One More Melt-up Before the Crash?

[We recently featured a guest commentary from Gary Leibowitz, a frequent contributor to the Rick’s Picks forum. In the essay below, he explains why, despite Europe’s financial troubles and signs of a global economic slowdown, a perfect storm of positive factors is likely to produce a final hurrah for stocks. Don’t hold onto them for too long, though, says Gary, because 2013 is going to bring disaster for most investors. RA]

Whatever happened to all that money Helicopter Ben printed? Surprisingly not very much. Between late 2008 and the end of 2011, the Fed injected almost $2 trillion in the financial system. Most of it, however, is parked in banks as reserves. At the same time, the Fed announced it would pay interest on those reserves. They paid $2 billion in 2009 alone. Since the Fed created an incentive for banks to hold that cash, 88 percent of it was still being held as of December 31.  There goes the theory that we could inflate our way out of this mess!  In fact, the Fed has done exactly the opposite, creating a system that pumps banks full of interest-free money while keeping that money from circulating. How ingenious! M2 velocity, which measures the frequency with which a unit of money is used, then re-used, to buy goods and services, has been contracting since 1999.  In fact, it is near an all-time low. At least, it was up until a few months ago.  The recent announcement of a huge borrowing frenzy last month could  be an anomaly, or a breakout of all that zero-velocity cash.  But up until recently, the money has not been lent, or spent.

It seems that high commodity prices may have been caused by the huge monetary spike.  Not that the money actually fed into the system as inflation; rather, it was the fear and  anticipation of inflation that pushed prices higher.  Under the circumstances, it can be reasonably inferred that all of those conspiracy theories that had the Fed working with some diabolical group to pull the strings, holding inflation at bay, were incorrect. In fact, the actions of the Fed, along with widespread, errant assumptions about the inflationary effects of monetization, may have helped to create more inflation than easing alone might have produced.  And now, with monetary velocity flatlining and the economies of China and Europe slowing dramatically, we have a convergence of factors that could bring about a nasty bear market in certain investables, especially commodities and energy. This makes perfect sense, although it seems not to have occurred to the many economists who are more bullish on the economy than they’ve been in years – and worried about an outbreak of inflation. To the contrary, if this mechanism is working in the way I’ve described, we could have a nice bout of deflation.  It would come at first in the form of a contraction in food and energy prices. Under the circumstances, the spectacular run of earnings for companies in these sectors might come to a screeching halt.

‘Death Threats’ from Inflationists

An argument I had years ago on a financial blog caused so much contention that I got death threats.  I made the simple observation that, no matter how much money the Fed produces, if lenders refuse to lend or borrowers to borrow,  deflation was possible.  They told me this was impossible and that I didn’t understand the definition of inflation or how the Fed works.  Well, in hindsight I might not have.  However, it seemed a stretch then, and still does, to believe that the Fed could simultaneously pump the banks full of liquidity while creating incentives to ensure that the excess money would not cause inflation.

How this relates to the markets going forward is the subject of an interesting debate.  If the U.S. consumer is actually starting to spend and borrow like in the good old days, as demand for energy wanes we could have a perfect stock market environment.  Imagine the unwinding of all those bets on commodities as prices fall and spending increases.  It might sound like an oxymoron, but in the real world both are possible. Granted, prices will eventually catch up to demand. But that gap could persist for many months of perfect stock-picking weather. Gold, in the meantime, should trail until unmistakable signs of a heated economy emerge.

New Stocks Will Lead

Before I declare the war on debt over, I should note that all it does is delay the inevitable.  Unfortunately, private debt can’t be forgiven like public debt.  If the lender is the Federal Reserve, debts are easily forgiven or fudged.  But for private lenders, once they realize they will never get paid the game is over. Will governments continue to bail out the failing parties?  Will austerity measures continue even as governments try to keep sovereign borrowers from sinking into bankruptcy?

