One of my heroes, Richard Maybury, the “economic historian”, has just posted “Special Emergency Bulliten #8”. He talks about the “velocity of money” [explained here] and the possibility of hyperinflation.
Here is what I think is about to happen.
Obama is probably told every day that the world is being swept by fear, causing (money) velocity to plunge, and he is the only person who can do anything about it. He is the de facto president of the world.
I think Obama and his gang are preparing some kind of PT Barnum spectacular for his inaugural address January 20th.
If it works, (money) velocity will reverse, and we will go back to where we were August 07 through June 08—meaning the early stages of a runaway inflation, with non-dollar assets heading for the stratosphere. Gold, oil, copper, art, antiques, almost everything you can name will go to new highs within a few months, and the dollar will plunge.
If the PT Barnum spectacular does not work, (money) velocity will continue falling, and we will spiral on down into a depression. Non-dollar assets will collapse even further than they already have, and long term Treasury bonds will continue their ascent.
As far as I know, the only investment plan that minimizes the risk on both sides of this crisis is Harry Browne’s, which I have written about often.
I wish I could be more help. In the 4/07 and 6/07 EWRs, I wrote about the fall of the US Empire. Now I think it’s begun, and it won’t be any more fun than the fall of the Roman Empire was in 476 AD. Today’s economic chaos is just the economic symptom of this monumental event.
In short, the fall of the US empire is, I think, baked in the cake, as certain as anything in human affairs can be. The specific form it takes during the next two years or so will be determined mostly by Obama’s performance on January 20th.
A day or two after Obama’s inaugural, I plan to give my subscribers an analysis and forecast for what I think is coming. It will be posted on the Subscriber Access part of the web site.
But regardless of what happens, keep this in mind. We got into this runaway deflation through the stupidity of the demigods in Washington. Instead of firing most or all their ammunition at the deflation as soon as it arose, they fired a round here and there, never producing an improvement large enough to be noticeable to the general public. The lack of results, time after time, has demoralized the whole world population, causing velocity to drop further.
It’s been similar to trying to stop a brush fire not by dumping a deluge of water on it all at once but with one bucket every hour.
In other words, Washington’s emergency measures have made the emergency worse.
Expecting the new crew to do better would be naive, which I will explain in the January EWR. During his campaign, Obama promised “change!” but now he is hiring the same people who have roamed the halls of power for decades and who played no small part in creating this disaster.
The bottom line is, be ready for an even wilder ride than we’ve already had. Obama’s PT Barnum spectacular could send us in the direction of almost any conceivable fate.
Your next EWR is scheduled to arrive the first few days of January. And, again, look for my analysis and forecast for the results of Obama’s inaugural speech on the Subscriber Access part of the web site a day or two after January 20th.
Merry Christmas, and fasten your seatbelt.