I’m in New York once again for the annual spring meeting of the CMRE, the Committee for Monetary Reform and Education. This group attracts men and women from the investment community who share your editor’s disdain for fiat money and other falsehoods promoted by Big Government. Here’s the line-up of speakers at tonight’s dinner, along with program notes on each:
James Grant, publisher of Grant’s Interest Rate Observer.. On the record for the importance of The Gold Standard, Grant suggests Mr. Bernanke be asked to explain how the central-banking methods of the paper-dollar era represent any improvement, either in practice or theory, over the rigor, elegance, simplicity and predictability of the gold standard. (WSJ 12/20/08, Is the Medicine Worse Than the Illness?) Grant is incomparable with his knowledge of history as well as current issues..)
The Honorable Andrus Ansip, Prime Minister of Estonia. First elected in 2005 and reelected in 2007, Mr. Ansip has also worked in business and banking sectors. Before becoming Prime Minister, he served as Minister of Economy and Communications. A former Soviet-bloc nation, Estonia’s economy is ranked as one of the most free in the world, a remarkable feat for a former communist country. He has been a global leader for the Flat Tax movement. He recently led his country in a successful defense against a Russian computer based cyber attack thus winning the world’s first cyber war. His agenda is to continue Estonia’s policy of tight fiscal control, support for an unrestricted market economy, with markets open to the outside world and strong GDP growth.
Jack Willoughby, Editor, Barron’s, will speak on how “Europe’s Growing Crisis Puts the Fed at Risk”. Willoughby observes Europe’s commercial banks have more exposure to wounded emerging markets than U.S. counterparts. He contends one can debate the merits but not the size of the swaps program. It is big.
Martin Mayer, having written several books on banking, thoroughly understands the industry. In his book The Fed, he wrote, “A thread that runs though American banking for its entire history is the fear that the money center banks … will vacuum the money from the American people and spread it out on Wall Street for use by the city slickers. The twelve Federal Reserve Banks stand as monuments to the wistful national desire to create separate money markets in different parts of the country.” From his wisdom is Martin’s concern about credit default swaps. He recognized their hazard well before the market was aware of their danger.
William (Bill) W. Beach, director, Center for Data Analysis, Heritage Foundation, will speak about “Paying the Tab”. It is doubtful that anyone knows more about the “stimulus” package and the pending tax programs that Americans face than Bill Beach. His Center for Data Analysis competes with the Congressional Budget Office, the Office of Management and Budget, the Joint Committee on Taxation, or any other government agency when it comes to “scouring” potential costs and benefits of legislation. His work is obviously critical to the market developments and the economy.
Gene Schroeder: Our favorite, wise farmer rancher from Colorado. If you have never met Gene, do not miss this occasion. Jim Rogers says agriculture is the place to be. Gene knows that whole business and money and banking, too.
Rogue Wave Economics
If you’d like to know more about the CMRE, click here. I was a speaker at this annual event myself, during the 1990-91 recession. An essay that I’d written for Barron’s caught the attention of a CMRE director, the late Ed Hart, a well respected commentator on CNBC before the network adopted its current show-biz-‘n’-babes model. My thesis was that a “rogue wave” created by a combination of public and private debt was about to swamp the economy. David Ranson of H.C. Wainright went sharply against the grain that night with a very bullish forecast. In retrospect, he was right – very right, since, not long afterward, the stock market began an ascent that would make all previous bull markets look like pikers.
Three More Zeroes
At the time, the doomsday scenario making the rounds had it that Third World debt would do us in. A year or two earlier, Tad Szulc of the New York Times had written a scary article on the topic that appeared, if memory serves, in Penthouse magazine. The article convinced me that a severe downturn was imminent, but in retrospect it seems almost quaint that anyone should have worried about the relatively meager sums involved. For in fact, the Third World owed U.S. banks mere hundreds of billions of dollars, and the problem got papered over as easily as a kitchen wall. Few could have imagined back then that, with the advent of the derivatives game in the late 1990s, three zeroes would get tacked onto global debt totals.
One can be reasonably certain that we are not at a similar threshold today, since debt would have to soar into the quadrillions or even quintillions. That would occur in a hyperinflation, of course, but that scenario is implausible for reasons that I have tried to make clear here before. (To believe hyperinflation lies ahead is tantamount to believing you will one day sell your home to some greater fool for a thousand times what it is presently worth, and that automobile manufacturers and air carriers, among other employers, will be paying their workers thousands of dollars per hour. I have long argued that the credit implosion now well under way in real estate and banking can produce only a deflationary outcome.
I’ll be interested to hear what these speakers have to say and will report on the proceedings in the Rick’s Picks chat room. Talk to you later.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
{ 12 comments }
“Tad Szulc of the New York Times had written a scary article on the topic that appeared, if memory serves, in Penthouse magazine.”
Ahhhhhhhhhhhh, so there is one person in the world who buys porn for the articles.