In the meantime, for the remainder of 2011, I expect stocks to rotate leadership and soar once again. The perfect investment will actually create a perfect storm for next year in which real inflation will create havoc on politicians trying to bail out the world when debt payments become too steep.  The Pollyanna investment world of 2012 meets the Catch-22 impossible-to-salvage 2013?  A real possibility. That means a wild ride is about to unfold. In conclusion, I would like to acknowledge a debt of gratitude to Richard Mills, author of an article at SafeHaven.com. Some of my arguments came from this article, but the conclusions above are mine.

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  • Tom Paine May 31, 2012, 4:18 pm

    I see a problem for the stocks soaring scenario here. That is, Richard Russell just issued a bona fide Dow sell signal. Of course, I’m not so much a determinist that I think any system of prediction can be 100% accurate, but I wouldn’t want to be betting heavily against a call like that.

    As for commodities and gold. Most commodities are now fairly cheap I believe, except gold and perhaps oil and copper. I think a global round of QE is nigh, though they may try to disguise it as much as possible. If so, then I think the Dow sell signal may be negated and I would not want to be short any commodities even gold when the news hits the wire, which could be June 18th.

  • Chris T. May 30, 2012, 9:20 pm

    adt’l to the comments/questions above below my prior post:

    “MV=PT”
    for that to have any meaning, V must be something other than a restatement of (or purely determined by) one of the other three components.

    That is what I meant by independent.
    Hazlit showed long ago that it is not so, and thus the concept of “velocity” is pretty much bunk.

    Which does not mean, as to gary’s comment, that there is no mechanism that accounts for his observations (if they are correct, there obviously must be…)
    But “velocity” whether “high” or “low” is not it.

    H. Hazlitt:
    “Monetary theory would gain immensely if the concept of an independent or causal velocity of circulation were completely abandoned. The valuation approach, and the cash holdings approach, are sufficient to explain the problems involved.”

    Couldn’t find his orig. article on the fly, but see here for a comment that references this:
    http://www.safehaven.com/article/12301/deflation-bubble-update-debunking-the-velocity-of-money-myth

    (or find yourself by google)

    Irving Fisher, like Keynes, is one of the forefathers of modern economic quackery, and this one is one of his babies.
    Fools aren’t always wrong, but when principles are enunciated by the top-dog fool, then what stems from it is seldom worthwhile.

    As the article above also mentions the “mechanistic quantity theory of money” in this context, and what Hazlitt and others brought to bear against it, we don’t just get to indict the Keynesians (or Fisherites) here, but the Friedmanites as well.

    • Mark Uzick May 31, 2012, 2:03 am

      I read the article to which you linked and I think there’s some misunderstanding of what it implies: It’s saying that trade drives velocity, not the opposite; this is precisely what you conclude from “MV=PT”.

      I’m not familiar with their argument, but if Keynesian s conclude the opposite, then they are logically impaired (Nothing surprising about that!); but this doesn’t invalidate the concept of “velocity”, nor the fact that a rising velocity can be caused by a surplus of currency motivating people to increase their spending, thereby bidding up prices. But if this increase in the currency is just a number sitting idle on banks’ balances, shoring up their reserves, it will have no effect on “velocity”, which, true, is not the direct cause of price inflation/deflation, but a result of and a way to measure one of the things that effect prices: the extent to which the buying power of consumers cause prices to be bid up or down. High liquidity increases consumer demand, creating scarcity and bidding up prices ->increased trade -> increased velocity.

  • Rich May 30, 2012, 5:40 pm
  • Rich May 30, 2012, 4:57 pm
  • gary leibowitz May 30, 2012, 2:55 pm

    I find it strange how short term everyone is. The metals and equities have enjoyed one of the biggest runs ever yet here we are already announcing it’s demise.

    With such a run up isn’t it more likely that this is just a corrction? I know most believe that true with the metals but not equities.

    So let me ask. What will derail this correction into a full blown bear market? The EU refusing to support a countries bad debt? Greece leaving the EU? Domestic economy tanking?

    Commodities taking a hit, China announcing a revamp of their economy, and businesses about to embark on a spending spree, what’s not to like?

    Lets not forget it is election time.

