? I guess $105,000 a year is not enough to live on? How Dare they ask for more money when most americans make make $50,000 a year or less (80%). proof they are out of touch and dont give a damn. Republicans ,Bush call themselves Conservatives what a laugh. Conserve means spend less not more. Fact Bush has spent more money than any president in history. I could not believe the u.s. public actually believe that either kerry or bush can save this republic!
Also nothing is "made in america" anymore no its "made in Communist China". How will americans support their families without jobs. Mcjobs will not due!
The Trade deficit is at record levels.
The interest payment on the National debt in 2003 was equivilant to what the govt spends on the military each year!!
Dont forget "out of budget" costs expendatures like Post Office which loses money each year and top secret military costs , etc
The demand for oil - energy is surpassing supply so the days of cheap oil are coming to an end. The airline industry is going bankrupt because of rising fuel costs and economists know in order for countries economies to grow they need cheap energy costs. also americans are debt ridden with credit cards and huge mortgages and not rising gasoline and power-heating bills mean they will cut back on spending at malls,stores so our economy "WILL SUFFER" tHE FIAT CENTRAL BANK SYSTEN RELIES ON BORROWING & EXCESSIVE SPENDING Which is "coming to an end! My parents lived thru the 30's Great Depression and told me how tough it was and ill tell you I dont want to live thru one or my kids but our incompetent govt. has made it happen whether we want it or not. Sadly most citizens in this "GLOBAL ECONOMY" ARE OBLIVIOUS to whats coming and are Not Prepared for it. People today are not as rugged as their 30's counterparts or as prepared. You can hope for the best all you want but youd had better be prepared for the worst. Our military being strong is not true either fact its half the size it was during gulf war #1 and our military will not stop overpopulation, people overusing the worlds resources, or our govt from overspending and borrowing our republic into bankruptcy. When our govt cannot borrow anymore then our currency will also be bankrupt. Better prepare because all this is coming due by 2010, dont be in denial for your families sake! this is serious think about it how will you feed your family in 5 years? good luck! Watch the Grapes of wrath if you dont think americans starved in 1930's.

Posted by: CAPTAIN FREEDOM at November 9, 2004 08:03 PM

Can anything as bad as this happen, well in this day and age, I would guess anything is possible. There seems to be many things that could crash the house of cards, "credit cards". Wealth built on debt, "plastic prosperity". It seems to me that this great strong wealth producing nation has been reduced to nothing more than gamblers, betting on the future with all sorts of exotic finacial derivatives and such. Definitly not what the Great industrialists of old like Gillette, Ford, etc: thought was the means to prosperity.
And oh yes to reply to the comment earlier, It was the failure of the roman economics that caused the decline of the military, the coins could only clipped so much to pay the soldiers. That empire fell under the opulence of itself. Will this calamity happen within the time frame, I pray not, but as stated, in this present world anything is possible

Posted by: Owl at November 9, 2004 09:10 PM

The US can not afford its wars and has been depending on foreigners to fund them.
Unfortunately everyone is becoming seriously overweight dollars and of course it's always extremely difficult to find people who are dumb enough to invest in a declining currency.
When you count on foreigners for credit you obviously need to have pretty good relations with the rest of the world but Bush has made sure that US standing and respect has never been lower. This can't be good for US interests and future prospects.

Posted by: Grizzly at November 9, 2004 11:25 PM

Depression? I don't so. Not like the 1930's anyway. We can't support ourselves. When our foreign adventures go sour, we'd go straight into some sort of civil war fighting over the few resources that are left. It won't be pretty.

Posted by: Sean at November 10, 2004 01:05 AM

soylent green?!

Posted by: numnuts at November 10, 2004 02:05 AM

Gold backed currency?? everytime someone wants to get a mortgage, the Fed needs to go out dig for gold? If no gold, then no (real) econonmic growth? Will Nevada become the richest State in the Union?

Posted by: The King of France at November 10, 2004 05:59 AM

Why is there still people believing that gold would be solution ?
Come on gold standard existed before and it did not prevent booms and bust. At best it made them happen more often on a lesser scale.

The problem is not with central bank because the problem has not only monetary roots.

There is a "real" part to the story.
Monetary creation is not the only reason asset price have boomed.
Remember :
YP = MV production*prices = monetary base*speed of circulation.

But there's 2 kinds of products, two kinds of prices, two kinds of money and velocity.

There's the production of final products, consuming goods.
The prices is measured through PPI, that's the inflation everybody's been watching

There's the production of tools, means of production. The price level is the stock market.

In the middle are durable goods, housing, cars.

When money is created, 2 things can happen :
1 the money circulates at a lower velocity. People hold that money for instance. They store it, more than before. They store it instead of using it as a tool of exchange.
If it's the case, then the money creation as no effect on prices.
2 Asset prices go up... Or Consuming good prices go up (inflation)

What we have seen is not just, lots of money creation. This had been going on before.
What we've seen is a concerted move to prevent inflation and transform that money creation into asset valuation.
Think of it : reduced taxation on capital, on company profits, obstacles to unionisation, labor power in general, internation competition.
Everything has been made to depress wages and so inflation, while at the same time, increasing asset prices.

If some conclusion has to be taken, it is not : suppress central banking. It is : inflation objectives should include asset price inflation.

And this has started now... Yet too late. The UK's rates have gone up to stop the housing boom.
It worked so far. So now beware.

Posted by: DF at November 10, 2004 10:56 AM

I feel compelled to act. Reading so many articles over the years by so many different authors, I thought I would contribute my 2 cents about the subject of Inflation/Deflation. It is a subject matter that should be near and dear to every financial analyst, economist, and self-made man, considering it is by far the most important issue we will face in our lifetime.
Get this one wrong my friends, and your hard work, and valuable savings, are demolished as fast as the World Trade Towers. So let me continue, the debate rages. But again, let?s review the facts. It WILL be inflation. The FED will continue to increase the money supply. That is their job? that is what they do.
So inflation it is, case closed... Boy wasn?t that simple? What was all the fuss about???!!! Ha, Ha.

BUT, a more adequate heading would be, ?Rising Prices or Falling Prices?? This is the 64 thousand dollar question. This is one answer we must find, if we wish to continue to live well, and continue to guarantee our families a rising standard of living throughout this coming economic catastrophe.
One would think rising prices, since we just agreed that the FED will continue to expand M3, but wait, things are not ALWAYS as they seem. Many authors state a debt crunch is coming, and people will scramble for dollars to repay SOME of the mountains of debt. (Only SOME, because the masses will stop paying the smaller debts, such as credit cards, the 2nd and 3rd vehicle, personal loans, ?toy? loans, etc., to pay the important ones, such as mortgage debt.)
This view is exactly correct. Once the money stops coming in from the most wonderful and generous foreigners, the credit crunch will be in full swing. People will start selling everything they have to pay the bills that are REALLY important. So, we can expect fire sales with most used luxury items (toys) such as, motor boats, ATV?s, snowmobiles, and Jet Ski?s. It will be the same with luxury electronics. Equipment like televisions, DVD players, computers, and the like will also be flooding the market. Like old cars? Save your money. Some of these ridiculous prices for these late 60 muscle cars (a personal favorite of mine) will be priced for pennies on the dollar I hope... (unless the forigners start shipping all our valuables OUT of this country for payment of our debt, then you will not even find a muscle car, nevermind buy one!!! But that is another subject matter.)
Many companies will find themselves in quite a predicament. Their new products will simply be sitting on the shelves, as consumers, (the ones who can still afford to spend), are buying slightly used "stuff" for less than half the cost of new. You tell me; if you are looking for a new car, would you spend 20k for a brand new one, or rather pay 8-9k for an almost mint, slightly used vehicle? I would go for the slightly used one.
So there you have it, almost all luxury products will DROP in price, slamming all manufacturers in those fields. But as you already probably suspect, the price of the necessities, the things we NEED to use every day will, of course skyrocket.
Things that will have a continuous demand, such as energy, (gas, oil, propane, heating oil, electricity), food, and clothes will increase DRAMATICALLY in price. These products are necessary for everyday life, and are essential for the survival of man. We will need to buy them REGARDLESS of the price. The higher the price, the more it takes away from the discretionary money available for the consumer.
So, in a nutshell, that is the way it will happen. It will be BOTH rising prices and falling prices at the same time. And, as usual, it will be in the most painful way for the people. Things that we need the most will become the most expensive, and those things that simply make life easier, will plummet in price. Consumers beware.

metals will go to the moon. But of course, since most people do not own either, maybe for the exception of some jewelry or cutlery, most people will be devastated.
Look at it this way, barbaric relics? Ya, right. FIAT currency is the barbaric relic!!! Mankind has worked thousands of years to figure this one out, and our founding fathers knew this hundreds of years ago. Does today?s ruling class really think that ?THIS TIME IT IS DIFFERENT?? Definitely not!!!!! Believe me, they know better!
Do you really think that they would rather have the money they print up from wood and ink, money that is created out of thin air, than something tangible as gold? They are the ruling elite for a reason, and believe me when I write this, they have all the silver and gold they need, already stashed away, awaiting the time when it is needed.
Another question is how high will their prices go? Well, the answer will stay in proportional relationship to the money being created, by all the central banks, all over the world. Some people laugh at some of the other writers quoting 36 thousand dollar an ounce for gold. Well how can they laugh at that, but they do not see any humor in the fact that the U.S. Federal reserve has doubled the money supply in a few short years (less that one decade), and continue to add liquidity in the 11 figures PER WEEK? I do not understand how they think the price of gold can be capped, when the creation of fiat currency is not in any sort of control. Look at it this way, the more money being pumped into the system, out of thin air, the more currency gold and silver will be worth during the upcoming calamity.
How many people think that most of the central Bank gold is gone, never to return? How many people think that their stated gold reserves are a lie? Well think again people. What if, and I do mean ?what if? the Central Banks are selling the massive amounts of gold back to each other? (Flip-Flop?) What if they are coordinating ever lower prices, without significantly depleting their supplies? How long could they pull this off? I personally would suspect a much lower price if 200 tons were sold at once. That is a lot of gold, and a man with as little means as me, that is A LOT of money needed to buy it all up. Yet the price drops only slightly? Something seems fishy, if I must say so myself.
But do not fear, buy silver and gold in small increments, instead of saving in U.S. Federal Reserve Notes, and watch your supply grow. This time it is NOT different. Same old, same old. Believe me on that one. There are MANY Argentineans that wished they had saved only 5% of their savings in metals. I?m sure it will be the same here in America. Please do not be one of those unfortunates.
One quick note on Real Estate, it is in one of the biggest bubbles ever seen in the history of mankind. This bubble dwarfs the Internet stock market bubble, and will correct to the opposite (lower) side with the same magnitude as the higher side before all this is over. It is how I expect to raise MY standard of living, and that of my family?s. I plan to buy up real-estate with the silver and gold I will soon be buying. Someday I will own no silver and gold, but be a real estate mogul. You just wait and see.

