The announcement of a surprisingly large US trade deficit for September, 2009 had some assuming the US consumer is back in a buying mood. Alas, the much watched Michigan consumer confidence index for November quickly followed, and it is off a large 4.6 points, from 70.6 in October to 66.0 now. The only import gains were largely for crude oil, and there was some ‘technical’ gain from the “declunkering” auto sector, which analysts say is really but a “gain” at the expense of an even greater loss later. Canadian trade data for September came out the same day as the US figures, and it surprised many with only half the $1.8 billion deficit that had been expected. There were somewhat higher exports to the US, but the real surprise was a very large percentage gain to Europe.
Those looking for a stronger greenback near term mostly assume that would be in conjunction with a weaker Euro. That makes sense given both economies can’t see the end of the debt tunnel yet, but the players are realigning in ways that continue to bode uncertainty and the old “rules” of the currency game have not been working so well of late. Most experts believe that the effects of currency printing have only begun to erode the confidence of the people in trusting in paper to hold value. The real evidence of trust would be seen in ways which the desireability to hold currency would balance out the desire to get rid of it for anything else other than saving. Flight toward commodities and consumables stockpiling can only bode ill for such confidence.
The original prediction of the price of gold at the end of this second upswing in the commodity pendulum is $3500/oz. The argument here is that the high for gold on the first upswing of the commodity pendulum (1971-1980) was $875. Since that time, general prices in the U.S. have multiplied by 2.5. And 2.5 x 875 = 2187. Throwing in another factor of 1.6 to account for further price increases over the next decade we get a price objective for gold of $3500. This, by itself, would be a fabulous move. But there is more to come.
As you know, Obama has projected trillion dollar deficits for the remainder of his first term of office. He will not raise taxes openly to pay the deficits. Rather, he will simply print money. This 4 trillion dollar increase in the U.S. money supply plus Bush’s trillion, totaling a 5 trillion increase, amounts to a 7-fold increase in the money supply (from the $900 million of mid 2008). If we figure a 7-fold increase in prices over the next 5-10 years, then we need to multiply our original $3500 target by 7, which gives us $24,500. If Obama does what he says he is going to do, then the $24,500 figure will be closer to the truth. If not, then the $3500 figure will be closer to the truth.
If you want an overview of what is happening here, then study the collapse of the British pound in 1947-48. In the 19th century, the sun never set on the British Empire, and the pound was the world reserve currency. Then the Labor Party (dominated by socialists and Keynesians) came to power in 1945. They brought in Keynesian advisors who depreciated the currency to pay for a host of social programs. The British pound collapsed. The British Empire collapsed, and the heroic nation which had defeated both Napoleon and Hitler shrank into a caricature of its former self. This is an exact replica of Obama’s program. Change? Not a chance.
We know what the effects of Obama’s program have been in every country in which it has been tried. They are always the same. The people of the country become poor
. It is too early to say whether Obama will succeed in implementing his welfare state. If he is defeated, say by a Democratic loss in the 2010 election, then effectively America may continue to be America, and the parallel with 1940s Britain will cease to be valid. But if the social engineering continues, those who pay for it will capitulate to the tsunami of political correctness and drop out of the dwindling “middle class” only to join those for whom incentive is but a word that means ‘Federal Funds for me.’ Entrepreneurs will be discouraged to risk any ventures for fear they will be penalized for their efforts, and villified as “profit hungry” by those who consume but feel no necessity to produce.But whatever happens, America will need a class of new rich who will be willing to risk their assets to rebuild the country from the disastrous policies now being followed. That will only happen is there is a reward for their risk. When incentive is lost, failure is guaranteed. steamroller
comments