Friday, July 11, 2014

Thoughts on Predicting the Future of the American Economy After the Big Easy Money (eventually)

Thoughts on Predicting the Future of the American Economy After the Big Easy Money Printing Spree Hang Over from 2008-2009 Inflation ? Deflation? Hyper Inflation ? the Dollar Destroyed or Revived? an Alternative Online Gold Currency? Uranium? Google? France? Lex Loeb Contributor Network . Every day I wake up to the Wall Street Journal or Barron's, Barron's, Blomberg , CNBC and Fox News predicting doom and gloom scenarios from the recent over production of emergency dollar created for TARP , Stimulus spending and congressional folly of excess and I try to compare it to my own financial analysis of the situation. I worry more about the government panicking the way it did in 2008 precipitating the financial crash than I do about the inability of the US dollar to survive or to be able to figure out what the cash really is since it really has not been printed out in fiat currency but exists mostly in cyber Legers. The experience of the Japanese fifteen year period of low growth and recession did not result in inflation as much as it did in zombie banks, homeless people, moderate deflation and excess financial assets on the books. I am not smart enough to make any predictions that I would bet on the way big wall street trading houses are famous for at least after they turn out to be right. I am not even sure that the excess spending is not so much a problem as an annoyance. My thoughts on gold is that it is definately over priced based on a mining replacement cost analysis and on the waste of scarce resources to get it out of the ground when supplies are more than adequate for all possible social and industrial needs. It is not even clear that gold as a monetary instrument is suitable for an economy that is digital and increasingly a sort of online google phenomenon. Governments have been printing paper with gold backing long enough that gold remaining in the ground might be just as much used for representation as monetary wealth as gold that wastes diesel fuel to have it smelted and ready in heavy bars. Land with gold or oil in or under it is just as good as monetary unit as physical gold. Transporting gold is let another waste of scarce fuels when paper can just get printed and sent in lieu of a heavy glittering mass of the real metal substance. The purpose of this article is just to relax the easily panicked by the hysteria that the dollar is doomed and that gold maybe under priced at present inflated prices. Gold can certainly go much higher but that is based on faith more than on a more pure form of logic or intrinsic value. As the price of gold continues to rise it means someone is still willing to accept the US dollars that are supposedly worthless. Yes more of them than before and it does eventually mean mining companies go up in price too though not necessarily on the same trend line of excess. Higher market value of shares only means people are still accepting US dollars, more of them, in exchange for less shares of gold mines. Gold inflation presently seems beyond general price inflation which is perhaps yet another warning sign that gold maybe getting out of line with any intrinsic value. One of the biggest gold cheer leaders emerging is Glen Beck on Fox TV. Financial experts immediately can spot him as a misguided armature who may be riding the wave but maybe leading many people down the line toward financial destruction over paying for gold and not taking advantage of more valuable bargains in longer term alternative assets. The markets are always a cross point in the divergence of opinions but that is why there are always buyers that match market sellers that facilitate all financial trading activity. people worried about trading in the market shutting down like it did during the crash did not mean that financial assets lost all their value it just meant that sellers were not receiving bids temporarily and that really did not necessarily mean the cause for a need to sell. Just because you can't sell your house on the market during a holiday because the real estate agents are on vacation does not mean that it has permanently lost value as something that can later be sold. The only reason to panic is the thought that assets are becoming permanently worthless and some actually do. When you see some buying going on albeit at lower prices it means there is more cause for hope and no cause for panic unless the asset quality is totally compromised and inevitably likely to fail but even then it might be possible to buy debt owed cheap and later try to convert it to equity even if it is negative equity at the moment. Then you look at assets which means potential future value and a re assignment of equity to new capital allocations. The dollar is still effectively hoarded , collected, saved and is hardly dead or dying but that does not mean that government might not realize it is much more broke than it lets the public know. Government growth depends on general economic growth which is why lower taxes can add up to higher levels of revenues. Predictions, predictions, like the weather, not very reliable. my somewhat contrarian thought is not that contrarian to others that share my instincts for analysis. I don't mind being wrong maybe the dollar does completely collapse and the US adopts Internet gold or even the Euro. Seems very unlikely with what is