I could write A LOT more, (I am rarely at a loss for words), but I think this is a decent attempt to help people understand, a little more clearly, of what is coming down the road. How to help their (your) standard of living remain the same, or increase, as all others fall about them, is my concern here.
But once again, there is a question. That Question is WHEN? WHEN will the walls come tumbling down? Why bother saving your hard earned money in gold and silver at today?s prices, when you won?t REALLY need the metals for another 5 years? Well let?s put it this way, the ruling Elite are in power for a reason.
They will do ANYTHING, and I do mean ANYTHING to keep their power. One thing they do not want, under any circumstances, is a collapse. Crazy times call for crazy actions, and that is one thing the ruling elite do not want. That is people doing crazy things. Though in today?s world, it is MUCH harder to unseat the super rich. A quick jump into their private helicopter, a quick ride to their private hangar at the nearby airport, and onto their private gassed up jet for a flight to the southern hemisphere, just as the government closes the borders to this country. The rich elite will then simply run their empire from one of their OTHER mansion in ANOTHER, safer country.
But how long can the super rich keep this charade going? Probably for quite a while longer, five to ten years maybe? As long as all the governments stay ?together? on this one, I am sure the end is nowhere near. But I have learned one thing, man has never EVER, really cooperated with one another. It always seems to be who can outdo the next guy, even if it means destroying them to do so. You cannot expect the governments of this world to cooperate much longer. They are all standing around, waiting for the first country to make its move and start dumping American Dollars on a grand scale. THEN the rest will follow, causing the biggest collapse of any monetary unit the world has ever seen. What will cause the first country to start dumping, and when will it occur? Who knows, but one thing I do know?..

This is the time you will want metals in your portfolio, and within your reach.

?Hope it never happens, but prepare like it is inevitable.?

-The ?Chemical Man?-

Any questions? Comments? Please e-mail me at I will try to answer all serious comments in my next news flash, expect no personal reply.... unless you are lucky.....

Good luck, and I hope you are all ready....

Posted by: The Chemical Man at November 11, 2004 03:35 AM

Once again, fiat money is not THE problem. The problem has been focusing on good prices (inflation) and forgeting asset prices ... THe problem is the "asset economy".

You may say that central banks issuing fiat currencies will always be tempted to play the asset economy game. But if you look at all the time post the 30's fiat currencies worked out fairly well ...

And by the way, my opinion is luxury items will go up. Just as in the 30's... The reason ? Well if you are rich : what do you do with your money ?
Stocks are falling*
Housing prices are falling.
There just is no way to really make money. There are some difficult ways to do some money, but mania times are over.

Well ... What do you do then ?
You spend it. ANd if you're rich, most probably you'll buy luxury items. jewels, yachts, trip in shuttle around earth. Anything.

This is what is ahead of us : millions unemployed, and rich people not knowing how to make some profit out of their cash.

Posted by: DF at November 11, 2004 08:47 PM

what's all this talk about "financial fear I dont want to be left behind keep up with the jones's stuff".that kinda talk is for the I only think about my money types and fostered by the I dont work for a living but just use fear based scams to make money crowd!this world is too well informed and too interdependent for any type of mass self destruction of well being!unless it is intentional on the part of some political agenda!"ya for me or against me"!IT DOESNT TAKE ANY MONEY TO LIVE!!IT TAKES MONEY TO PLAY THE GAMES OF LIFE!!THE BEST THINGS IN LIFE ARE FREE!!

Posted by: numnuts at November 12, 2004 12:36 AM

The Depression will be widely recognized and begin in 2005
Brent Long, Harvard MBA class of 1989
Category I in Capital Markets Course

Posted by: Brent Long at November 12, 2004 07:46 AM

Mr. Brent Long,
Interesting comment. Upon what basis do you conclude a depression will start in 2005?

I certainly would not be surprised, but believe there is still a collective reservoir of illusion muscle power in the industrialized governments that could goose the global economy one more time before an international collapse in approximately 3 years.


Posted by: Russ Randall at November 12, 2004 08:48 PM

To: The Chemical Man
Inflation vs Deflation. A difficult call but an extreme in either scenario will result in depression.

The question is whether the extreme monetary leverage unwinding created by our fractional reserve system will become a stronger force than our "determined" government to print their way out of a potential deflationary contraction as well as support their efforts to diffuse the bubbles. Clearly, the government has the power to pay its employees and expenses with incremental (inflated) money, but they do not have direct power to force the public to borrow more money even if banks are easily meeting reserve requirements and interest rates are "0".

If inflation launches quickly and unabated (e.g. Weimar Republic after WW1), where the government is monetizing debt to extreme levels, then it is possible for "Betty homemaker" to buy today in fear of not having enough money to buy tomorrow. Hyperinflation will result.

If inflation does not get a rapid launch and consumers restrict spending due to fears of economic collapse, then deflation will easily overwhelm government attempts to inflate our currency. In time, once the monetary leverage is largely squeezed out of the banking system, then inflation (or hyper inflstion) will take over presuming the dollar still exists and government remains "determined".

My bet is that all "non-money" commodity prices will fall as we enter into a dollar crisis or depression due to a simple lack of demand. As fear spreads we will all restrict our spending habits, which will have a depressing force on prices. A fear-driven 10% reduction in oil consumption would have a dramatic impact upon oil prices ($10-15 per barrel??). However, since the "monetary" commodities (gold and silver) have been severely suppressed by all major central banks, then as banks lose control these prices will increase to a level higher that "natural" to satisfy the quest for real money.

In any event a fiat currency has never lasted more than 78 years in recorded history.

Good luck...!

Posted by: Russ Randall at November 12, 2004 11:08 PM

Points to ponder:

The "anti-counterfeiting" bills released starting in 1996 and 2003 (and planned each 7 years from now on) co-existed with previous issues in the money system. 1995 (and earlier) bills are still in circulation. Based on this, in 1996, the cash supply doubled. Since these bills were introduced to foil counterfeiting, and the plan was to gather up previous issues on a one-to-one basis, it becomes a given that no bonds were sold to back them. In effect, they represented 100% inflation, In 2003, the second series was introduced, and judging from the number of pre 1996 bills still in circulation, it can be said that the money supply then was quadrupled.

Inflation was reported to be around 2.5%, while interest rates were around 1%. Some said that money in the bank was actually "deflating" during this period.

Inflation is a "hidden tax", giving the appearance of rising prices, due to lessened buying power. In other words, inflation means the dollar looses value.

Has anyone looked at the Dollar against the Euro lately? How about the fluctuations in the silver, gold and platinum markets. The Euro is hovering around figures that represent an all-time high, and gold is at, or near 16 year highs.

The Federal Reserve, by way of the FOMC meetings held every 6 weeks, set the overnight bank lending rate. This is the rate that banks can make use of on Thursday nights to make sure they have the required 3% of your deposited money on-hand to meet the required weekly margin call (and for the obligatory"other purposes").

The purpose of this rate manipulation is to balance inflation against unemployment. These are the criteria that Greenspan uses. However, in recent years, Greenspan has had to abandon the distinction between M1 and M2 in the aggregate. Due to relaxed credit regulation and excess cash in the money stream, historical data hasn't been returning predictable results. Greenspan is lucky to have his age converge with the end of his tenure. Dire Straits will most likely come after the new Fed Chairman is sworn in.

This is not something that either a Presidential Candidate, President or Political Party can control.

Keeping the masses at odds with each other over which party is at fault allows this kind of fiscal manipulation to continually fly under radar.

We are facing a real problem in the coming retirement of the Baby Boomers. No only has manufacturing and housing suffered as their demands are reaching final fulfillment, also the job market numbers will see some previously undocumented spikes as both the numbers needed in the national job market shrink. This will also create greater disparity of wages as they start retiring enmasse, at top pay, being sporadically replaced with jobs at entry level pay.

We are soon to experience the largest generation ever produced in the U.S. leaving the workforce. The great sucking sound that will announce their departure will be the demands on Pension Plans, both private and Federal in nature. Is it any wonder that the borders are being left unguarded in an attempt to fill this void?

This isn't a Republican or Democrat matter. It started around 1910 with the failed Aldrich Act, which passed as the Owens-Glass Act in 1913. By 1917, it had uncloaked as the Federal Reserve Act at the same time that the Federal Income Tax was born.

It is no coincidence the the Bush Administration is currently looking at reworking both Social Security and The IRS Tax Code. These 2 go hand in hand. Every successful prostitution ring needs 3 things Supply of customers (Federal Reserve), Prostitutes (Social Security) and Pimps (IRS). These three players are integrated into the current monetary policy we are operating under. At least Bush is actually going to try to tackle the problem. When he said he had Political Capital and he was going to start spending it, this had to be one of the main things on his mind. No other president was willing to admit the depth of the problem, and he already has (by proxy) by choosing to simultaneously tackle both SSI and the IRS.

Posted by: Dalite at November 13, 2004 03:37 AM

Many of the worthy and relevant remarks above do not mention one thing and our ability to with stand them.
Its a wild card called disasters.
Let us assume a man made one is coming down. Let us assume the islamic terrorists get organised. Let us remember the unibomber was not caught for 12 years and then only because his brother turned him in.
what would i do if i was the enemy of democracy and free speech. Howabout a container full of explosives timed to go off in the suez canal as well as the panama canal . this should cut it off for about 3 months on the inside??

there are so many vulnerabilities and it is how long the list is that concerns me. Not to mention how great or not great is our immunity. the above subject matter refers to our immunity in one area.
Without labouring the point i expect some kind of disaster in 2005 and i question our ability to withstand it on account of the fiat machine be it futures , dollars or inflated real estate.
One mantra we should have is that we should aviod being the victims of our peers. This is waht sites like this are ultimately about . None of us rejoice in the doom and gloom . WE just want to be aware of potential probabilities in order to be above the crowd we so want to help.

all the best
Nick Hodgson

Posted by: Nick at November 13, 2004 03:38 AM

Timing The Depression, & Other Mind-Blowing Events!

There is definitely an emerging ability within the masses to see what is coming at us on a more and more accurate basis.

I think anyone on this site, even including the govt spooks, is evidence of the growing awareness that something is very wrong in Denmark. The magnitude of the problems now facing humanity are on a scale that is hard to fathom (kind of Biblical you might say), but fathom we must - this is the driving force behind the existence of sites like D2.