    • gary leibowitz May 30, 2012, 3:16 pm

      BTW, most here betting on gold should hope the EU stays solvent. If the US dollar advances from here gold will be hit hard.

      Looks like gold is attached to the hip with the US economy and equities. If the EU situation gets worse in the short term, so will gold.

    • Benjamin May 30, 2012, 6:03 pm

      “With such a run up isn’t it more likely that this is just a corrction? I know most believe that true with the metals but not equities.”

      Maybe if the stock markets had actually made new all-time highs, the ‘bugs would see them as good as or better than gold. And maybe if silver wasn’t so far behind it’s all-time high (under-valued), they wouldn’t be so interested in it.

      I’m not in the camp that sees a gold and silver bear as possible. Basically, when the bear comes out of its hyper-hibernation, and while FRNs will be so scarce as to give them greater “value”, they will be too risky hold; high interest on high levels of debt will suck ’em right into the apex. And I bet not many with any quantity to speak of would be willing to risk circulating them, as those scarce FRNs would undoubtedly end up in a bank, where it’ll forever vanish.

      What then will there be? The answer is already known… The gold and silver prices tell us. More to the point, the unreal ratio tells us. Massive criminality is taking place, and has been taking place, so as to allow certain parties to snatch up as much of it as possible before “zero hour”. That has always been the plan. Unless one thinks that they made this financial and monetary system under with the earnest belief that it would actually work (or, at the very least, planned to go down with the ship they had put us on). If the latter, then… Holy-a-sucker’s-born-every-minute, Batman!

      Anyway, Gary, I don’t think you’ll be proven wrong. A final “goose” is not out of the question. Nor even several more. This will keep going until there’s too little real wealth to make it worth their time and “effort”. So long as they enter the brave new world so much richer than everyone else… that is all that matters.

    • Cam Fitzgerald May 30, 2012, 6:25 pm

      But what if “they” are “us” Benjamin. Who knows better what is going on than the small focussed groups who discuss these issues every day. When you point your finger at “them” can you not also concede the finger points back at you?

    • Benjamin May 30, 2012, 6:44 pm

      Cam,

      No. If I were one of them I quite simply wouldn’t be hear, or anywhere, talking about it.

      Besides, since when is it a crime to save up some gold and silver? Or a better question… Why should it be?

  • Cam Fitzgerald May 30, 2012, 10:21 am

    Could be Erik. The dollar is holding high and my gut tells me it awaits news of some sort of easing before heading South. Or the news could come from Europe in positive form thus pushing up the Euro. Same problems with gold and silver sitting flat and oil holding in the 90 range. There is indecision right now, the Vix is up a bit over the month but waiting seems to be the name of the game. I too think markets might go South if there is dissapointment so in that sense you may be right that a setup for a correction is possible. Metals bets are sure not paying off. Not yet anyway. And Asian indices look worrisome adding to pressures on the downside for commodities. Maybe China will be the dam breaker here after all. As usual, another bipolar week awaits.

    • Cam Fitzgerald May 30, 2012, 5:18 pm

      Gary, there is nothing strange about anyones perspectives here. You have to appreciate that a wide variety of traders show up on Ricks site. Not everyone can make a buck on the “big picture” just as too few can earn a dime swing trading. Each to his own. We all have our areas of strength and weakness and it is in our interests to stick to what we know best…..whatever time frame that might encompass.

  • erikcorr May 30, 2012, 2:57 am

    The FED, BOJ, ECB and Bank of England have to do more bond purchases since if the market tanks its like they have to start all over again even though it does cleanse the economy but banks and government are so interconnected. Thus I’m thinking stagflation is the order of the day this decade. Not hyperinflation but another short swift stock correction or crash is possible a la 1987

  • bc May 29, 2012, 10:30 pm

    My answer is that time enters financial models as a dimensionless parameter (call it financial time FT) always as FT=i*t. Where i is short term interest rate, and t is physics time, or calendar time, i.e. the time we all age by. The Fed can literally “Stop the clock”, financially. They have done so, and we are all financially trapped in Limbo, outside of ordinary physical time. Eventually, this will end, and when it does a whole bunch of financial variables are going to slew in real, physics time toward equilibrium. I say sooner, you (Gary) say later. Time, as they say, will soon tell.

