I dont want to repeat myself but yesterday provided more signals for the inevitable direction we are on so its correct to stand back and repeat what has said before events overwhelm those unprepared for what is occuring.
Yes, the list of arrogant central bankers who have debased their nation’s currencies is long indeed. Before central bankers it was the reserve only of Kings and Queens to debase their country’s coinage. Many Kings and Queens did ‘clip’ their people’s currency to fund war efforts etc. Fortunately, history books provide us ample examples of what occurs when a nation’s currency, as a store of value, is destroyed by these actions. The result on their people’s standard of living has always been the same.
Chaos and great social unrest soon follow the debasement actions of both Kings and Queens as well as, the more recent, central bankers. When interest rates are near zero savers stop saving and those with savings are forced to gamble on asset markets misallocating capital and creating huge bubbles in asset markets. Money supply increases via the banking system or via direct monetization of debt (ie printing money) speeds the process of debasement. Capital moves into hard assets as fiat paper currencies are rendered useless as a store of value and later as a unit of exchange for goods and services. This is the inevitable consequence of central bank actions. Welcome to the toxic partnership of central banks and political elites.
Yesterday we had another historic monetary moment as Ben Bernake, Chairman of the Federal Reserve extended his zero rate policy to the end of 2014 and highlighted more monetization of government debt to come. In spite of the evidence, he has swallowed his own matra that he can predict and direct the economy of the world. Like all central planners he is doomed to failure and this is a good thing in fact as central planners ultimately destroy liberty and freedoms. Their arrogance always directs them towards totalitarianism so Bernake’s failure for all its implications should be welcomed by us for again lets forget the history books on this issue of the arrogance and dangers of corrupt central planners.
‘Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power’.
Benito Mussolini
Read this quote carefully. The totalitarians of WWII were far from mad men. They had a progressive agenda which is very similar to the neo keynesians now. It was no freak historical accident that they rose to power in so many European states in the 20th century. The lessons from WWII we could have learnt regarding the importance of liberalism to sustain peace and democracy were not learnt. (Hayek’s ‘The Road to Serfdom’ is a key text in this regard).
Lets not forget, yesterday’s announcements come 6 weeks after the $1trn lending facility by the ECB which in turn comes after giant BOE monetization programs and on top of a lending bonanza in the corporate world and China relaxing lending quotas once again. Japan’s monetizations continue to expand. Over 50% of Japan’s public fiscal expenditure is funded by debt yoy (year on year).
We are moving rapidly to a situation of world wide fiat currency debasement. Whether you come at these issues from a trader or investment perspective the big money moves are in the big trends. Unquestionably, the big trend is in fiat money debasement. Whether for capital protection or growth we must respect this big trend and moveve out of cash into assets. When the herd rushes from paper to assets it is always uncomfortably fast and inflationary. Market timing these moves is not always as easy as one imagines. Over the last few years i have always advocated accepting the big trend and allocating on this basis over time on dips in asset prices as the trend is undeniable. Following yesterday it is very clear we are running out of this time. I cant tell you if 2012 is the year we start out on the next leg up for inflation and asset prices but it is surely coming as night follows day. Be prepared, allocate, get paid to wait and dont be surprised by what will follow. Volitility will increase as we move forward here so cling on to assets and dont try to be ‘too smart’ in market timing these markets would be my view.
As always its your hard earnt capital. We must all do with it what our reading and understanding tells us is the correct course of action.
Here a few charts of what happened as Ben gave his news to the market:
Silver
EurUsd
Sandstorm (Royalty PM co)
One last point worth repeating over and over for new and old friends to this group alike. No central bank can create new money. All they can do is dilute the money already in the system by duplicating it. All they can do is duplicate what is in your pocket or bank account and in so doing diminish the value of the money in your pocket. They take from the many to redistribute to the few. This is why money printing environments always and everywhere concentrates wealth. The middle class is generally destroyed whilst the rich become super rich. This has been the text bok theory for hundreds of years. As we can see from the evidence all around us this time is no different. Living standards continue to fall for the middle classes whilst the luxury end booms as never before. The final chapter of these so called ‘progressive’ policies normally ends in war and final great collapse of the system. We are far from this at present. First we have the hyper inflationary chapters to march through.
Onwards we march.
Rich
Dr.Ben’s speach from yesterday care of Bloomberg: http://www.bloomberg.com/video/84910798/
And here a review of a report from the BIS which provides an outline of the financial repression (hyper inflationary) solution to the public and bank recapitalization requirements: http://dprogram.net/2011/12/14/bis-calls-for-hyperinflationary-depression/
Marc Faber from 2010 sums it up perfectly: http://www.youtube.com/watch?v=pAJeZaFdbJA
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