This site was started by Michael to warn people, to discuss the issues and to vent on those most responsible for the plight of humanity (thanks Michael!!).

Michael and I met on a Yahoo group I helped start called New World Disorder, a group of (at the time) about 80 people around the world who were discussing anything that was causing disorder for the entire planet, this included economics, geo-politics, sunspots, siesmic activity, the elite NWO globalization agenda, etc. ANYTHING that was causing or could cause massive disorder. We were attempting to find ways to cut through the disinformation put out by the media and to build a clear picture of the real circumstances facing the human race.

We weren't afraid to look at anything, which could definitely get weird.

Actually it got a bit too weird, so when Michael came along as a visitor to the site and asked me to check out D2 we discovered we were neighbors in Seattle, and that we shared an interest in the markets and the looming Second Great Depression. So I decided to join with him and help run this site, which would enable me to focus on "following the money" and less on debunking theories like "The Return of Planet X '03."

Since then, in the last 3 years, we've witnessed some of the most radical events in human history, and its accelerating. Records are being shattered on almost every level of human affairs - from global weather activity to regime change, from baseball hitting to corporate fraud, from government debt to fiat currency printing, from low interest rates to high defaults, from hurricanes in Florida to soccer scores in Europe - - you name it you can find record, or near record data, being recorded at almost every level of human endeavor. It's a wild ride indeed!

However, even as events spin faster and faster, we are still capable of discerning patterns in our reality that allow us to sometimes accurately predict what is coming our way. That is why I believe we're still in a kind of major lull, but the inevitable storm (which is necessary as a sort of cleansing event for humanity) is now much closer. Here's how I saw this year going, so far so good. The big question now is just how predictable will next year be?

The Lull Before the Storm
January 22, 2004

Relative stability reigns throughout the year.

Bush and Blair become media heroes and are seen to be "saving the world" from a number of ills from AIDS to terrorism to SARS and financial crises. Bush of course is re-elected as there is no meaningful opposition that isn't already sold out to the money power that already own Bush.

The country creeps towards martial law quietly with the population barely perceiving something is terminally wrong.

Patriot Acts I and II are used more and more for non-terrorist related crimes and freedoms are eroded in front of our very eyes and hardly anyone says a word, and if they do they can't be heard through the corporate owned media!

China's satellite state, North Korea, is held up as the poster child of nuclear proliferation and instability - conveniently posing as a huge threat requiring a massively expensive defense shield around the United States.

China revalues the Yuan (up against the dollar) and takes a hit in exports to the US. Taiwan is dangled infront of China as a tasty morsel the US is prepared to offer up in trade talks to try to continue the phony economic miracle.

Europe's economy struggles even more as their exports get more expensive.

The US dollar stabilizes at around 80 through the election.

Consumer prices deflate a little more but hold reasonably steady.

Gold rises to $450 by year end, with some spikes up and down.

Oil continues to move upwards ending the year at close to $40 per barrel.

Interest rates rise towards the end of the year, but not massively.

Real estate drops a little in value as consumers' ability to service more debt and pay ever higher asset prices finally starts to really slow by the end of the 2nd quarter.

Whiffs of deflation start to fill the air into the 3rd quarter and the talking heads start to waffle and cannot explain what is going on or why.

As we roll through the election the veneer starts to come off the whole facade covering the reality of the economy, however the illusion is strong enough to carry us through the Bush re-election. Not one talking head ever mentions Fraction Reserve Banking, Usury, Fiat Currency or Sound Money - - the American population remain blissfully ignorant amidst the biggest meltdown of a global financial system in the history of this Universe!

Upon the conclusion of the election we start to accelerate towards the inevitable collapse of our monetary system and all of the necessary, but very painful, adjustments in our lives that comes with it.

I'm not sure when the big crash will come. I could be and probably will be wrong about most of what I've said in terms of timing, the crash could come before the election, it could come after a massive dirty bomb or biological attack (or some other kind of disaster that could cover the reality of our failed system), all I know is that crash it will and sooner rather than later.

There it is. I'm no clairvoyant or seer, I just say what I see. I've changed by opinion on inflation, I think we'll see a deflationary depression - I've changed my opinion on many things over time and reserve the right to change them again going forward. These are just my opinions right now, they are bound to change as our situation evolves.

I'm still Long Gold and Long Short - although I now think that a Deflationary Depression will cause gold to eventually go down along with everything else - just not as much in relative terms. Gold will remain the ultimate store of value, and food and protection will remain the ultimate security during a depression!

Hold on for the ride, it isn't going to be pretty, but it is necessary.

Vaya con Dios!

Originally posted by rlancaster at January 22, 2004 11:11 PM

It's time to start predicting events for 2005!! The Depression is one year closer, will Peak Oil become accepted reality, will a dirty bomb redefine western civilization, will a massive coronal mass emmission strike earth directly and take out the power supply, will Florida be hit by even bigger hurricanes - - what will happen "The Day After Tomorrow?" :)

Cheers Rich

PS. Read The Crashmaker!

Posted by: Rich at November 13, 2004 04:40 PM

Sorry folks- NO CRASH-
This is not '29 when the $ was backed by hard assets. Ur in a casino with plastic house chips. Like Rome the end will come when the $ won't hold the police, we are playing by the new house rules-

Posted by: K0TEX at November 13, 2004 07:23 PM

To :Russ Randall

I must question your thinking. You actually think that the rest of the world, and their currencies will not continue to push the prices of basic commodities up and up regardless of the Dollar?
I certainly do. China is going to be the next "growth engine" of the world, as the U.S. Falls from stature because of their tremendous monetary imbalances.
The Chinese and the "Asia Tigers" (remember them?) will want the oil and the trees and the metals and everything else this wonderful world has to offer. So with the falling dollar AND the accelerated demand by the rest of the world, these prices will rise ten fold in the next ten years. (in U.S.Dollar terms).
And what when the rest of the world start selling the vast amount of U.S. Dollars they own? They own more than your mind can understand, there is no way we can prevent the total and MASSIVE HYPERINFLATIONARY events that are coming. There WILL be deflationary pressures on the non-necessities, but only at the beginning. Later it will be worse than the average person could even imagine.
I promise you, these governments holding our paper WILL want to cash them in someday!!! They will want value!!!
Imagine all the excess products sitting in stores as the American consumner reigns in their spending, being loaded on the boats bound for Asia?
Imagine a massive scale of immigration with people holding massive amounts of U.S.Dollars? They might start buying up homes, office buildings, and businesses on a GRAND SCALE.
Either way, they WILL want our wealth in return. Either way, it WILL become INFLATIONARY.

Hope you understand this. Holding your money, waiting for the depression is a blunder that could really hurt. Instead, buy metals, and basic commodities. Guarenteed to rise in value as the dollar drops.

Remember, the Inflation will have NOTHING to due with the FED or the Government. It is now all in the hands of the Asian countries and the massive dollar position they have.
It is a new game. It has new rules, and the ending is something I really do not want to see. Maybe by television via satellite, but not in person!!!

Hope it never happens, but prepare like it is inevitable.

-The Chemical Man-

Posted by: The Chemical Man at November 14, 2004 02:05 AM

Well it looks like 1/2 of the replies from people above do realize the 2ND GREAT DEPRESSION is "COMING"! The "SAD" part is the other half is in denial especially with all the proof out there.
O.K. I guess in this world today you cant talk polite anymore and debate issues you have to be direct and blunt ,"to the point"!
O.K. this is for those of you in denial with your head in the sand or up your Ass! Our once great Republic is collapsing. The government and its economy and its currency are all collapsing. Its simple to understand the many reasons for why its happening. Being in denial today will hurt your families. You have been warned and you have little time left to prepare. The government will "not be able to save you" this time. Your "currency or Medium of exchange" you use to buy "everything" for your families is collapsing and If you keep your net worth in Dollars you will lose everything. Look up Fed. Reserves consumer price index calculator! Your .16 cent dollar today will devalue to 1 cent to under .5 cents by 2010. since 1964 Gold has gone from $35.00 an ounce to $435.00 Today an increase of 1200% or 12 times its value. Our Fiat currency does matter in that soon you will "NOT" be able to support your families with it! American children will starve, Freezing without homes because their parents lost their jobs and could not pay their mortgage payments so they lost their homes. You should sell your Big fuel inefficient homes "now" and buy smaller homes 100% paid for. You should get a small farm home near a stream or water supply because city water will be cut off. You should sell your New car especially if its not paid off and buy a used fuel efficient car 40 mpg + or Diesel vehicle that can run on vegetable- cooking oil. You will "not" be able to make your new car payment when you & half the U.S.A. is unemployed. You need to start buying food to store. long shelf life, canned food, vitamins and start to learn how to grow your own food. You will need clothing that lasts and is warm during winter. You will need an old style foot pedal sewing machine and needle & thread to fix your clothes. You will need a wood stove to keep warm and cook on. also stainless steel or cast iron cookware. air conditioning will be a thing of the past. get used to being hot in summer or get a 1950's style drip water cooled fan. Change all of your light bulbs to fluorescent low energy, less wattage used. Electricity will become expensive, or non existant. when the worlds Oil runs out government will switch to burning coal to make electricity and evironmentalists will not stop that from happening. People will scream for energy & electricity . Try living without electricity for a few days and you will see how difficult it will be. Its not a bad idea to live without electricity for a few days to see what you will need to survive without it. You will find yourself flicking switches. old habits die hard.
OK so WATER, FOOD, CLOTHING, AND SHELTER WILL BE OF UTMOST IMPORTANCE. Being in Denial will kill you and your family.First the stock markets will collapse then Theres going to be "runs on the banks" and F.D.I.C. IS A JOKE. The govt will have to make $500.00 , $1000.00 and $10,000 Dollar bills to pay the $100,000 dollar protected Deposits . The Govt. will declare a national holiday so the banks will close. You will not be able to withdraw your money from your checking and savings acct's and gold , silver, jewelery from safety deposit boxes since the banks will be closed. Remember only 15% or our economy is Paper money the rest is electronic deposits. Only the 1st ones that make it to the bank will be the winners and get their money. of course our paper currency will be virtually worthless 1 cent to 5 cents for 1 $ paper Fed dollar since most americans still dont realize our money is not backed by gold anymore no! today its backed by a promise{lie} from a bankrupt GOVT. Businesses will start to fire millions of workers. Upper class expensive item stores will close 1st like Malls then discount stores will be left. Only food , clothing , and shelter businesses will survive. The basics!
Say goodbye to cell phones, cable sat. T/v , Internet access costs,2nd cars, eating out, movies, vacations, even schools will close because the govt. will be bankrupt so you will have to homeschool. Better get encyclopedia's, and math, english books NOW! City Govt's will have no services so roads will suffer. no food stamps or medicare or medicaid. You will have to pay your own doctor hospital bills govt will be unable to pay them for you since our govt will be bankrupt. all life, auto, health, fire, home insurances will be worthless so I recommend you cut your costs now. cash them out or get cheaper policies. Ira's and 401-k's will be "worthless" Its Sad that so many world citizens are in Denial about the Coming 2ND GREAT DEPRESSION. THE INTELLIGENT ONES WHO PREPARE NOW WILL BE THE ONES THAT SURVIVE. Think of your families our govt. will not change the way they do things overborrow ,overspend, lie to us and using up the worlds finite resources so our depression is guaranteed. Pleasae prepare because time is short. good luck. I wish there were more websites that warn tough times are coming! cap'n

Posted by: Captain FREEDOM at November 14, 2004 02:18 AM

To: The Chemical Man

I agree with your logic in part. Eventually, hyperinflation will persist given the mindset of our institutional power players in place today. They know how to print money. However, I disagree with the interim period. If you apply Austrian economic logic, you will recognize the US has fallen into a classical debt expansion trap that can only end in collapse. Further, to a greater extent the Chinese and to a lesser extent the Japanese, have accomplished the same thing.