  • Chris T. May 29, 2012, 9:38 pm

    I don’t get it:

    When reading commentaries from those who generally have something valuable to contribute (and who I think SHOULD know better), I often see the Fisher’s”V” mentioned as something concrete, to be taken seriously.
    John Mauldin talks about velocity in the inflationary context, as does Gary above.

    Yet, the whole notion of velocity as a measure, let alone an independent variable, was so thoroughly demolished by Henry Hazlit so many years ago, that I would think only the most ignorant of Keynesians, such as Krugman, would pay any attention to it at all!

    That is what I don’t get.
    Unless you believe Hazlit to have been in error?

    I have posted links to his article before, no bother now, its easy to google

    • gary leibowitz May 29, 2012, 9:50 pm

      So than why is bond yield, mortgage yield, at a new low while the US dollar is showing strength? Why hasn’t 4 years of monetary easing shown any results?

      If the model is wrong than why has the economy acted as if it correct. In other words how else can you explain the 4 years of muddling along without overheating from massive acceleration of the printing press.

    • Mark Uzick May 29, 2012, 10:21 pm

      Isn’t V just total spending divided by the amount of currency?

      As with all statistics, there may be problems of measurement and possible deception by those who measure, but other than that, what’s the controversy about?

      Also: who claims that V is an “independent” variable? How can any economic variable be independent of other economic variables?

  • Dale May 29, 2012, 9:11 pm

    One More Melt-up Before the Crash? One should always be careful about making broad pronouncements. Hope springs eternal: Will Greek loans ever be paid back? When this domino falls (the first of many), European sovereign defaults will follow. This results in a deeper recession in the EU zone followed by a global depression. It is possible that we see a bounce in the US from these oversold levels (a reactionary bounce at best), but market internals have remained weak during previous short covering and “wishin n’ hopin” rallies. Be vigilant for short side entries here… don’t wait for 2012.

    • gary leibowitz May 29, 2012, 9:40 pm

      Just dealing in facts. Recent borrowing by consumers and announcement from CEO’s that they plan on spending the excess money instead of buying back their shares. Thats a lot of money going back into the economy.

      You are right that the EU could derail this but I expect they will follow our lead in kicking it down the road. Spain will be the straw that breaks their backs.

  • Rantly McTirade May 29, 2012, 3:52 pm

    2011?
    Either this is a reprint from 12 months back, or the
    author doesn’t know what year it is-at just about its’
    midpoint.
    And, the equity market is building a cyclical top,
    which should be completed by late summer.

  • gary leibowitz May 29, 2012, 3:04 pm

    The idea of having a really good stock market this year has been helped along by the notion that corporations will be spending big. A curent article suggests just that. The slowest buyback from CEO’s in quite some time also suggests that the money will be used for business spending.

    If the EU holds together long enough than we should see a combined increase in spending from the consumer and industry. A double bonus. With commodity prices falling, inflation ebbing, and consumer confidence getting stronger this year should surprise all the experts on the upside potential.

    A bear in bull clothing. As an investment oportunity, this year should be a good bet.

    • Steve May 29, 2012, 3:41 pm

      Gary, will private consumer spending rise upon increased wages, or debt creation? Or, is the bet that corporations are going to spend reserves built upon cheap foreign wages to create more jobs like the ones @ VW for new American auto workers making 10.00 an hour? Twenty-two percent of the population is unemployed or underemployed and we are not talking about the full time VW worker making 400.00 a week. Do you see thousands more 10.00 an hour jobs that will drive the economy ever skyward without the need for another debt binge like the housing bubble?

    • gary leibowitz May 29, 2012, 4:23 pm

      Wages, while not strong will increase. Borrowing will increase much more. The fact that we have the real unemployment numbers so high hasn’t affecting corporate america yet, as the profits keep rolling in. The other notion that we export jobs overseas also hasn’t affected us for the past 10 years as service jobs replace manufacturing ones. I don’t know if those lost jobs would have earned more. I suspect it would have since unions were strong in that sector.

