Bernanke, basically on his own, carpet bombed the markets with money. It did save us from a complete collapse, but the market finished down. The dollar is up along with gold. The indicators are spinning from the bounce.
It's going to take a few days for the markets to adjust to the surprise rate cute. I expect the market to drift down about 1000 points over the next two weeks.
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WELCOME TO THE WORLD OF HYPER-INFLATION!
John Palmer,
I was reading your prior blog about the shrinking of money supply and this causuing a deflation. Is that correct? Also you mentioned that loud guy, craig, I believe. You said he mentioned that a couple of insuring companies will go bankrupt in the following weeks. My question is: Is Life insurance not going to be honored by these insurance companies? Should I stop making monthly payments to my life insurance company?
John,
You are right about the Dow going down 1000 points. I think it may be even greater. However, I still think society is not going to collapse from all this. Even in the great depression, society went on and the majority (70%) of America continued their life with minor effects. Spoke with my mother recently who lived through it and her father never lost his job and they went through it basically unscathed. While little can be done to keep the economy from tanking there is many behind the scenes mechanisms for keeping a total financial collapse. Do a google search on the Bond Offering Goldman Sachs is quietly putting together for Northern Rock Bank in England that basically failed a couple months ago. The article is either in the London Times or London Telegraph. Will show you how the bank is being salvaged and goes into a step by step analysis of how everyone is going to be affected by it.
John,
Copper is the canary in the cage for commodities. It is usually the first to rise or fall. Less demand=lower commodity prices. Check out this from Bloomberg out of London:
Copper Falls in London, Leading Other Metals Lower, on Slowdown
By Claudia Carpenter
Jan. 23 (Bloomberg) -- Copper declined in London, erasing earlier gains, on revived speculation more interest rate cuts will be needed to spur economic growth.
refurbsystems
www.semi-aware.blogspot.com
Hi John,
Nice blog and videos.
Someone mentioned hyper-inflation. I do not believe that it will come to that. This is going to be deflationary for the following reasons:
-The supply of credit is shrinking. The fed can cut rates all it wants - it won't make a scrap of difference because a.) Banks and institutions are going to be reluctant to lend as freely as they have for the last 6 years; and b.) The psychology of you average joe will be to avoid debt and save money as job losses and general slowing of the economy occur (deflationary). Unfortunately this is a death spiral for the western economies, built around consumption, middle men and cheap suppliers.
-The more the housing market and stock markets crash and people start to realize a recession is on the way and that their perceived wealth is lower, the greater people will attempt to cut expenditure. This will have a deflationary effect - hence Bush's desperate and futile rebate plan. It will not be enough to offset the overwhelming deflationary forces that are gaining momentum.
-Rising commodity prices have increased cost of manufacturing (inflationary) but this has been largely offset by manufacturing cost reductions from emerging markets (deflationary). Wages in the emerging markets will not rise (although their economies will slow as the west will provide less demand), thus wages in the west will not rise and may slow in growth or even go backward (deflationary).
-The commodity bubble will start to burst as speculation dries up (we are starting to see that). This will lead to cheaper production costs (deflationary).
-There is a surplus of goods coming from the emerging markets. Money is chasing too many goods (delfationary).
As you can see, although the FED would like to re-inflate the economy, it is unlikely that their plan will actually work. Money is coming out of the system rapidly and the entire foundations of the system revolve around expanding credit. As soon as that credit shrinks, you will have deflation - and we are seeing that credit shrink rapidly. The FED is obviously attempting to re-inflate but honestly, it does not take a genius to figure out that re-inflation of the system at this point in time is going to be almost impossible.
Hence the author of this blog has been very astute to recommend not buying into the "this is going to be a hyper-inflationary recession so buy precious metals" thesis. Precious metals are just as speculative as every other bubble in the world at the moment - they will collapse.
Use caution going forward and protect your physical dollars if you can. For those in the US, make sure that you do not have more than 100K in any one bank and that your deposits are FDIC covered. Good luck everyone!
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