The following is not, nor should it be considered, negative, declinist, anti-American, or any other such political nonsense. This is economics and finance, not politics. This is reality.
This is looking at the world for what it is, rather than what we wish it could be.
The Classic Liberal understands that "animal spirits" are nothing but New Age hokum.
SOVEREIGN ALCHEMY WILL FAIL
When we look at the world economy today, wherever we turn we see a wall of risk. And sadly this is an insurmountable wall with risks that are totally unprecedented in history. There has never before been a potentially catastrophic combination of so many virtually bankrupt major sovereign states (US, UK, Spain, Italy Greece, Japan and many more) and a financial system which is bankrupt but is temporarily kept alive with phoney valuations and unlimited money printing. But governments will soon realise that they are not alchemists who can turn printed paper into gold. The consequences of the global financial crisis are potentially catastrophic.
As the Austrian economist von Mises said: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
In our view, governments like the US and the UK and many others will not abandon further credit expansion. They are committed to printing increasing amounts of worthless paper money in order to finance the growing deficits and the rotten financial system. Therefore there is no chance of Quantitative Easing ending but instead it will accelerate in 2010 and after. The consequence of this will be a hyperinflationary depression in many countries due to many currencies becoming worthless. No economy in the world, including China, will avoid this severe economic downturn which is likely to have a major impact on the world economy for many, many years to come.
Investors are ignoring the risks
What makes the current situation in the world economy so intriguing is that most investment markets have not recognised the risk. Stockmarkets and bond markets rallied substantially in 2009, totally oblivious of the risks. The housing market is down in the US and some European countries like Spain and Ireland. But in many other countries it is still near the bubble highs created by low interest rates and reckless lending.
The most important criterion, when taking investment decisions, is understanding the risks involved. Matterhorn Asset Management has in the last few years warned investors about the risks in the financial system due to the massive worldwide credit expansion and money printing. We have found it difficult to fathom so few people realise that the world economy has become a time bomb waiting to explode or more likely implode. All the so called experts have declared that it is impossible to identify the problems in the financial system in advance. For example, Greenspan, Bernanke, Geithner, other central bankers and government officials as well as Blankfein of Goldman Sachs and many bank heads have all stated that they couldn’t see it coming. Either they are lying or they are stupid. Sadly, it is most likely the former. It is virtually impossible to find an honest politician. They have one major objective – Power. To attain power they have to buy votes. But to buy votes they cannot tell the truth. No politician ever forecasts bad news because bad news does not buy votes. (Yes, there are exceptions like Ron Paul in the US). And as regards the bankers, it is definitely not in their interest to worry about risks to the financial system. For every year that they issue additional toxic debt and derivatives they earn more in that single year than most normal people earn in a lifetime.
Governments created the financial crisis
The current financial crisis was not created by the banks. It was created by governments’ irresponsible policies of buying votes by manipulating the financial system through constant money printing, especially since the creation of the Fed in 1913 and the abolition of the gold standard in 1971.
H/T - Irish Cicero!
A parable about how one nation came to financial ruin
Government Stimulus, One Year Later
A Quick Tour of Hyperinflation and the Possible Consequences for America
I thought you'd like that!
I'm going to continue with my series this week on the coming collapse, incorporating some of what you've done.
We're a pair of Sunny Jims, ain't we?
I like to think we just accept the world for what it is, instead of smoking some version of hopeium.
I thought this was entirely Bush's fault. In fact, I heard he is printing money on his Texas ranch to flood the market.
Sadly, the average citizen will not truly investigate the cause and effect of market stability and instability, a most regrettable factor. They rely upon political bantering between opposing parties, taking the demonization of a free market system (that really isn't free) as a factual reality.
Bumper sticker politics trumps genuine political discourse today. We're doomed.