I anticipate the Asian community will collapse and with that their demand for commodities will lessen until we move through the depth of the depression.

I cannot imagine a scenario where a US collapse would not have a devastating impact upon an extremely overextended Asian economic complex.

A small (10%) reduction in demand of any "non-money" commodity could have an extreme impact on pricing. For example, I believe we could all cut back on our gasoline usage by 10%, if we are in fear. That sudden reduction in demand cold easily drop oil prices to the $10-$20 dollar range....!

I think the assumption of ongoing growth without retraction in most major economies along with the commensurate uninterrupted commodity demand is flawed.


Posted by: Russ Randall at November 14, 2004 04:08 PM


I'm in my 50's and I've been reading this 'end of the World' stuff for years. But it hasn't happened, and never will!

You forget one thing: Man is ingenious and always comes up with something when the 'chips are down'.

Remember the dire warnings of the Club Of Rome? If you re-read their predictions today, it's good for one thing - a jolly good laugh!.

Peak Oil is a myth - they are discovering new fields and anyway, technology will 'save the day' if/when it does happen. Remember, Man is ingenious, but you doomers underestimate our intrinsic cleverness.

As for debt, I'm not a financial expert but trust those who are: they've kept us save so far, why should things change? You seem to despise Mr Greenspan, but basically he's done OK for the most part. He's been at the helm for years and has successfully steered us through some financial crises and will do so again - give the man some credit instead of constantly panning him.

If gold does go to $1,000, $10,000, $100,000 do you think FOR A SECOND that our governments will allow the few to benefit at the expense of the many? Holding, buying & selling of gold will be banned to protect the majority.

I'll be retiring soon from my government job on an indexed pension, so I personally have no fear for the future. I've had a good life and it will continue. I think all you 'doomers' should get a life and stop trying to scare people. Sorry, but that's just my opinion.

Posted by: Happy & Contented at November 14, 2004 09:51 PM

Hey Happy.

I'm H..A..P..P..Y too!

But, I can admit that the future is downright unpredictable and that the trends are outright scary. Help me understand why, if you are truly very happy and contented, that you read stuff on this site at all?

Nearly all of the people on this site hope, and some pray, they are wrong about what they think, feel and say about the short to medium term future, but most of us understand rudimentary laws of motion - - and what goes up must come down.

We're entering the "coming down" period, and we've been VERY up, therefore history says we'll land hard at some point - so for the most part we study the history of these cycles and reach conclusions based on spotting obvious trends. For us, the trends are in, we're content that we know the outcome, we're not happy that we can't time these events......


If I'd spent my career working for the government I'd:

Be comfortable with the knowledge that the collective would take care of me.

Be pretty smug that I'd worked long and hard for the betterment of society and earned, and deserved, the lifetime pension and benefits I had coming my way.

Be very happy with fellow quasi-government employee Sir Alan Greenspan, as he'd been a good co-worker in the govt apparatus I'd served so loyally for so long.

Be inclined to turn a blind eye to all of the total ineptitude, malfeasance, graft, incompetence, outright fraud and mismanagement that I'd seen all around me throughout my career.

In short, I'd be a believer in the machine because I would've been a loyal part of it.

For your sake, and for the longevity of your benefits and pension (which all of us here in the private sector have contribute to through taxation, on your behalf, with no accruing commensurate security for ourselves) I hope and pray we're all wrong.

Sometimes Happy, but Rarely Content, Rich

Posted by: Rich at November 15, 2004 12:44 AM

Reply To Russ Randall 1st, happy-contented 2nd. I have been to "COMMUNIST CHINA" in 1996 AND Tienamin Square (spelling?) where the Communist govt. murdered 4 thousands of Chinese citizens protest and fighting for FREEDOM peacefully yet their govt killed them. Hopefully the communist govt. will be overthrown someday. They look at you thru binoculars there and were goosestepping marching like nazi's. If you look at history socialism allways fails. Cubans , North koreans, and Russians starved to death because of socialism. Today its a Global economy so most countries will suffer "when" not if our republic economy collapses. and it will. For some reason people forget history and history has shown us Communism does not work. I was mad at businesses that just after the massacre McDonalds and other companies wanted to open businesses in Communist China? Thats one other "major problem" with many americans is that the allmighty Dollar is their GOD - Its more important than peoples lives. Its as if the massacre wasnt important to businesses. I would have never opened a business in China after that happened. They didnt even condemn what happened enough. FACT: If americans stop buying Made in China products their economy will suffer greatly. It scares me to THINK just what they are doing with their profits. Hell Its not just a Great Depression this world has to worry about Remember when China almost shot down our awacs Radar airplane ! We almost went to war with Commie China and they have nukes. I always try not to buy their products. Theres a nuclear clock I think in New York that shows how close to zero - Doomsday we are and Many Scientists believe a Nuclear war in our future is very probable. Americans are way too Happy and contented today ,I say asleep to the dangers out there. If China invades Taiwan Dick cheney said we will defend Taiwan which to me means nuclear war. I remember when Clinton was president the Chinese Missiles they test launched crashed & looked like old V-2 movies. Somehow China got help from U.S.A. so now their missiles shoot straight & Clinton may have been involved?? I love my country but dont trust my Govt neither Kerry or Bush can be trusted. The Chinesae got info from the computers in that Radar airplane also!! China is not our friend! I sometimes think they are planning to try and collapse our economy thru debt and hell When you go into a store and pick up most any product it says Made in China on it. American citizens need Jobs HERE in order to feed their families.
Ok I have to say this but happy7 and contented contradicted himself and proved my point in that america has "way too many Govt. employees" and the cost is excessive and adds to the National Debt. Maybe they cant get a "real job in the private sector" FACT: our govt is bankrupt right now! Im suprised CNN , Fox news are not talking about how our govt has hit its debt ceiling? and how they will have to raise the debt ceiling and Borrow even more phoney money devaluing what we have now. Hey Govt. workers you may not be happy and contented for long the U.S. govt is having to borrow {steal}from the Federal employee retirement fund so you may not be getting any more retirement checks soon just like I will "NEVER" see my Social Security money. Its very scary when recently New hampshire said the largest EMPLOYER in their state is the GOVT.?
Thats sad and scary because it proves our govt. is out of control. Just like our congress in Feb. 04 voted themselves a "pay raise" when millions of americans have lost their jobs after 9/11 and Were at WAR in IRAQ. How dare they ask for more money. Remember they get paid thru Tax money - our money. This increases the Nat. debt Kerry is a senator and he does not need a pay raise. Bush and republicans call themselves
"CONSERVATIVES" WHAT A LIE- JOKE Bush has spent more money than any president in history. conserve means spend less not more!! Most americans with common sense realize that our govt is "out of control"
Fact to Happy and contented? I can go into any food store and spend $100.00 of groceries and I can carry them out in my arms!!! If you bought name brand items and bought what you really wanted on each asile the bill would be $400.00 + and you thinks thats a good economy????
Bush told We the People the war in Iraq would cost $50 Billion dollars then Our treasury secretary told us no it would cost $100 Billion also he released the 2004 treasury report which stated {right from the horses-govt. mouth} that the u.s. will owe $44 TRILLION DOLLARS BY 2010.Whats your answer to that?? AND YOU KNOW WHAT Bush "fired" that treasury secretary . Why?? because he told the truth. he was fiscally responsible. Bush is a public servant he works for we the people! were the bosses not the other way around.
Now our new treasury secretary tell we the people that its "GOOD" THAT OUR CURRENCY IS LOSING VALUE??? GO FIGURE? WHEN IS IT GOOD THAT MY MONEY I USE TO BUY EVERYTHING TO SUPPORT MY FAMILY is Losing its worth or value. what an idiot ! oh yhea its a good thing that when you go to the store youre going to need even more dollars to buy the same goods and services and hey youd better ask for a raise too. Msnbc recently had a good article showing how many Mcjobs it will take to fund - pay for americans social security and how good paying jobs are becoming scarce. gee no wonder bush is talking about altering social security because he knows it wont work and be fundable soon. Its a pyramid scheme, and If a private company tried it implement something like it in their company the govt would have them in court for "FRAUD"

yOU CAN HOPE FOR THE BEST ALL YOU WANT, but this republic is in deep do-do. I forgot to mention after the Roman Empire fell their gold and silver coinage was still being used as currency. well no wonder since only gold and silver are real money. our founding fathers knew that thats why its in our Constitution! althouth you make a good point in that our govt could try to make gold and silver illegal to privately own, yet how could they inforce the law if theyre bankrupt?? question would you be a policeman- fireman or soldier if youre not getting paid??? which brings me to when the 2nd great depression occurs we will have riots like the LA riots and police whats left of them will not interfere. you had better have a gun to protect your family from looters. also buy storage food,water for 1 1/2 + years first then buy some gold ,silver preferably pre 1965 90% u.s. coins or gold silver eagles, foreign coins may be suspect , questioned as counterfeit.Dont forget medicine.

