Friday, April 20, 2012

The Latest Ponzi: Simple Debt

We like normality. We don't like what we are comfortable with to be shaken. We develop a whole way of life around what is normal and to walk to the edge of something new and step over is against our instinct.

These may be such times. What we knew before 2008 is changing rapidly. If you have lived in the post-World War Two era, more so beyond the 1960s, there has been a steady increase in living standards worldwide with the help of a fiat money system and the stability granted by firstly detente, between the USA and the USSR, and now with the sole superpower the USA.

But the fiat money system always had the seeds of its own downfall inscribed on its DNA. It was too loose a value measure for it not to be the focus of politicians seeking power. The signs of its inherent problems were the bubbles it created. Fiat money can be created at will and, once created, must 'go' somewhere to attempt a return on money higher than the amount of inflation price rises it creates.

We had the stock bubble ending in 1987, the tech stock bubble ending in 2001 and the housing bubble ending in 2007. This latest bubble caused the world economic ship to list badly. We have not recovered.

Then again, it seems we have recovered to a point where we are comfortable with blowing yet another bubble. You see, central banks, instead of letting these bubbles burst and the results settling where the market willed, have inflated the money supply to fill the gaps. Here's a chart of the money stock growth in the USA. This looks exponential by any classic techinical chart analysis.



So where is the latest truck load of bubble cash heading now it has been created. For New Zealanders, and probably others, check the stuff coming through the mail from your bank. For New Zealanders, check your credit card on the interent. For me, the bank has added a wee button (see below).



Yes, there it is. Want more debt? Easy, just hit the 'adjust limit' button, choose your limit and go for it. Hardly any qustions asked.

So banks are encouraging you to go into easy debt. Yes, the next bubble is probably an easy debt bubble and the banks are gunning for the good old dumbo consumer with their latest ship-load of cheap money courtesy of the ECB and the Federal Reserve.

If we have learned anything in this new post-2008 paradigm, it should be that life isn't going to be the same again. Ever. My advice, don't listen to those who want to keep you in your pre-2008 safe living space. Don't play their game, be bold and face the new paradigm where debt is dangerous.

Gold in New Zealand dollars: $2017.32 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.01 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)
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