    • mario cavolo May 30, 2012, 7:25 am

      High unemployment in the post societal schism United States II is a normal reality, get used to it. United States I is doing fine…

    • Buster May 30, 2012, 9:09 pm

      An interesting essay today, Gary.
      The only point I would make is that it is a mistake for people to think that the billions given to the banks by the Fed with interest paid to them on this free money, thereby giving the banks no incentive to lend this money to the cash starved populous, is simply chance. A little time spent looking into the history of banking should make clear to anyone without a bias that this is all a very deliberate operation, one played out in various ways time & time again over the centuries.
      I say it again, our debt based money system was designed for the simple purpose of transfering wealth from the needy to the greedy, & also for efectual enslavement. It is not a free market system & wouldn’t be able to compete against an economy with a free market monetary system. America itself had a brief time with a debt free currency & was so successful that the international banksters were seriously worried that their control over Europe’s power through the use of debt based money would be be doomed. This is why they had to destroy America’s debt free money system & take over by setting up a central bank, answerable to them. Without doing so America would have truly shown the world what freedom from debt can really achieve.
      Further, I can only conclude that this group of corporate fascists have & are still holding the world back from dramatic advancement. We are all held as prisoners in a burdensome & restrictive world as a projection of the twisted psychology of those who wish to rule.
      The financial system is now clearly visible as a part of this sickness.

  • watcher7 May 29, 2012, 10:56 am

    I have had a top of 13,790 on the Dow for a while; that is, if the minor cycle is the lens to view the major cycle of the long wave; in this scenario I would like to see at least a bear market decline, and perhaps a mild recession, before the rally to the top, that precedes a Hoover-type, or worse, recession.

    With Obama’s win in 2008, the minor cycle was also suggesting that a former governor that ran and lost in 2008 would become president in 2012; cp. Reagan in 1976 and 1980. Even if Romney loses, that he becomes the Republican contender, is enough to suggest, as history ‘rhymes’, that there is something to the minor rhyme.

    This would be similar to coach Belichick and quarterback Brady of the Patriots in 2012 failing to match the four super Bowl wins of coach Noll and quarterback Bradshaw of the Steelers in 1980.

    When I developed my “Anglo-American Hegemonic Cycle – Cycles of War and Prosperity” I had this observation in mind:

    “In the early 1920s a Russian economist N.D. Kondratiev, later an early victim of Stalin, discerned a pattern of economic development since the late eighteenth century through a series of “long waves” of from fifty to sixty years, though neither he nor anyone else could give a satisfactory explanation of these movements, and indeed sceptical statisticians have even denied their existence. They have since been universally familiar in the specialist literature under his name. Kondratiev, by the way, concluded at the time that the long wave of the world economy was due for its downturn. He was right… That good predictions have proved possible on the basis of Kondratiev Long Waves – this is not very common in economics – has convinced many historian and even some economist that there is something in them, even if we don’t know what” (Eric Hobsbawn, Age of Extremes, (London: Abacus, 1995), p.87).

    • Buster May 30, 2012, 7:03 pm

      These cycles have existed as long as we have had a system of money as debt. With proper money, not debt money, there are no real booms & busts since the power to profit from these cycles is taken away. History clearly shows that every bust has been a fabricated means of wealth transfer & power grab by the ruling clans who have done everything & anything to maintain their controll over the money system & maintain it as a system of debt.
      We are not in Kondratievs’s times any more, my friend.
      He may not have understood what he had discovered but we certainly can.
      Welcome to the times of the Revelation!