Meanwhile Iam saving my pocket change for the Aspen ski lodge I’m going to buy in your supposed deflationary environment where I’ll be toasting that brillant investment advisor who set me on the straight and narrow, with 50 cent bottles of Chateau de Rothchilds 1896 and admiring my gleaming new Rolls Royce that went for the princely sum of 20 bucks.
Wow Rick, I had no idea I was so rich already. Who needs investing, I’ll just sell blood and stash the cash for later.
Sorry man, I couldn’t resist a little good humored jab.
Mr Ackerman, Hyperinflation is a currency event not an economic one. Being different than inflation, hyperinflation is spawned from erroding confidence in and the debasement of a currency. When there exsists a lack of confidence in a currency people tend to want to trade it for anything of value, and in extreme cases of super high velocity we get hyperinflation.
Yes, economically debt and credit are soaking up all this current inflation and as the consumer contracts we have deflation of goods pricing, there are inventories that need to be bought at lower prices.
The US produces little in the way of capital through manufacturing, so I would imagine it will be difficult putting all these people back to work to revive the consumer to support foreign economies. China has its own built in consumer for when they finish their infrastructure growth. When the dollar gets flushed and few goods available to the US consemer, who will be buying what?
&&&&&
An interesting question, Jack, but I suspect no one will be buying much of anything, since we’ll all be broke. My question is, will the currency event come in time to bail out debtors — mainly tens of millions of homeowners who are underwater on their mortgages? Economic event, or currency event, that’s where the rubber meet the road. Of course, it’s possible that the homeowner bailout will itself be the currency event, in the form of $200,000 checks that each and every one of us beleaguered homeowners receive.
RA
<>
Rick…are you serious? You really think that the deflation we are now experiencing is anything but a brief period before the hyper-inflation? The Fed is now admitting that its monetizing the debt. And the debt is increasing by over a hundred billion a month. How will prices decline for any sustained period in this scenario?
The decline in demand leads to a decline in prices. But the decline in prices leads to a decline in production and the eventual recovery or stabilization of prices. But all the money that was created will stick around causing havoc. You can’t have declining prices for any sustainable period of time with money that can be created by the will of the government.
&&&&&
This isn’t the 1970s, Ben, and all of that monetizing is not happening in a more or less normal economy operating at full employment; rather, it is occurring in the midst of 69% capacity utilization and an asset deflation that has caused an estimated $70 billion of U.S. valuations to vanish.
In any event, I don’t have to prove anything at this point, since the inflationists have been dead wrong so far (and not a one of them would have predicted a year ago that the deflation we are actually experiencing would have gone on for this long.) Inflationists are only guessing and speculating at this point; deflationists are describing what IS. The burden of proof therefore rests with you, not me. RA
Aloha All
Tough to argue with what is.
Roubini’s view is the Shadow Banks: credit cards, Ditech 125% Loans, GE Credit, accounts due, margin accounts, mortgages, etc are contracting along with monetary velocity faster than the economy. The Fed and Treasury can provide unlimited liquidity to big banks, but they are insolvent, owing hundreds of times more with derivatives due than they own.
In other words, the Fed may be pushing on a string.
Regards*Rich
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
I find it curious that you think gold is going to go UP in a deflationary environment. Or do you?
Frankly, I don’t think anyone out there actually knows what is going to happen. You know the phrase, “using the foolish to confound the wise.” We are all just along for the ride and Ben Bernanke seems hell-bent on creating some sort of inflation to be the savior of their collective asses.
&&&&&
It’s a no-brainer at the moment, Justin, since, relative to just about any other investable asset you can name, gold IS going up, and it IS a deflationary environment. RA
Rick:
“My thesis was that a “rogue wave” created by a combination of public and private debt was about to swamp the economy. David Ranson of H.C. Wainright went sharply against the grain that night with a very bullish forecast. In retrospect, he was right”
I think this best illustrates, that despite the best analysis, and best inferences drawn from that, we still tend to underestimate the power this overall “manipulation” has to keep the inevitable from happeneing. This will always cause sceptics, like yourself, to most likely be early.
I dumped stocks in Feb ‘07, thinking that month’s Shanghai reversal tolled the bell for the endgame. Too early, of course.
As to your discussion above about hper- vs deflation:
Dr. Fekete may have it the most right, when he talks about both occurring together, with hyperinflation in the electronic, digital currency domain, and deflation in the paper, physical currency domain. Ironically, paper money may yet have some value due to scarcity, the scarcity of the presses not being able to keep up with demand for money-you-can-fold.
In such a scenario, one best have older bills on hand, as their supply is already fixed.
And for our Canadian friends, the CAD 20 coins are the sweet spot, legal tender at face, yet backed by the intrinsic content of the 1 oz Ag, vs. that of a smidgeon of pulp.
Too bad one can no longer get these without a premium over face!