I like how people spin what we say . Its not the "end of the world" just our economy. any person who thinks our Govt. can "borrow forever" and constantly go deeper into debt are fooling themselves. YES its very scary but ignoring the debt problem will not make it go away. as for Peak oil any person who thinks theres an "unlimited supply of oil" in the earth is fooling themselves. I lived as a teenager in 1970's oil crisis and I know it can happen except this time its the worlds oil wellls not texas that are petering out. Fact yes theres still oil for 20 years approximately but!! most of its heavy oil not "sweet crude" needed to make gasoline. It costs more to convert dense heavy oil intro gasoline. Remember the top of the wells oil is lighter and the heavy tars and impurities "settle to the bottom of the well- gravity. Look for yourself at oil discoveries the new well discoveries peaked in 1960's . The worlds largest well in saudi arabia gwahr was began pumping in 1948-50 years ago.I do not see people selling their gas gusslers yet. the fuel magnets do help a little 2 mpg. the worlds oil will not last forever, anyway the cost of refining will increase and look at statistics show "demand" will increase yet supply today is at full production theres no extra room for a possible hurricane , strike, or terrorism destroying or halting production. Look at the airlines now! theyre hurting from $55.00 a barrel and next summer will be worse I predict.Our economy expands only on "cheap oil-energy not expensive energy! already americans are cutting back and spending less at malls and stores. our debt based system cannot survive americans spending less and stopping borrowing. already growth % in america's economy is lessening. americans have to spend & borrow a certain amount for the economy to grow each year and now theyre not doing that also new employment is down below acceptable levels and unemployment figures are being altered fudged by our govt. Many say unemployment is at 10% in actuality!! I believe thats true. Those of you with a mind of your own do not believe the lies from people that will lose money if you quit borrowing and spending. Our economy is in serious trouble and will not hold out much longer. yes americans are ingenious and a Great Depression is not the end of the world but the truth hurts sometimes and do you really want to see your kids asking why you dont have much food in your pantry and theyre hungry. also if things are so great then why do many senior citizens have to decide whether or not should they pay their nat. gas heating bill or should they pay their doctor , prescription bill since they dont have enough money to do both. what a life! then they turn on the t/v and cnn and fox news tell them the economy will get better?? yhea right. be an individual not a sheeple herd mentality. good luck , let freedom ring. sincerely, Captain of FREEDOM.

Posted by: CAPTAIN FREEDOM at November 15, 2004 01:18 AM

To: Happy and Contented

I am certainly not a "doomer", but am unable to logically calculate an alternative to a full-scale depression beginning in the 2008-10 time frame.

All I ask is that as the events unfold in the next 3 years, you remember the logic in this series of notes. The most important outcome would be to learn from it and support policies (Austrian Economic theory based) that will provide the framework that allows the ingenuity we know is here to flourish....


Posted by: Russ Randall at November 15, 2004 02:57 AM

Dearest Russ,

You state that you cannot "see" the logic of anything but deflationary problems, yet I informed you of the dollars that are being created. The U.S. is caught in that debt trap thing, BUT, (remember, there usually is a "BUT" somewhere), we are now on a fiat currency. The money IS NOT backed by gold, so the creating process of the dollar is utilized without restriction. That different characteristic means all the difference in the world. Rates will continue to drop to accomodate the borrowers. Hey, I will continue to refinance at lower rates whenever given the opportunity, and I might take a couple extra dollars out too, if it tickles my fancy. The money created on this massive scale makes DEFLATION a practical impossiblity. Those dollars will come back to roost, I promise you that.

So, now you do understand another event, other than DEFLATION. DEFLATION will not happen with a fiat currency. Never has, probably never will...

get it?

E-mail me

That last e-mail adress was deleted without my knowledge. Sorry, please resend any questions to

p.s. China is no mistake. The power Elite are moving to the Yuan. and away from the dollar. Do not get caught holding the bag....

Posted by: The Chemical Man at November 15, 2004 03:36 AM

I am looking for recruites...

If you are SOG Vietnam or Special Forces, etc.
I would like to recruit you. The current Gov. ,
wears the flag on the right shoulder.

My recruits will wear the flag on the left
shoulder. This is in opposition to the current
administration policies. You know, NAFTA, jobs going overseas. This is not for me. This is for
you, the US you so admirably defended, so you
could have a job with dignity, a family, to fulfill your dreams. Join me.
I sincerely represent you, the real America.

And I need your help!

Be careful about wrapping yourself in the flag.
George Bush has deceived you. Corporate America has deceived you. I am looking to form several
Divisions to march on Washington, DC. The same as tent city when General MacArthur took
horsemen and controlled the World War I veterans
who had nothing and were destitute.
I have seen so many families who are living out of hotel rooms, desperately hanging on.
Unmarked police cars giving out tickets to
unweary drivers going over a couple of miles over
the speed limit to gain revenue dollars.
Join me. This is for real . We can march several Divisions on Wasington, DC.
My name is Robert Joseph Herron. I am an Ameteur Radio Operator. My dad served in World
War II. My call letters are WA9EER. WA9 echo echo
Romeo, come in please. America is dying, in spirit, in jobs, let me help you.
Again, I need your help.

Robert Joseph Herron
316 Kenyon Drive
Springfield, Illinois 62704
cell phone # 321-274-6065

Lincoln once said. " If we buy the rails overseas, all we will have is the rails.
If we make the rails here, we wiil have the money and the rails . Again, thank you.

And I need your help.

Posted by: Robert Herron at November 15, 2004 08:49 AM

To: The Chemical Man

You stated: "...(I) cannot "see" the logic of anything but deflationary problems...", which is certainly not what I stated. In fact I do see a very strong possibility of hyperinflation (as stated) in our future. I just think for an interim period there is a strong likelihood of deflation.

If you study Japan, you will see a nation that has desperately tried to inflate their prices via monetary expansion for years through fiscal as well as monetary policy means. The result has been predominately deflation.

One dynamic of monetary expansion is via the direct operations of the FOMC. They "get the ball rolling". The second and much larger dynamic of monetary expansion is the multiplier effect where the commercial banking industry can turn a $1 initial Fed injection into $10. The third and still much larger dynamic is the ability of banks to securitize debt and sell it to institutions like Freddie Mac and Fannie Mae, where very little reserve is required. The second two conditions are driven by the consumer's willingness to borrow. If rates are systemically low (due to US and Foreign Central Bank intervention), then consumers will borrow beyond their means and the money supply explodes. If rates start to increase back to a "natural" level, you will see massive contractions driven by the consumer rather than the government. This will result in deflation of the money supply.

At some point the first dynamic mentioned above may dominate the other two dynamics resulting in hyperinflation. However, it is certainly feasible for hyperinflation to get a jump first..... But who really knows???

Posted by: Russ Randall at November 15, 2004 03:23 PM

Hi I forgot to mention a few interesting observations I have noticed in the world.

#1 why is China and the saudi's & terrorists trying to buy as much gold as possible lately. I think ? its the saudis are trying to return to gold dinar or a partial gold standard.Also other arab nations. Why? Do they know something we dont or do they know the "petro-dollar" is collapsing or is it,

#2 That Bush invaded Iraq because Saddam was going to stop taking Dollars for his Oil and only take Euro's? Fact Venesuela , Russia, Saudi's ,Iraq , and now even Japan have talked of replacing the dollar with the euro as payment for their Oil and other goods and services! If Bush knew various countries were going to stop taking Dollars or petro-dollars and Iraq would have been the 1st to stop then he may have tried to stop him 1st and then the others would have backed down? Im sorry but our CIA cant be that uninformed about weapons of mass destruction since they didnt find any. also North Korea threatened us with theirs and we did not invade N. Korea? This month The German govt. warned us about our twin deficits trade and Budget. also they noticed our Social security will not be fundable when baby boomers retire and cost way too much. Im sure my govt will not change the way theyre doing things.
I believe im right that the EURO is 10% to 15% backed by gold so thats amother reason why the dollar is falling versus the EURO!

#3 I do think Most americans realize If we have 1 more terrorist attack like sept/11 or worse a Dirty bomb or Nuke like from China because of taiwan crisis our economy will not survive a 2nd time.I believe we -Bush is overspending on anti-terrorism efforts , I do not believe we can stop all of it from happening , like illegals or drugs from getting into the country. I believe the Trailers-cargo boxes that come in from all over the world only 10% are opened and inspected. I read where state governments ask for money help for anti-terrorism efforts and dont get it and now they are bankrupting their own money reserves. They were crying help! Fact you can only spend so much. I believe State govt are going to spend themselves into bankruptcy if it isnt stopped. hasmat space suits are $1,000's each and can only be used a few times. constant police watching govt buildings and all the overtime is killing us. We cannot afford it. Isnt that what bin-laden wanted in the 1st place to bankrupt america. shoot were doing it for him If you know what I mean by overspending on anti-terrorism efforts. Im not saying dont spend at all just not as much as we have especially since there has not been 1 attack in 3 years . Those orange alerts are expensive! ok enough on that!

#4I do not know what percentage of my money goes to the Communist China government when I buy something "made in China" but I hope it does not come back to haunt me. I hope our money is not making nukes or bullets that will be used against us in the near future?

#5 I believe our Fiat, Monopoly money, play money , toilet paper money, unlawful money,
no intrinsic value money, confederate money,
fraud money, will go the same route as weimar german republic's money where it will take a wheelbarrow-basketfull of the worthless Fed Paper Dollars to buy 1 loaf of BREAD! I

#6 I also now believe post 1965 to 2004 Copper-nickel sandwich clad coins will be worth more that "PAPER MONEY" WHY? Because even copper and nickel are semi precious metals and they are finite resources not infinite. Copper is a industrial metal and is in almost anything you buy especially new homes. Hell during WW2 they stopped making nickels out of nickel and switched over to silver because nickel is used in shell casings and airplanes, vehicles etc. so any present day coins will be worth more than "paper" look at pennies since 1982 now theyre made of zinc with only a copper coating because the cost of copper is rising!I recommend you keep 25% of your money not in banks because of possible runs on the banks and Paper shortages. Kennedy half dollars are good and big! Pre 1964 90% silver U.S. coins will be good also and will rise in value soon. Sad thing is so many americans owe on credit cards and mortgagethey cant buy extra storage food and gold , silver.

#7 I forgot to mention the looting during Hurricane andrew in 1992 people walked around with rifles to protect themselves and stop looting. It boggles the mind when this summer 4 major tropical systems hit the u.s. and people knew in advance for weeks and "DID NOT PREPARE AT ALL" WHY? They would stand in lines for water and food and didnt prepare? It almost made me think americans are like cattle , asleep herd mentality. They think that nothing can ever go wrong in this country. well it can! Then after the storm they want the GOVT. to bail them out with free food tarps, water, doctors , flood insurance, etc (oh yhea why is our govt. in the insurance business anyway?)
#8 Which brings me to there way too many Departments of government which should not exist and cost taxpayers way too much money! these are the unneeeded ones.
B.A.T.F ,

ONLY THE MILITARY IS A LAWFUL CONSTITUTIONAL partOF GOVT. The rest are unneeded and did not exist not very long ago. capitalism does not need them .They need to get a "REAL JOB" like me in the private sector. they are wasting taxpayers money. Our govt wastes so much money I know in my heart that bankruptcy will be the result!