  • Steve May 29, 2012, 8:49 am

    Really, Fed creates one federal reserve note. Congress borrows it into existence. Territorial federal reserve banks need to pay back the note @ 1.0024 So territorial federal reserve banks lend this note @ 1.045. Borrower owes 1.045, but only has 1.00 with which to buy Apple which goes up to 1.50, but; someone needs to borrow 1.50 to buy Apple, which means that someone owes 1.072 on each note borrowed to buy Apple. But whoa there, that territorial bank can lend 10 fractional notes for the 1.00 loan held on the books. And, now 10 hu’man corporations owe 1.572 each to hold 10 shares of Appel @ 1.50 and there is still only one note borrowed into existence by congress creating an owed debt of 10 x .072 = .72 interest on the only note in existence upon the borrowing of the congress in contitutional breach of Article I sec. 8, cls. 5 on value for a several State, but; not to worry because the congress is operating territorially under Article I, sec. 8, cls. 17 exclusive and unlimited juridiction in the district, and absolutely in the territory @ Article IV, sec, 3, cls. 2.

    To help things out that note is shoved from the bank to the borrower who buys a 2 x 4 and that lumber store buys some garden plants, and the garden plant grower uses the note to pay his interest on the loan at the bank, and somone somewhere still owes .72 that can never be repaid because there are not 10 notes to Extinquish the debt of the 10 borrowers based in fractional reserve banking, all based upon 1 note borrowed into existence by the congress. In the case of Apple the note buys an iSomething and Apple gives a Chinaman .03 dollars which said Chinaman can save .01 dollars because he lives like a mouse in a Nation that says it is among the poorest per capita. C.E.O. keeps .01 for himself and buys selfstock to drive the price of Apple up so that someone else must borrow 10.00 to buy something on a screen in a brokers office with no paper stock in hand. And we still only have one federal reserve note should the confidence scheme, or should be call it game, fails. We might even call it John Nash’s Game/Theory of economic co-operation.

    Treasury gave the banks 16T in bailouts according to the G.A.O. All bank C.E.O’s are making hay hand over fist in wages and bonus. Banks use that 16T to buy stocks driving up the price of Apple to 5.00 making the original buyer of Apple owe capital gains of 15% on the gain if he can find a buyer, who is funded by a bank with part of the 16 T. The system continues to milk a larger and larger tithe from the buyer and/or invester who is only interested in outdoing is brother down the street.

    So Gary, where is the reality that congress borrowed one federal reserve note which the banks fractionalized into 10 all lent @ interest to private individuals? What is it that the People traded in Order to become hu’man corporations allowed to tally in discharge as tenants in Fee in a system that continues to drown in credit clicks on a computer screen with only one actual note in existence to discharge the debt?

    The banks plugged the sucking sound with over 16T in loans to banks all only credit clicks on a green screen. The fed pays the banks to borrow money so that the C.E.O. gets his multimillion dollar wage/bonus if I understand you correctly, and so that the houses sitting there in foreclosure are not a loss to the banker on face. The homeowner looses the property which the banks take on their books at the original loan value to resell in order to borrow more fractional money, which they do not loan, but hold with the fed who pays them interest on money lent by the fed in the first place. The vacant house does not sell until private interest rates are dipped down and up like a fishing jig looking for a Northern Pike, and bite a hu’man will if teased with the correct bait of confidence in another future bubble of unrealized gains driven by fear of loosing out to the task masters story of up up and away.

    How much real property transfered hands, and who lost on the Bubble and 16 T to the banks under the table?

    How many People can Tender a Payment of Debt, or Extinguishment, and who is left holding the bag in discharge and what effect is felt by the Allodialist who gives up Covenant Endowments in assent to outlawry in discharge with a territorial system designed to do exactly one thing and that is enslave by debt obligation.

    So maybe as long as the fed pumps the banks with 16T which said banks are never required to pay back, and in which said banks can hold the green computer clicks with the fed @ interest. The great sucking sound of deflation will never do more than suck away the 16T leaving every hu’man corporation still paying the tithe @ 15% capital gain on 00.00% net gain for 5 years of hard labor by 40% who support the illegal rest.

    Everything should be roses and fine wine, right? Guess it can be all roses and wine as long as no hu’man corporation looses so much ground as to feel taken advantage of, and as long as no one sees the little men behind the curtain pulling the strings to steal Liberty in exchange for discharge, and as long as no country as a whole feels like Germany has taken advantage of the situation to gain greater and greater control over the masses of more and more Nations so that they may be sheared closer and closer. No Hitler war machine this time – use Nash’s Theory to take landmass.

