Wednesday, September 26, 2012

Oh the Web We Spin

Unless I'm missing something and the world is deleveraging faster than money can be printed, then we are all on course for a massive dose of price increases induced by inflating money supplies.

The implications of the QE to Infinity announcement two weeks ago is still filtering through the main-stream news and blogosphere. The general blogosphere opinion is this is the 'real' beginning of the end-game for the current monetary system. Will this be so? According to history, yes.

Will this time be different? Maybe. We, except the bankers, could all be missing the new, hidden policy that makes creating wealth from a stroke of an electronic pen somehow work. It never has in 5000 years, so lets hope there is a surprise.

Chris Martenson puts the current QE announcement like this:

"While the Fed can wrap this magic act in all sorts of covering language about dual mandates, maximum employment, and price stability, the simple fact remains that money printed out of thin air cannot, has not, and will not ever lead to prosperity.  How could it?  It arises without any effort at all, no work performed, no goods transformed or lives improved, no land planted and tended well, no services rendered, and no capital formed.  It is just conjured into existence.

It is just new money tossed after bad debts, with both remaining to work their different insidious effects on the economy and our daily lives.  If printed money could lead to prosperity, trust me – some culture would have worked it out long ago, because people every bit as clever and determined as those alive today (and with the same DNA software installed) have tried it again and again.

If it could work, then we should just print every household up a nice $1,000,000 check each year and let everybody stay home, take vacations, and drive nice cars.  It's just an absurd notion, and this is why you should keep a journal – you live in absurd times."

It seems rather obvious to me that this new money will cause price rises to key commodities and therefore hurt the pay-packets of the middle-class. Governments throughout history have always resorted to printing money as a form of stealth taxation. This time is no different, as there is no other choice for politicians.

So what happens to this extra money and how does it produce price rises? Well, the extra money is supposed to go into the US stock market and make people feel wealthier. But what if the stock market gets a severe jolt. Maybe a panic ensues for a myriad of possible reasons. What then? Where does this money flow? Into commodities, cash, gold, silver, houses? Who knows, but it probably will not be bonds, after all, how much more bubble pressure can sovereign bonds take before they explode leaving financial carnage for all to see.

Mr Bernanke has said he can 'mop up' this extra liquidity before it causes these sorts of massive price distortions. No on believes him, as it has never been worked before.

Inflation is simply an increase in the money supply. Price rises are caused by this money being let loose on a finite supply of 'things'. 'Experts' have said that QE will have no effect on the economy. They are right to a point. QE will not improve the economy, but it will have an effect. A most damaging one.

Oh the web we spin. Oh the mess we are in. The best way to protect yourself? Well, you know.

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Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $41.06 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

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