With swine flu panic receding somewhat, mail from readers over the weekend gravitated toward less urgent matters, including the seeming now-and-again cynicism of Rick’s Picks. “I follow your commentary regularly,” wrote one reader, “and it sometimes seems like you actually want the economy to collapse. Do you?” Guilty as charged! How else can the economy get back on track, if not from such ruinous depths as might force us toconfront the root causes of its sickness? Otherwise, as long as we continue deceive ourselves about the nature of wealth, and about the economically crucial role of savings in creating wealth, no sustainable recovery is possible.
To judge from the actions of our political leaders, one might think the way out of a debt deflation is to stimulate yet another credit boom – one powerful enough to cause all prices, most particularly home prices, to rise. Why anyone would believe in this flim-flam is baffling. An estimated $12.8 trillion worth of attempted stimulus, bailouts and loan commitments have been tried already, to no avail. All of that funny money has produced no inflation whatsoever, much less a discernible benefit. What it has achieved, mainly, is to put Americans inextricably deeper in debt.
Inflationists ‘All Talk’
We note that even those who consider themselves inflationists do not seem to believe deep down that promiscuous monetization will raise the price of anything besides groceries. If they felt otherwise, why aren’t they putting their money where their mouths are, plowing what remains of their nest eggs into real estate? After all, what better way to bet on inflation right now than to jump headlong into a very depressed housing market? And maybe if we all do it, we can get rich together, perhaps recouping the biggest and most obvious piece of the American dream that has been lost so far – i.e., the promise of a “golden” retirement.
This is one aspect of the economy’s collapse that no amount of self-deception and political lying can conceal. Most Americans over 50 understand this. Having seen a significant portion of their net worth vanish over the last several years, they have done the math and concluded that retirement to a life of ease and luxury at age 65 is no longer within their grasp. Many are wondering instead whether they will have to continue working until they are 75 just to make ends meet. And the idea of living off a nest egg that generates steady six percent returns has been supplanted by the harsh reality of preserving one’s capital against further, and perhaps total, loss.
What Recovery?
And yet, we persist in believing that recovery is just around the corner. Recovery of what, one might ask? Surely not the banking sector, whose success came entirely from leveraging schemes that are likely to be dead for the next fifty years. Realize that this was America’s premier industry that has all but vanished, and that we do not have a powerful manufacturing sector to fall back on. Yankee know-how may ultimately get us out of the hole, but the uncertainties of this are a far cry from whatever allegedly hopeful signs of recovery the punditry has glimpsed in the big banks’ most recent earnings reports. If the trading-desk profits that those banks just announced are what passes for economic vitality these days, then, clearly, more economic pain is needed to bring us back to reality.
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Your statement that “despite 12 trillion dollars in stimulus we’ve gotten nothing more to show for it than being deeper in debt” begs the question where would we be now if not for the stimulus?
My feeling is we would have suffered an economic collapse, without government intervention which if you agree, would contradict your statement that the stimulus has had no effect. It has at very least acted as a speed bump. And I wouldn’t underestimate the massive inflation being created and how it’s like a cocked pistol at your head ready to go off at the slightest provocation, and will go off when the credit bubble has sufficiently been deflated.
These guys can and will print money and do it as long as they can keep the bond investors on board. If the bond holders try to jump ship, then all hell is gonna break loose and your gonna see some real inflation.
I think you don’t quite understand the dynamics here Rick. What is at stake is the integrity of the financial medium ie.dollar. The “printing” just proves to investors in this economic system, that the game is rigged. They will then stop sending us 90 percent of what we use on a daily basis. It doesn’t take alot of imagination to figure out how inflation is going to be introduced by the above outlined scenario. What is particularly distressing though, is the fact that when this scenario pans out, we wont even have the saved capital to retool and recover because we’re in a severe recession/depression. And with our credit marred, forget about raising the capital.
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Merely by suggesting the dollar’s “integrity” is at stake, Ron, you have gone off the deep end. Defending the dollar’s integrity is like defending Madonna’s virginity.
So, where would we be now without the stimulus? Who cares. The question that matters is, where are we going? You seem to think the hoax can go on forever, and that there is a possible outcome other than bondholders jumping ship. Concerning the alleged threat of inflation, are you personally putting all of your capital in distressed real estate right now?
RA