    What is the cost of all of this and what is its purpose?

    To put it into a nutshell there is an outright infringement on the Mosaic Law via debt obligations by certain men, who believe themselves better than hu’man corporations, and who lust for absolute allodialism as gods on this earth to lord over all others. These wish, as the 1%, to live high and mighty on a scheme of fiat that has never worked in the history of mankind, but; this time it will be different. The scheme will work this time because little Timmy and big Ben are smarter, and are working lockstep with the new world order.

    It all may work Gary as long as the powers don’t get greedy and demand that the 16T be paid back, as long as the Jubilee is granted to the bankers and the little gored hu’mans can keep paying their brother the task master and never demand that actual paper federal reserve note by selling that Apple stock in mass leaving the econicon heaving trying to obtain that one federal reserve note which will eventually singularly be able to buy the world of debt for which there is no paper printed to discharge.

    If the contract is written in federal reserve notes then there is no other form of money that is acceptable. With better than 10 debt to 1 note available one might call this a disaster. There will be no notes to buy gold because every note in existence must be used to pay the contract. He who has notes might demand 1 Troy Ounce of gold per note when confidence fails.

    Right now the scheme works because little Timmy tax cheat gave the banks 16T, and many are foreign banks. If the matter comes to control and U.S. demand for power and destruction of the Mosaic Law in foreign lands, as is now ongoing. Then the demand to pay back the 16 T of fiat fraud shall prove its self to be destructive.

    It is all a scheme in theory by John Nash hoping that said theory can overcome the nature of men who eventually face the reality of fiat currency and futures games much like the Purchase of 1804 spelled disaster for the French futures players who danced and drank and counted merry until a powder driven ball to the forehead ended the glory of the man who dreamed it all up.

    It may all go up in 2012 Gary, and it may all go down just as you write herein 2013. It all works until at some point a few see that the bankers and their clan have been screwing the masses. We are there with Occupy. Maybe the masses don’t care their standard of living is slipping into the hole of stagnation and slow decline. Maybe you will be correct about 2013 as the new political cons will need to begin to address the boomers and the fact that there is no way to pay, and boomers will make better fertilizer than living hu’man corporations.

    One should be prepared for any eventuallity, and betting on a fixed confidence game is a bad throw of the dice. Gary has done good getting out of the market with his 1.5 % decline rule. One of these days the 1.5% will drive into a selling spree that cannot be sold. The broker taking your orders will be bust and Gary will not hold a single Stock Certificate, only a promise by a busted broker to pay when the broker sells the stock certificate held by him. Right now Gary holds little green clicks on a computer screen that might represent a percentage of an Apple Stock Certificate. It is all a scheme of confidence saying that the loan will never be called and no one will have a need to buy a federal reserve note to pay the contract.

    Bet on 2012, bet on 2013, but; hold something at home that is real because it could be really hard to get that busted broker to pony up a stock certificate he said he held held for you, which in fact some bank held in trust for him, which bank is betting that a hu’man will give up Liberty for a future every time, and in which the Bank knows it holds the actual Stock Certificate and that there is really no actual paper with which to reclaim the life and blood of a people in fiat..

    It is late, I’m bedding down – typos are a part of getting old and tired @ midnight. Interesting thoughts Gary and an interesting article to provoke – where lies what is real?

    • Buster May 30, 2012, 6:50 pm

      Absolutely brilliant, Steve. Thanks for staying up!
      I most definately have to side with your points in this regard. Those rediculing the grand conspiracy, that is so clear when we care to look, can keep their arrogant ignorance a little while longer, maybe.

      News in from Greece is of a bit of a run on the banks. In just one recent day, the population there withdrew 800 million euros from the Banks.

      I well know that the masses have their own issues that need addressing, with generally little real difference between them & their rulers, but this chapter is all about our recognising the abomination that is at the heart of how the world is run. It is the ruling class who have done everything in their power to benefit themselves & simultaneously everything possible to cripple the masses, worldwide, who they view as their servants.
      They have lusted for power instead of responsibility.
      I can’t overstate the fury that is coming their way.