Bureacracy is the conversion of energy into solid waste! boy do I see a lot of waste today.

Its sad my kids and yours will have to pay debts they didnt make. thats wrong. I hope they dont pay with their lives thru starvation like in 1930's "grapes of wrath" when congress extends the budget to $8 trillion debt ceiling that will inject 600 billion dollars "new" dollars into the economy devaluing the ones we already have.
Hey were spending 1/2 a trillion dollars a year now soon 1 trillion a year THATS OK ISNT IT????
BYE FOR NOW! GOOD LUCK. I have to say for the sake of my family I do not want to live thru a new Great Depression but I fear its 200% guaranteed and theres no stopping it. Were the titanic and its already sailed past the point of no return. Ive talked to many older americans who told how they lived thru the 1930's and it does not sound like fun!!!!!!!!!!!!!!!!

Posted by: CAPTAIN FREEDOM at November 16, 2004 10:00 AM

Is it just me, or does anyone else wonder why or how some people find their way to sites like this? If one believes all is well & our economy is impervious, why click on "DEPRESSION"?

Perhaps thet are paid or perhaps they are unpaid "soldiers" of a cause. But more & more I believe they are here for a purpose.

In the early 1930s in Germany there was a group commonly called "Brown Shirts". They would show up at rallies for anyone guestioning der Furer & disrupt their events. They would intimidate all who might question. They were the ones who oficially kicked off the Holocost w/ "crystal night, the night all jewish owned shops were looted, & the police let it happened.

In one post one of they was going after Sen Spector, accusing him of being a "LIBERAL", like that's a dirty word. His "post" may have been, in reality" a spam, designed to look like a post.

I think that we are in scary times, what do you think?

Posted by: MAC at November 16, 2004 04:21 PM

We are in "scary times".

Wealth (aka: company valuation) is only increased via productivity and/or employment increases. An excellent rate of accurately measured productivity would be 2% per year. Total employment is strongly correlated with population; thus, barring any structural changes, the employment increases are approx. 1% per year. Therefore, real aggregate valuations will only increase 3% per year (or less than 1/100 of 1% per day). If inflation is in the range of 1%, then a legitimate annual increase in aggregate reported stock valuations would be 4%.

The DJIA has increased an average of 10.5% over the past 50 years.
5.5% is inflation
1.0% is measuring the index vs total stock market. (i.e. Only one company (GE) remains as part of the original DJIA 30. The index is frequently upgraded to maintain a balanced “blue chip” profile. Had they remained with random stocks, the appreciation would have been at least 1% less on average.)
That leaves 4%…!

Housing does not appreciate…! It INFLATES….! If you improve your house by adding a room, you have invested more capital and should see a legitimate proportionate increase in valuation. As a home inflates, you are gifted with some equity available to spend. Where did that spending power really come from? Those holding assets that increase with inflation are the winners. Those holding the bonds, credit, dollars or dollar-based assets, which devalue via inflation, are the losers. How much have housing values increased above the inflation rate? Does that represent a housing bubble?

Is it possible for our government to:
1. Expand the money supply such that asset valuations would be pushed much higher than 4% per year leading investors to believe they are legitimate levels?
2. Do this for an extended period of time, thus creating a gigantic asset bubble?
3. Artificially suppress interest rates (in concert with foreign central banks) to encourage borrowing and spending beyond our means?
4. Spin the public into believing the bonds they purchase (from those who are spending beyond their means) will not drop in value?
5. Create an extraordinarily strong dollar policy that rapidly gutted American manufacturing?
6. Watch as the strong dollar policy enticed foreign investors to help create the largest asset bubble in the history of the Republic?
7. Desperately attempt to prevent the stock bubble from crashing by further accelerating the monetary expansion, which encouraged excessive real estate and debt valuation bubbles?
8. Believe that the late 90’s was simply a legitimate boom period without an expanding bubble, yielding a balanced budget and happy economic times?
9. Recognize the late 90’s as baseline without a bubble formation from which we could repeat the same monetary medicine today and grow out of our debt problems?
10. Soon attempt to diffuse the debt obligations associated with bonds, real estate, and stocks via inflation, thus destroying bond valuations (and initially real estate)?
11. Create a condition where the dollar AND US assets are extremely overvalued, such that foreign investors will likely experience a 70-90% devaluation?
12. Display the arrogance that the problem lies with foreign governments because they did not follow the same destructive monetary medicine we have prescribed ourselves?
13. Believe that foreign investors and governments will not be extremely upset with such arrogance?

I calculate our combined stock, bond, and real estate bubbles are approx. $21 trillion more than legitimate market justified valuations. That’s why I’m scared and want others to become aware of the policies that created the economic mess we’re in today…!

Posted by: Russ Randall at November 16, 2004 06:40 PM

Dear Russ:

I am gratified that your article is causing discussion of when.
There are certain things that must be understood in order to understand when "the depression" will hit.

One must be aware that the federal reserve is a for profit private bank.

One must comprehend, from an extensive study of history, that there are men who exercise control over the affairs of men. They already have the collapse planned. The challenge of a good man is to deal with this reality (Good men cherish freedom, evil men crave control of others.)

There is truth and there is evil. Our country has become very evil. Those that do not "see" this lack discernment-which is the most important gift that anyone could possess at this time in world history.

What would happen if the fed raised rates 400 basis points in the next 12 months?

Who has the power to make that decision?

Could it happen?

There are evil powers that will cause the collapse in the near future. Our nation has abandoned truth and goodness and embraced lies and evil.

Jesus Christ will actually return to earth and set up HIS economic system.

Not one in a million "christians" have ANY clue about what is going to happen. Christ is all about economics and politics.

Those that are enlightened with truth KNOW that the collapse will happen very soon. The "see" the signs.

From the thousands of books I have read, and MANY hours pondering world, financial, and religious history, my best guess is 2005.

We will find out very soon if I am right or wrong,

Brent Long, MBA

Posted by: Brent Long at November 17, 2004 04:52 AM

wow ! The discussion has become overheated !! Nice posts russ !
I bet for 2005. Though it could go for 2008. We'll see in the coming months if the US economic recovery is self sustainable... Can lead to reductions of imbalances. Or if it cannot. And is doomed.

Posted by: DF at November 17, 2004 02:35 PM


I love it when this website gets going. So many people with such divergent views, but seeing the future in much the same way. I am an ardent Misean and Rothbardian(Austrian school), but from what I've read we have some people of religeous faith(as am I, no not a contradiction, see Brent's post), people with leftest and rightest leanings.

Just read an absolutly MIND BLOWING article written by the CIA(
Article ER 77-10147

Written in 1977 about the coming oil peak of then Soviet Russia. It claims that the economic impact of the peak, to take place in the first part of the 80's, would be absolutly devastating to the soviet empire. With the knowledge that most of us have about the implications of Peak Oil, it is very easy to read what our government and especialy the CIA did with this information. It proved to be almost dead on, as Soviet(Russian) oil peaked in the later part of the 80's. We pushed the Saudi's and our then friend Saddam, to flood the market with cheap oil. This is an angle of the cold war I had never considered. But, the most scary HOLY SHIT moment comes when you replace everything that is being said about Soviet Russia with the word WORLD. If you read it like this "The World oil production will peak in the 1980's and will cause, etc,ect", but think 2005,2006 or 2010 instead of the 80's, and you get a real sinking feeling in your stomach.

Since most of the remaining spare cappacity lies in the Saudi region and they are developing similar albiet more technologically advanced, water extraction techniques like the Russian's were. It's easy to see why so many in places of power are acting the way they are. Think if Gahwar was to reach the point of complete water invelopment and collapsed much like many of the Russian fields did, what would happen. Just read this article and let me know what you think.!!

Posted by: FeelingWeird at November 17, 2004 08:50 PM

Hi , I also Like that I see other americans realize our government is deep in Debt and that something must be done and that the american public should be warned of Its economic problems. Also that our Govt. will "NOT" be able to fund social security, Medicare is bigger now with prescription drug benefit. Hey I like senior citizens and someday we all will be one but sorry our govt. will not be able to fund that either! Sometimes the truth hurts.

What I really want the average american to realize is that Your 401-K , and IRA will not be there for you when the dollar collapses. Our dollar is backed by "not gold standard anymore" , The Fed reserve states it $ has "no intrinsic value" look it up at fed website they have free booklets about "MONEY" their "so - called money" Fraud money. Unconstitutional money!!!!! anyway When our govt is bankrupt then our Currency or "medium of exchange" you use to buy everything and if you keep your
"STORAGE OF WEALTH" Based IN Fed Dollars then you will lose your wealth when the dollar crumbles.
"remember" remember remember
Your 401-K a,d IRA individual retirement acct. is based in "DOLLARS" and when the dollar goes under your retirement acct goes under .

also your bank acct: checking and savings acct:
If you have extra cars youre not using or things other than gold silver I would get money for antiques now while theres still buyers . when the 1930's depression started I remember a photo of a man trying to sell his car since he was unemployed and looked unhappy. If large numbers of americans are unemployed like 1930's then it will be hard to find buyers, homes also if you have more than one. If you remember ENRON Employees lost their 401-K's and other Old Big companies are scared they will "NOT" BE ABLE TO FUND THEIR PENSIONS.
Retirement may mean taking care of yourself.
storing some extra food if you become unemployed when our countries budget collapses & becomes a farce - joke (already is) It would be nice to have extra food, or other barter items.

Right now our Country is broke FACT: its a joke that they are borrowing (stealing) from the Federal employees Retirement FUND to pay to run everyday Government. This should be illegal.
They are robbing peter to pay paul , or the checks in the mail. Our govt is acting irresponsible. In this new congress session they will have to vote on a new budget! they will only raise the debt ceiling to 8 Trillion something so we will be hitting debt ceilings probably each year and our yearly budget costs could go to 1 Trillion a year especially when tjhe Fed. Dollars "value " falls it will take even more to run govt. Every time they increase the debt ceiling it devalues our current account - money in our bank , home, wallet, IRA, 401-K, stocks are also based in Fed. Dollars so when the dollar falls their "worth " falls.