Aloha All
Once got into a foolish financial district Liar’s Poker game with stakes so high we ran out of cash and gave each other paper IOUs, cigars and toothpick marks. When we got up to a quadrillion, we realized the insanity and parted defaulted friends, except for the guy who was way up at that moment of moral failure…
Media censored FOIA and whistleblowers reveal monopoly Government Sachs Fed Treasury leaders as banksters who apparently cared not one whit about the customers who built their balance sheets and profits over a century (Witless):
http://zerohedge.blogspot.com/2009/05/mark-patterson-its-sham-banks-are.html
Even after big bad banks destroyed themselves with greed and derivatives, they continued to promote the same old rigged usurious insanity, spewing secondaries supported by involuntary taxpayer funds and monopoly media headlines touting Banks Live, the Amazing Resurrection of Lazarus Banks, Second Coming.
So much for electronic settlements and stock certificate wallpaper, no longer issued. We had a 5 trillion dollar run last Fall until circuits were closed. Can we go higher this Fall before we crash?
The latest hit is the Fed Prevented Economic Depression headline from the Texas Fed Prez who once told the truth $100 T government IOUs may not be paid.. Like Invasion of the iPods, the Banksters got to him, too with this headline. He did at least confirm lack of consumer demand means no inflation, perhaps for a long time. He did not point out it also means no economy, either, troublesome omission for those of us who don’t believe in fairy dust. When will monopoly media headlines report -12.5% GDP the last 3 quarters defined depression?
http://www.cnbc.com/id/30763048/print/1/displaymode/1098/
Meanwhile, UK Telegraph reported 30% deflation in China and the lost decade in Europe as well as Japan, after retracting one article because it was too honest:
http://www.telegraph.co.uk/finance/economics/5331129/Europe-in-deepest-recession-since-War-as-Germany-suffers.html
So much for central economic planning with charismatic maximum earplug teleprompter leaders and their assorted tax evading apparatchik. Didn’t work for Stalin, Putin, Qaddafi, Mao, Hussein, Il Jong, Hitler, Chavez, Castro, Ahmadinejad-Khamenei and isn’t working for US now.
Most now left trading electronic squiggles, akin to gambler’s ruin with slot machines. No wonder so many cashed out of Wall Street craps to buy physical gold and silver at 50% premiums. Ouch. Such premiums usually mark tops.
And now are we to believe Trim Tabs that after liquidating since last September, mutual funds had $28 B inflows in April and May so far? Where’s the pony?
The key to buying assets below a penny on a thousand dollars one day, like the proverbial ounce of gold that bought a block of Berlin Commercial properties in 1924, may well be attentive shepherding of remaining assets to conserve capital. And then we may rediscover freedom is most profitable.
Regards*Rich
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
Yes, I think you’ve got it there, Rick…what’s happening now and what will happen – that’s where the rubber hits the road IMO.
BTW, I really admire your writing style (wit, essential accuracy, and esp. your lexicon). Terry S. professor & college prez, in a former life (-; Carp Diem!
ps. It must ‘rub off’ onto your forum subscribers b/c they often correct their own spelling (a trifling matter actually).
&&&&
Thanks for the kind words, Terry. Regulars in the Rick’s Picks chat room are held to a high standard — one that asks implictly, “How would Dylan Thomas say this?” RA
Rick,
Too bad you couldn’t post my comment about the possibility of both de and hyper at the same time, where I mentioned A. Fekete. (he has spoken at the CRME in the past)
On another topic, and I only put this here as I know you moderate, and get to read this first, you may have seen that HR1207 [Editor's note: This is the Federal Reserve Transparency Act of 2009, spomsored by Rep. Ron Paul] is advancing quite nicely in the House with respect to co-sponsorship (165 total so far). I have written many letters to my NJ delegate, and the other NJ members on the Financial Services Committee, and gotten as many others as I could to do the same. Glad to say that all 3 NJ members (R+D) are now on board as co-sponsors.
Perhaps (and only if it fits your politics and also the tenor of your posts in general), you could mention this and hopefully animate other of your readers to write their reps as well. The few R holdouts are from CA, PA, NY you must have readers there. As to the D: most are not on board (number growing though), more push is needed,
I also wrote Menendez, who is the lone NJ member on the Senate side, as S604 has no co-sponsors yet.
I don’t know about the Colorado situation, but would thnk there must be at least one CO member on Barney’s comittee
Cheers, Chris
You know I hear the deflation arguement and I agree. Cars and homes have tanked. But look around, food prices haven’t collapsed, health care, educational costs are up, movie tickets have increased, the Post Office has increased rates (I know) energy is creeping back up. Everywhere I look I see inflation albeit it’s the nickel/dime stuff. Can’t we agree that deflation/inflation need not be mutally exclusive?
I feel like either way gold/silver become the big winners via John Exters inverse pyramid that if you believe in deflation as other investments “evaporate” gold/silver become the base of where money will flow. If you are an inflationist it becomes the storage of wealth.
&&&&
Yes, you have it right: Inflation has been the nickel/dime stuff. Accordingly, let us simply agree that inflation at this point is boringly insignificant in comparison to deflation. RA
Rick….I would imagine there is a reverse split on the dollar in the works, so it would be cart-blanche. When? Before it collapses on its own, so that some impact can be some what controlled. The sooner this is performed the better to avoid continous debt distruction. Though it does not fix the economy.
Comments on this entry are closed.