      I know there are many of us who put self interest ahead of what is just or right, but there really is no real future for any of us with the present system of things. If we do the math we can clearly see that there really isn’t. No amount of new technology or wealth gets over the problem…..us & how we treat eachother!

      But for now the lesson is about our ruling clans, & how they operate. The evidence for this abomination is piled clear up to heaven, if anyone wishes to look. By the time this act is played out nobody will be in any doubt that the system which we have is deserving what is coming for it. We will see after it has run it’s course & brought us all to ruin. Our governements, financial institutions, legal bodies, global corporations & religious institutions are all being laid bare for us like never before, revealing the uggly truth. In place of the clandestine corruption & bloodguilt we are being offered a revelation. We should all grasp this lesson as a gift. Countless generations have not been so priviledged…….sold the lies & dying fighting the wars of the corrupt or in poverty from debts without knowing why.
      It is, in fact, all one bloody big conspiracy.
      Anyone not ‘getting it’ just needs to stick around a while longer!

    • Benjamin May 30, 2012, 7:07 pm

      “It is, in fact, all one bloody big conspiracy.”

      Is it ever all one little conspiracy? I mean, can you imagine if someone came up to you and said “It’s all just one small racket” ?

      Sorry, Buster, I couldn’t resist a little joke! 🙂

      Nice post, by the way. And Steve’s. I was afraid that his was a bit too lengthy (read: far out, man!) to hit the intended targets. Nonetheless, better the full distance than too little.

  • Mark Uzick May 29, 2012, 8:02 am

    Gary, the currency’s velocity may drop because so much currency has been created, not to be spent on things but to shore up bank’s balance sheets, but you’re overlooking the other part of “money printing”: the monetizing of treasury debt that represents currency injected directly into the economy that’s been driving up prices.

    The overall velocity of currency may fall, but if the total quantity of currency rises by a greater percentage than the velocity drops, and if there is no compensating increase in productive efficiency, then prices will still rise; as, in fact, they have been doing.

    Also: The purpose of that currency being parked in banks, while it may not serve to cause price inflation, is clearly put there to to prevent or slow down a deflationary implosion of debt while inflationary expansion of the currency is being channeled through federal spending as a way to expand the relative role of of the state in the overall economy while relieving the burden of both public and private debt by devaluation of the FRN as a sneaky way for debtors to default yet leaving the banks solvent.

  • mac May 29, 2012, 6:34 am

    Inflation – gold up.
    Deflation – gold up.
    In the deflationary depressiojn of 1929-1939, after the initial fall in gold with everything else, then Gold Stocks became the rage, performed very well, and the “lucky” were those people owning the dividend paying gold stocks. Ok?

    • Mark Uzick May 29, 2012, 7:24 am

      The great depression was not deflationary (In terms of gold it was, but not in terms of FRNs.); there were alternating bouts of price deflation and inflation. Would you consider the nearly 60% sudden devaluation of the dollar to be deflationary?

      The great depression was not caused by either changes in the money supply or prices; they were some of the symptoms of gross mismanagement and gross mis-allocations of capital caused by state interference into the national economy and international trade that were the depression’s root cause.

    • Mark Uzick May 29, 2012, 7:27 am

      Sorry, I meant devaluation to 60% of its previous worth; a 40% devaluation.

  • Benjamin May 29, 2012, 6:10 am

    Either of the ‘flations — in their strict definitions — mean an expansion or contraction in money supply.

    There’s definitely been plenty of inflation, not to mention the spikes that have taken place from the QEs (which haven’t caused any new highs, except in gold and the overall trend in Treasury prices).

    Depression would be the correct word to describe the general failure in achieving new peaks. As for consumer prices, I’ve not noticed a drastic difference to the downside. If anything, things seem just as expensive as they always have in recent years. I guess they figure all the monetary expansion went to us?

    It’s like a blackhole. Too big to fail? Nah. Too big to escape? Bingo!