In a nutshell when your currency or medium of exchange falls, and loses value how will you support , feed your family. Its scary! I do not want to live thru a Great Depression but I feel our govt is so big that they would not listen to solutions and do not care. They would not implement proper solutions to our coming economic debt crisis. They will keep feeding us white lies and big lies and tell us things will get bette.
Today 1 Fed dollar is worth .10 to .15 cents based on
"their own cpi calculator'
QUESTION what will 1 dollar be worth in goods and services in 10 years??? its scary to even think. I recomment you politely tell your relatives families that our govt and economy are in serious economic trouble and then its up to them to prepare for themselves. Do what you think is right. Hope for the best but I recommend you spend a little each month to prepare for the worst!!!!!!!! GOOD LUCK. Dont trust all the retirement promises and also life insurance is based in dollars all insurances. when our govt goes bankrupt insurance companies will close down and stop paying claims .Think about it!!!! bye . Freedom and liberty for all!

Posted by: CAPTAIN FREEDOM at November 18, 2004 09:40 AM

It's gonna get bad, no doubt. But people kept using marks in 1923 Germany, all the way into the crisis. The govt finally made a new mark w/ "hard" backing & thats how they pulled out.

Posted by: MAC at November 18, 2004 03:25 PM

Nice posts by all.

I have come to the conclusion that the USS Dollar is beginning to sink rapidly and the rats are already jumping ship (Cuba, Venezuela, Iran) and it is just a matter of time before the big players (Asia) decide to begin doing the same and start heading for the life rafts (Euro, Canadian Dollar, Suisse Franc, Gold, Silver ect). Unfortunately there are so many factors involved it would be difficult to say “when” this great economic depression will begin. I am of the belief however that to many Americans the depression has probably already begun as more and more layoffs are happening and the jobs that are being “created” are no where near at the pay scale of the jobs that are being outsourced to foreign countries. Even at the high tech company I work for, which was started locally in a small town, was bought out by a big corporation and I will be lucky to have a job in a year as the layoffs have already started due to the outsourcing of our labor and intellect!!! With interest rates on the rise it will put even more pressure on the average American citizen when they can’t afford payments any longer on the great big house and car that they just bought with E-Z Al’s discount credit. Not to mention that the cost of daily necessities are beginning to rise at a fairly high rate, which most people realize, but what they don’t realize is that the trend IMHO is that it is going to start accelerating. How many people who drive 15MPG SUV’s do you think will be able to pay for gas to go work when it is costing them $10.00 per gallon next year when they only make $7.00 per hour? The never ending War on Terror will also bankrupt this country. The only way that the govt. can pay for this is though the Inflation Tax. Inflation Tax is not something that the average American even understands. We are blinded by indicators such as the DOW and the S&P 500 which will probably rise during the coming inflationary period which will mask the true cause of the increase-TOO MUCH $$$$ in the system. It is very similar to what I believe IS also a housing bubble caused by inflations due again to E-Z Al’s discount credit program. What scares me the most however is the almost complete obliviousness to the situation at hand in the general public (present company excluded). When I talk to my peers about my opinion of the situation, more often than not I am ridiculed as a “fear monger” or “doom sayer” and that the “Dollar can’t ever collapse or it will be complete chaos” Well my friends, the chaos has begun and will only get worse. IMHO the more people who say that something can’t or won’t happen, the more likely hood that it will. As Murphy’s Law states “If something can go wrong, it will”. The deck has been stacked against us here in America and I don’t believe we will be able to turn the situation around until it runs full course. Prepare yourselves for the hardest times in Americas since the 1929 depression. Again, when will this happen I cannot say for sure, but I think it is closer than most people think. As I stated to one of my peers who is blind to the facts at hand is that I will safely sit by and watch as the lemmings follow our leaders off the edge of the cliff and by the time they realize what is happening, it will be too late. Good luck to all in the coming years and I hope and pray what I believe does not come to pass, but it doesn’t look good.


Posted by: Ignacioman at November 18, 2004 03:48 PM

Yes, I must agree, this has been an intense forum!!!

Russ, you still there?

Posted by: The Chemical Man at November 19, 2004 03:38 AM

Dear Ignacioman,

Recognizing that the end is coming is one thing. Knowing WHEN it will happen is another story altogether. You say that the END is near, but I must rebuttle.

If you read my other posts. I describe current Elites as NOT wanting ANYTHING CRASHING. They want a slow "invisible" decline, kind of exactly the way it HAS been happening. Like you wrote, not many Americans know what is happening, fiscally speaking, in the U.S.. So the ruling Elite are going to keep this charade going for as long as they can. As the recent raising of the debt ceiling in the United States attests to, (by 800 Billion, yes B as in Billion, remember when a billion used to mean SOMETHING!!!??? I remember when old Bush wanted 4.3 Billion to fight the war on drugs (1991?), and how that flabergasted me) So to keep the charade going, they will continue to lower rates,(long-term specifically, for mortgages mostly, people will continue to cash out equity, and with rates dropping, house prices will continue to boom. Who knows,, maybe this real estate bubble is just starting) and keep the game going. They will buy any and ALL foreign treasury sales, just to keep the price of long bonds high. So, therefore, this COULD go on for quite some time. I am talking about a decade or two, maybe, UNLESS.......

Let's just say "What if the right terrorist attack was to take place?" What do I mean by right? I mean one that takes the current Elite "OUT" of the world financial picture. And that my friend is a little hard to do considering it is more of a "group of people" than a person. But lets just say the "right" people are out of the picture, the HUGE IMBALANCES, creates by their absence will make the system crumble as the charade is "seen", and the people run the banks. But, THAT is a long shot, So......

Our best bet is to buy commodities. Cash out the 401k, GIVE the government 10%, and buy that 1969 Camaro RS/SS Convertable you always wanted. Better than holding dollars!!! Buy that Baseball card set from the sixties, or maybe start collecting stamps!!! Anything but dollars!!!! Any "stuff" will do. I heard a story about a German lady bought up dozens of bedpans because that was all the store had left. She bought them because she didn't want the currency!!!!!!

Right now, I think we are in an experiment. We are, almost literally, the rats.

It will be inflationary at the end. Massive and severe.

Hope you have that Camero when it happens!!!!

If you are lucky, someone will buy it from you with those Krugerands (sp). Or Gold Eagles


"Hope it never happens, but prepare like it is inevitable."

-The Chemical Man-

p.s. Hey Russ, if you are afraid to reply, you can e-mail me ..... lol I WILL help you to see....

Posted by: The Chemical man at November 19, 2004 04:12 AM

And one last question,

What do you call the new Exchange Traded Fund (E.T.F.), ticker GLD??

I call it fraud.

"Blocks of 100,000 shares are redeemable into gold bullion, and shares should be priced at about 10 percent of the price of a troy ounce of gold."


"(This) ETF is designed to reflect the price of gold owned by the trust, less the expenses of the trust's operations.
The funds will pay their fees by selling off small amounts of gold bullion. In other words, the fractional amount of physical gold represented by each share will decrease over the life of the trust."

Well, then I think the shares will become worthless... just buy physical gold instead. No liabilities, no FEES!!!!!

-The Chemical Man-

Posted by: The Chemical Man at November 19, 2004 04:33 AM

And one last question,

What do you call the new Exchange Traded Fund (E.T.F.), ticker GLD??

I call it fraud.

"Blocks of 100,000 shares are redeemable into gold bullion, and shares should be priced at about 10 percent of the price of a troy ounce of gold."


"(This) ETF is designed to reflect the price of gold owned by the trust, less the expenses of the trust's operations.
The funds will pay their fees by selling off small amounts of gold bullion. In other words, the fractional amount of physical gold represented by each share will decrease over the life of the trust."

Well, then I think the shares will become worthless... just buy physical gold instead. No liabilities, no FEES!!!!!

-The Chemical Man-

Posted by: The Chemical Man at November 19, 2004 04:33 AM

Chemical Man,

I do agree with you that it is very hard to say when the end of the Dollar will happen. I stated it would be soon which I consider sometime within the next 10 years probably....maybe sooner depending on the circumstances as you have stated. Of course the elites dont want this to end anytime at all if possible. TPTB will keep this going for as long as possible but I do believe that the Fed is caught between a rock and a hard place in regards to intrest rates. If they keep raising rates to keep inflation in check and help support the dollar abroad it will ruin anyone with an ARM on there new 3000sq ft house, not to mention the overwhelming credit card debt the average American keeps on their cards montly. If the Fed lowers rates it will only add more fuel to the inflationary fire and bring less support of the dollar aborad. This is the main reason I think that the dollar is in its last days figurativly speaking...In other words we are at the beginning of the end if you get my drift. It may take months, years or a decade for the dollar to run its course but we have taken that dark road and it will be a while before we get out of the woods IMHO.

Posted by: Ignacioman at November 19, 2004 03:09 PM

As you read my original article, the logic of the depression cause and approximate timing are clear.

If you picture a “credit card boom” where everyone parties day and night, buys everything they always wanted, and does not worry about the future, then the early results are dramatically escalated GDP, Equity prices, Bond and Real Estate valuations. All partiers want to continue motoring down this road to unbridled prosperity keeping the same "party" policies in place. An absolute key ingredient for this condition is a global artificial suppression of interest rates inducing monetary expansion. Our own central bank can accomplish this readily by directly impacting short-term securities. Foreign central banks and investors must cooperate via buying the long-term securities. Political spin and pressure is vital. This collective flood of monetary expansion has to go somewhere. It will manifest itself via inflation of the cost of goods and services and/or asset prices.

We have an incredible phenomenon where massive monetary expansion has pushed asset prices to the moon (stocks, bonds, and real estate) over the past 9 years far above the CPI index. THIS HAS CREATED A MASSIVE OVERVALUATON BUBBLE; NOT SIMPLY INFLATION ACROSS THE BOARD. This could only happen due to the US “strong dollar policies” that enabled imported goods to remain inexpensive thus keeping a lid on CPI inflation, along with a parallel monetary practice by our foreign partners massively inflating their currencies and effectively printing money to buy US bonds and equities. They now own more than 50% of all outstanding US treasuries.


Governments cannot stop frightened masses of people. They will run their course. My fear is a loud strong voice (e.g. a Rush Limbaugh or Alexander Haig equivalent ) will emerge and resort to tyrannical policies with a police state. We know a strong voice always emerges in chaos, and I just want it to be the voice of freedom.

MOST IMPORTANT is to understand the CAUSE of the economic conditions we are experiencing today, so we can work to prevent it reoccurring.

The results???….
I believe:
· We will experience a dollar crisis before the end of 2006....
· The Dow will drop below 7,000 (before Dec 2006)....
· Bonds and housing will drop 10-30%....
· All followed by an emergency G-7 (+China) summit meeting where the US will pressure our partners to use the same monetary "medicine" we prescribe to an extreme (low interest, easy money)...
· This will temporarily goose the global economies (and the metrics noted above) for a year or two..... Then
....a global collapse...... 2008 to 2010 (or sooner)

Posted by: Russ Randall at November 19, 2004 04:41 PM

o.k. I agree with MOST of what you just said, but... (once again, THAT word) I believe the FED can AND will continue to push the interest rate down to "share" this BOOM of money that has been occuring. Give the masses the crumbs... They will eat them.

