The Backash! - The Economy, November 2011 - Watching the Window Dressing
  On-line since 1995 - Updated November 28, 2011  | Cowlitz Country News  | 


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Watching the Window Dressing
Are signs of improvement real?
By Rod Van Mechelen

11/28/2011 Olympia, Wash. - If you bet on the imminent end of the world, you will probably lose. Politicians always find ways to kick the can farther down the road. Until they can't. And then things get real bad, real fast.

So signs of improvement in the global economies are to be expected.

Global Economic Recovery Petering Out: OECD

Europe Slipping Into Mild Recession: OECD

For The First Time In The Euro Crisis, There's Talk Of A Solution That Could Actually Work

The managers-in-chief shake their heads, pessimism goes up, markets go down. Central bankers smile and nod over some new can-kicking plan, and the world gives a global sigh of relief.

Delaying the inevitable
The trouble is, none of it is real. There is only so much that central bankers and politicians can do to delay the inevitable. And the longer they put it off, the worse it will get.

Western civilization is hopelessly mired in debt. This did not stop consumers from blowing what little credit they had:

Black Friday’s strong showing came on the heels of a very good November for retailers. Sales were up 3.6 percent during the week of Nov. 12. They also were up 3.8 percent during the week of Nov. 19, the week before Black Friday...Recent Fed money printing is creating a new manipulated boom cycle. This manipulated boom will come with massive price inflation, which will make fools out of economists like Paul Krugman and Fed chairman Ben Bernanke who see no signs of the developing price inflation. - Robert Wenzel, Black Friday Sales Rise 6.6% to Record, Are Keynesians Fooled Once Again?
Millions of consumers in America and abroad are in the habit of...consuming. Any excuse will do, any increment of credit will serve, just don't let it end.

Except it has to end.

Absent a series of miraculous innovations and discoveries to spur economic growth, there's little to support further growth. And when the last feeble attempt to kick the can is done, what then?

In Aftershock: Protect Yourself and Profit, the authors make the case for owning gold. Several others do, too. Buy gold on dips. And silver. Why? Because high inflation is coming, paper money will soon be worth little more than toilet paper, and gold and silver--even copper and platinum--will be accepted as money.

What about Special Drawing Rights?
There is a lot of talk of a new global currency issued by the International Monetary Fund (IMF), called Special Drawing Rights, or SDRs. These could be the new reserve currency of the world. They would replace the American dollar.

Would SDRs solve our economic troubles?

In the short term, it might seem so. But ultimately, it would be just another way to kick the can. Paper currency always gets debased. But a new reserve currency, like an SDR, might last two or three generations. So if a new global currency is adopted, I would not make plans based on the assumption that it will fail anytime soon.

I don't know a lot of rich people. How many of us do? But I know a few. They run a large and well-known corporation. They say, "hope for the best but plan for the worst." It's like a corporate motto. And they are always making contingency plans.

That's what I'm doing, now. Hoping for the best, I'm investing in "hope for the future" companies. At the same time, I'm putting about 50 percent into gold and silver.

Why so much? Because I wasn't putting 20 percent into gold and silver eight years ago when one of my goofy friends kept telling me I should. Yes, Mike, you were right. Now I'm playing catch up. Every time the price of gold and silver drops, I think, "It's on sale!" and buy some more. Happy I am, I have time.

Will you?

Will you buy, now, while you have time? Or will you follow the herd and chase every hint of hope that the status quo will remain unchanged?

What if it all works out?
There is a solution to all of this:

In most situations in which people or companies can't pay their debts, a simple thing happens. It's called "bankruptcy." ... The reason we're not getting the simple solution this time, of course, is that so many people borrowed so much and so many people loaned so much that, collectively, they have a lot of power to influence the solution. -- Henry Blodget, There's An Easy, Fair Solution To The Global Debt Crisis -- Too Bad No One Ever Talks About It
The fact is that people are talking about it. Some people, anyway. Review the archives at the Daily Reckoning, you'll see what I mean. But it's true. Bankruptcy would hurt a lot in the short run. But then the dust would settle, business would bounce back, life would go on.

Instead, life in the debt-ridden west will more likely resemble the endless recession in Japan. But suppose the central bankers and politicians wake up tomorrow and say, "enough of this!" and declare global bankruptcy? Then what?

That's where your "hope for the best" investments come in. And what would those be? I dunno. I haven't been a stock broker in 25 years. You'll have to figure that out for yourself. But like John Mauldin, I think we're in a biotech bubble, so I'm buying stock in (warning, warning!) very speculative biotech companies, too.


Rod Van Mechelen



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