visible in the market place. The US dollar should come back with a vengeance as interest rates start to rise but unexpected economies elsewhere will go bust along the way. The fears of inflation are not exaggerated but not necessarily hyper inflation. The dollars that are over printed can quickly be absorbed into real estate transactions flooding banks. The question now is if higher interest rates will take money out of stocks and put it elsewhere--it certainly can also take money out of gold if interest rates go high enough. There is no reason to believe that higher interest rates wont cause a lot of dollars in circulation to get reabsorbed by the fed selling higher interest rate treasuries. The whole thing is hard to predict with the amount of cash out there but there are different kinds of cash some is just in digital computer space and does not translate to currency on hand. The kind of cash on digital Legers that supports credit card purchases and wire transfers is not even printed. It is hard to imagine the fed or the US treasury should have to start suddenly printing hyper inflation cash, A simple solution to get rid of the overhang for a long enough period is to buy some fairly large country like say France or the entire east coast of Russia 500 miles inland to go with Alaska. I am afraid that the government will start seeing it is losing power and try to buy Google to control it because it maybe more powerful than the government in 20 years. Buying Google puts cash in circulation in this country which is a mistake which is why part of Russia or France is the better currency exchange arrangement. Google may actually turn out to be something of a shadow government and it is still bargain priced. The government would probably just ruin it if it bought it but the competition would thrive thanks to their ineptitude. Microsoft seems to be loosing the monetary capacity that Google seems to be developing. It sounds far fetched the government trying to take control of google but there is a disconnect developing between the information power of Washington DC and the way google can potentially reorganize every aspect of existence from the stand point of what the Ancient Romans called systematic order , just order. The US government is hinting it is flat broke as are some of the states but the public is not going to tolerate their bail out with higher taxes with out a fight because it is completely irresponsible political behavior. The gold bugs think that they can create INTERNET gold currency which is nonsense unless something as big as google supports it and then once that happens it becomes intolerable to the US treasury which will need to confiscate the gold and re-issue it or they won't be able to support the spending habits of either party. They did it before under FDR. They wait till the price of gold is such that they can't afford and then confiscate it for less than the owners should receive and stick them with trash currency units. In the great depression that stupid act by FDR extended the depression . The gold shipments from Germany to pay the allies reparations caused the hyper inflation and later rise of Hitler. The British and their gold payment demands helped put the easy credit in place in the 1920 that helped spawn the boom that led to the great crash. The idea that gold is the answer is reason to avoid the pack instincts. Gold is a completely defective monetary instrument because people with gold assets in jewelry in most market are over charged for the ornaments and then under compensated to sell it on the resale to cash market. The gold coin market is a complete exaggeration of common sense for something as malleable as gold that can be easily molded and remolded into any form over and over again. I suspect a problem is already appearing with gold when the Dubai financial dive recently happened. There is reason to avoid gold. Uranium and Thorium and other metals have growing utility value. Just today major nuclear plants running on the old fashioned fuel rods were announced to be built by a Korean company. Even Iran with all its oil is consuming international supply stocks or just keeping reserves off the international markets. That may be the only smart thing the Iranians are doing with their nuclear ambitions from a financial stand point. For all the printing runs of dollars in the USA in the last two years I don't have any sense of inflation. A higher dollar means more Chinese imports being cheaper for all The Chinese then end up with a currency that is still slowly loosing its half life faster than uranium and maybe there wont be an inflation surge here at all. So a solution to clear out the dollars would be for the US to buy France and then give it to china to cancel the digital dollar notes on the ledger. Are the French ready for this? If i wrote an investment advice column I would probably be saying don't sell US stocks just because interest rates should rise to reasonable levels, beware of gold and google shares because government will want to confiscate them or in the case of gold the market is too imperfect and the supply too large and infinite to sustain the fiction of scarcity. France is a great investment because the French still have more gold per capita than most nations so if you buy France with excess us dollars to dispose of them you get the gold for free with the French. . Close

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