They keep the other 100 Billion.

The FED WILL continue to buy all outstanding debt that comes their way, especially if there are no buyers. The FED WILL become the buyer of last resort, and they will be sure the rates DO NOT rise!!!
Remember Russ, this time it is fiat. They can print as much as they wish. No restrictions due to the gold backing days. So rates are going lower.... slowly and softly, lower. People will continue to re-fi, and cash MORE home equity out.

Russ, you have a great understanding of the dynamics of monetary velocity, but you seem to be stuck with the notion that monetary creation is capped. It is not, Once you come to terms with that, you will understand that deflation, will not, CANNOT happen. There will be price pressures on luxury items when the dollar scramble begins, but whatever causes the "dollar scramble", will probably cause the foreign governments to unload Treasuries WITHOUT the FED buying, creating a massive rise in rates and starting the collapse you talk of. What event will cause that? Who knows, might be tomorrow, might be in fifty years.

But we all do agree on one thing. When "it" happens, it will NOT be pretty. Rather be watching it through that depression 2 TV station than living right smack in the middle of it.

"Hope it never happens, but prepare like it is inevitable."

-The Chemical Man-

Posted by: The Chemical Man at November 20, 2004 12:40 AM

The message I'm trying to convey above all else is that the creeping and deepening dependence conditioning of our economy upon low interest rates and easy money policy has been accomplished by a slowly seductive "fiat monetary" method. We have arrived at a point where the gap between the future stream of goods and services, which can be purchased with a given investment, is MUCH less than the reality of what will be possible. IT’S A HUGE BUBBLE. No government manipulation of money supply or interest rates, lip service, or spin will change this. If people believe they are “financially set” to retire and soon discover the purchasing power of their assets is a fraction of what they thought, fear will beset the country.

The second critical message is that significant masses of people are working in companies that are directly or indirectly dependent upon artificially low interest rates. The cleansing agent of depression will directly affect these people.

Going forward, any movement by a government to ease back on interest rates or flood more liquidity (inflate) into the economy may have short-term fleeting impacts, but will become completely futile soon. It’s very difficult to diffuse an illusion with yet another illusion. Any of these actions will negatively affect all those holding or buying dollars or dollar-based assets. For example, it is becoming painfully obvious to the Asian countries that dollar and dollar-based assets will only go down in value due to the dollar and US asset overvaluations. This will prompt the Japanese and Chinese (and Arab, etc.) investors to finally balk and act to sell securities they have as well as pressure their governments to do the same. Gosh, if they simply stopped buying the securities, and held what they have (short of dumping) it would be an outright financial disaster. Imagine none of the Asians showing up at the next Treasury auction…..!

Our government does not have the power to create something out of nothing. Because of our massive debts and deficits we are no longer in control of our destiny. Foreign entities are.

Posted by: Russ Randall at November 20, 2004 05:39 PM


Correction to the second statement above...

We have arrived at a point where the gap between the PERCEIVED future stream of goods and services, which can be purchased with a given investment, is MUCH GREATER than the reality of what will be possible.

Posted by: Russ Randall at November 21, 2004 01:03 AM



TRYING TO SPAM FREEDOM ONLY GIVES US MORE RESOLVE AND DETERMINATION TO FIGHT ON AND RESPECTFULLY WARN OTHERS OF THE REAL TRUTH OF WHATS COMING. WE will all have harder lives ahead living on the basics and doing without sometimes. Finally americans will not be able to use credit cards to buy things they cannot afford outright. No more borrowing to excess or living above your means. filing for bankruptcy should lot let a person not still owe the money!
They should still have to pay it back.

I wanted to warn others that our Congress passed a budget increase of $800,000,000,000.00 BILLION DOLLARS! DAMN THATS A LOT! So our new Debt Ceiling (JOKE) is $8.2 TRILLION Rounded, $7.4 plus $800 billion = $8.2 Trillion Dollars. Big Deal! they will reach that Debt Ceiling Limit by end of 2005 between the wars cost and govt. everyday costs. Soon they will be spending

BUT WHAT I wanted to "WARN" others about is that our current dollars in your checking,saving accounts has just devalued since they increased the economy by $800,000,000,000.00 BILLION Dollars. You can do the percentage by dividing.
$7.4 Trillion / $800 billion = 9.25 or
IT MAKES ME MAD AS HELL . Our Fed. Reserve is unconstitutional and anti-freedom because it takes our net worth away and allows our govt to act irresponsible going deeper into debt.
I wonder what the interst payment on the National Debt is now???? now that they borrowed even more .

so when you go to the food, clothing, etc store this christmas and wonder why things cost more remember its partly because your govt. borrowed more and created $800 Billion dollars out of thin air and made your current dollar lose some of its buying value!!!!! think of that the next time Bush , cnn, fox news or a democrat in congress tell us the economy will get better or debt is nothing to worry about???
better prepare as I said "think"!!!! our govt will "NOT" change the way they are doing things!!! good luck! Oh yhea I forgot to add a few more dept. of govt that need to be abolished 1, D.E.A.(prohibition of alcohol failed this will too) , F.D.A.- recently is a joke, dept of homeland security, abolish patriot act, Prohibition of the worlds oldest profession prostitution, vice squad should be abolished waste of govt money! and any other Dept of government thats not originally in the original constitution. talk to ya later. LET FREEDOM RING!!!

Posted by: CAPTAIN FREEDOM at November 21, 2004 01:57 AM

Dear All,

Thanks for keeping the site humming with all the great posts. I apologize for the recent spate of porn spam posts, and appreciate your patience. I've deleted them, but they'll likely be back.

Ah, the costs of living in a free society...

Michael Nystrom

Posted by: Michael Nystrom at November 21, 2004 01:07 PM

Thanks for the clean-up Michael. I don't know why I couldn't get access to do it myself, that will remain a mystery I guess. I do suspect that we are targeted from time to time by some malicious program to choke commentary, but I get more paranoid every year!! :)

So, what does everyone think happens next with the dollar and gold? With Sir Alan going public just before a G20 meeting of finance ministers you can be absolutely sure the "fix" is already in. The smart guys at "The Daily Reckoning" are buying dollars and shorting gold right now!!

The elite use Hegelian Dialectic to the max. Just as everyone is waking up in the general populace to the notion that the trade and budget deficits are funded in Asia and that the dollar needs to weaken if something doesn't change in our consuming habits, and just as Sir Alan finally publicly recognizes the dollar decline that has been ongoing for over 3 years, there is a G20 meeting where you can be sure a solution will be agreed and a new direction taken.

Thesis, antithesis, synthesis.

Question is....what is the solution they will outline? A Chinese currency devaluation? Quicker interest rate hikes in the US? New agreements with the Russians and Europeans to take more dollars?

This club of finance ministers, who routinely decide the fate of the world based on direction and instruction form their masters, need to soft-land the US economy somehow, without destroying the China boom and the fragile global economic balance. They need to synthesise the world, create their vision of a new world order - an integrated trading block on a common platform, centrally controlled. So what is the next move, and what is the short-term outcome?

I don't think these mortals will hold this giant machine together, I believe we've got another several years of "fuse time" before the uncontrollable economic explosion - but I've been surprised countless times since 2000 by just how the Ponzi Scheme, we call the global economy, has been kept afloat.

Cheers Rich

Posted by: Rich Lancaster at November 21, 2004 04:57 PM

The dollar has been artificially strengthened and gold suppressed via coordinated government and major brokerage house efforts in earnest since 1993 until 2002-3. They are in process of correcting because the consortium of culprit governments are running out of gold, and the extreme overextension on derivative positions and leases are becoming a bit obvious.

As in any bubble they are very popular to form and resistance to their formation is easily suppressed. The problem with this bubble is its immense size and scope. I believe the best efforts of all governments to slowly diffuse the bubbles will be futile. Heck, we can’t even get a simple agreement on who the bad guys are to go bomb. We are currently in a feverish international race to devalue all currencies, attempting to protect the out-of-balance trade conditions that exist. Predictably, the harder governments try via intervention, the worse things get. A free market adjustment to an even trade balance would be extremely painful, but at some breaking point, will happen.

As the citizenry in the various countries realize the true scope of the bubble, and learn the numerous methods governments will utilize to attempt diffusion, they will realize some will get the “short end of the stick”. Those on the extra short end are holding dollars and dollar-based assets living in countries with undervalued currencies (mostly Asia). The dollar must reach the $0.50 US dollar index rate range to effectively neutralize the US current account deficit (down from $1.20 in 2002 and $0.83 today). Further, US assets are approx. 35% overvalued. Can you imagine what a Japanese boomer, thinking about his retirement soon, might do if he (or she) learns the future buying power of his next egg (the US asset portion) is only 20-30% of what he thinks it might be? Any lucid Japanese boomer would run away from dollars and insist their government do the same as fast as possible to rid the world of this most incredible illusion.

The Daily Reckoning team is making a logical short-term interim move on the dollar and gold betting on a reversal in course. However, they are solidly in the same long-term camp as most of those who believe we are in secular bull (on precious metals) and bear markets on equities, bonds, and real estate.

Posted by: Russ Randall at November 21, 2004 11:21 PM

I think it was Snow spamming this site.

Anyway, trying to bet the swings, like our friends at the Daily Reckoning are doing, is insane.
The monetary picture of this world is just too crazy.
Bet the trend, and stick with it. The trend is a falling dollar.

Remember, this is the first time (that I can find) in history, that every currency in the world is Fiat. (Yes, I know all about the Dinar, but that has been recent news). Never has the world been in this state, monetarily speaking.
Everytime something bad would happen, there would be ANOTHER Gold backed currency that the world would rush to. The world now has nowhere to rush.

We will ALL be looking back at the time, when silver was 7 dollars an ounce, thinking, "Why the hell didn't I invest ALL my money in silver back then!!!!!" So just buy silver and gold whenever you can. No way would I ever short them!!

But I recently paid out my nose for some Google put options that just expired worthless!! After that HUGE run up, I bought some 165 puts for $6.50 each. Damn stock kept going up. Should have bought some silver with the money I lost....

Things are going well. We will break records in spending this Christmas season. Go America Go.

-The Chemical Man-

Posted by: The Chemical man at November 22, 2004 02:08 AM

Sorry guys - the spammers hit again overnight, so I'm going to have to close it down for comments. I'm opening up a new thread here:

Onward and upward with the depression!


Posted by: Michael Nystrom at November 22, 2004 01:48 PM

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