2008-11-05

Economic disasters ahead

While markets are rallying while the bad news are still piling up and that things are getting worse and worse (before maybe getting better in 2012?), the perfect conditions for international economic disasters are getting in place (see below).

Obama is finally elected. In my opinion, the good side for the American people is that now, instead of stealing from the people to give to the establishment (the likes of banks, Halliburtons, Carlyles) , the government is going to steal from the people and give a little back to the people. But the policies of Obama are receipes for disasters. Steffan Karlsson has done quite a job summarizing them here. I believe Obama's policies will take to the ground both the US dollars and the US bonds, since he is going to increase expenditures by a huge amount and he will also do all the wrong things that we have seen in France (increasing taxes on capital gains, higher brackets, etc.).

The IMF is also bailing out more and more countries. Today is Pakistan, a few days ago was Hungary after Iceland, and Ukraine. History shows that the Keynesian principles forced by the IMF to the countries which receive the funds has always led that same countries against the road, just a few years later, and that their conditions became a lot worse than what they would have been without the IMFs help (just check out Argentina or Thailand as examples).

Japan, India, China have reduced even further their interest rates, trying to inflate their way out of their issues. I can't believe leaders in Japan are that stupid honestly. They already were burnt by fire two decades ago, and are still in the whole, but they are trying the same remedy again. I am not sure reducing the rates from 0.5% to 0.3% could help anyway. They are basically the same as 0.0% and have been that way for many many years...

Lost decades (with a trailing 's')

The Eurozone is also inflating and borrowing like crazy to fund it's now socialized banking system, but also to bailout other countries (Hungary again...). The list is just too long to enumerate, but just think of Spain which decided that people could pay only half of their monthly mortgage repayment for the next two years...

Unfortunately, I don't have enough time to go through this now, and too many things are happening for anyone to be able to keep up. I would just like to conclude by showing a graph from the Fed and ask anyone who would like to understand what is going on and get an idea about what the solutions might be, to read America's Great Depression by Rothbard. The full text is available as soft copy freely, or hardcopy for a small fee from the Mises Institude. I will try to write a lot more about all this during the week(-end?).

You don't believe in (hyper)inflation?

Disclosure: I am short USD, long Gold and Silver (via GBS, SLV, DBP) and have shorted US 20+ years treasuries yesterday (via TBT).

5 comments:

Anonymous said...

PEJ - Where are you from?

I see that you are an admirer of Jim Roger's.
I'm looking to enter TBT myself.

My concern is that the US will once again revert to some underhanded method to prop up its junk debt.

I'm trying to make sense of this:
http://www.financialsense.com/fsu/editorials/kirby/2008/1003.html

Any comments?

Joe327 said...

Above Posted by Joe327 (Toronto)

pej said...

Hi joe327. I am in London.
Regarding Jim Rogers, who cannot be an admirer of him? I really like his "lost two decades" argument about how we have been led to take for granted that the stock market goes up on the long run. I heard him talk about TBT, but I have been trying to short TLT for many weeks. Unfortunately, my brokers failed to find the shares required for shorting, so I couldn't. I was happy to find about TBT on NakedShorts

I don't agree with all the things that Jim Rogers says, but I guess I must be wrong. I won't buy airline companies and haven't invested in china - even if I have read his China Bull book. On that one, I guess he was wrong (at least on the short to mid term).

Regarding your link to FS, could you please be more specific? If it's about the conspiracy behind gold, I do not believe it. It's more the result of the stupidity of central banks which sell or lease their gold. This mechanically brings the prices of gold down, but doesn't need to have a conspiracy behind it.

Joe327 said...

The part of the FS article which concerned me was the excerpt from Rubin's book explaining the creative accounting the US Treasury did to overcome the debt ceiling issue they were having. Rubin pulled a rabbit out of his hat to temporarily strengthen the balance sheet - Why not again? He'll be part of Obama's team

pej said...

The problem here is that raising the debt limit is not going to them any more solvent that they were. They will be just borrowing more and getting deeper and deeper into insolvency...
You can also find more info here: The Two Next Bubbles to Pop