Evening Edition

The Gold Standard

It's been a rather exciting week or two. Last week I had the honor of Michael Panzner quoting me on his blog, Financial Armageddon, and my blog is now linked there as well as to his site for his new book "When Giants Fall," which you can find here:

http://www.economicroadmap.com/

Not to mention, if you visit Amazon.com and look up Financial Armageddon, you will see me quoted with reference to the book, which I highly recommend that you read. Our economy has gone through various chapters of the book already, but several more - perhaps - are still to be played out. We will see. By the way, I finally did get the courage to finish the book and it is well worth the read, including the closing parts about what to do in this crisis. I know you want to know, but I hate spoiling endings. You will have to buy the book.

Also, I am now a Gold Standard certified Seeking Alpha contributor. You won't find any contributions by me there just yet as this just happened, but if you click on the Seeking Alpha Certified emblem on this blog you will be taken to my bio and links to any articles I do that get published there.

Now I must admit that Seeking Alpha is more focused on individual investment strategy and I seek to avoid giving any specific investment advice - as in I do not consider myself qualified to do same - but they do carry some general macro economic oriented pieces, and that is where I come into the picture. Any hoot, things seem to be moving along nicely in 50 days.

50 and 5

The 5 is a reference to the number of days I was without power. Lights back on today as of 5:00 pm and my good neighbor Rob came by and switched us off of the generator and onto the grid before I even got home. Nice having good neighbors - we will all need them in these troubled times.

50 is the number of days I have been doing this blog. Seems longer to me in part because this blog began as a daily email to a group of friends who are in an investment club with me. I decided that it made more sense to use this format, not necessarily intending to take it to a much larger crowd, but I guess you never know.

Enough about me, on to the good stuff.

Gentlemen - Start Your Rotors!!

Helicopter Ben is in the pilot's seat and filling the cargo hold with freshly minted Ben Franklins. Get ready to buy a fishing net and stand outside for Ben to fly over. Yes, the man who remarked on that amazing little invention, the printing press, is now ready to put it to full use.

And squarely in the "how low can it go" category, the Fed announced that it will seek to peg its key rate between 0% and .25%, the lowest ever. Well the markets loved it and were up 4-5% today. Go Ben Go, Go Ben Go!!

Hate to pop your bubble, again, but this is the wrong move at the wrong time. Would have been great during the Great Depression, but this is not the Great Depression. Unfortunately, Ben spent a good bit of his career studying the Great Depression and his Great Depression play book may be the only tool he has for a severe recession, but every economic downturn is different and requires new remedies. Indeed, Ben would have John Maynard Keynes turning over in his grave. Yes, Keynes would have thrown money at it in the Great Depressions because here in the U.S. that was the solution. But that is not our problem this time, and I feel fairly certain Keynes would agree.

Our problem this time is that we have already spent too much. We were spending alcoholics on a spending binge and now we have the debt hangover to show for it. So what does the government do - give us hair of the dog. Yep, booze it up some more with more spending, this time on the government's tab. But lest you forgot, the government's tab is your tab too.

We can take our medicine now, stay in bed and rough our way through one of the worst problems we have ever had, or we can mask it over, make it worse and forge on in the hopes that all will be better tomorrow. I guess the latter is more politically palatable. After all, the last thing the government wants, especially a lamb duck government looking to salvage some glimmer of reputation, is to look like it is not doing everything it can to rectify the problem. For those that understand the problem, which is really not all that difficult, the government is doing exactly what it needs to do to prolong the problem and make it worse.

(As an aside, if this leads to our currency becoming toast or us being unable to beg, borrrow or steal what we need to maintain our foolish ways, then I am moving to Canada. They at least seem to have competent banks, government, health care, etc. At some point, you just have to consider you options and give up on those that no longer make sense.)

Now you may say I don't know what I am talking about with respect to Helicopter Ben. After all, he has spent more time studying this stuff than I have, by far. I am the first to admit I could be wrong and he could be right, but if you are reading this you are likely reading other similarly oriented sites. Ask yourself this:

1. How many sites partially blame Greenspan for our current mess by taking interest rates to 1% and leaving them there too long in response to the dot com bubble bursting?
2. How many sites are saying that Americans have too much debt and are tapped out?
3. What do sites say happens upon rebound when the government throws massive amounts of fiscal stimulus at a recession?

Think about it and then think about what the answers mean. If you are struggling here, let me give you what I think to be the correct answers:

1. Most people do blame Greenspan and his 1% rate over a long period for our probems, at least in part. It made credit too easy and it allowed a new, bigger bubble to form. Guess what, rates are now lower than where Greenspan took them and effectively will likely be negative. What might that cause? Does Ben know enough to raise them soon enough to avoid a new bubble?
2. I don't know any sites that are not agreeing Americans are tapped out and have too much debt. So the answer to this is to push us to take on more debt or spend more? I know the debt we are taking on may be government debt, not individual, but it is still our debt. I cannot fathom how that is a good thing. If you can, please comment as I am eager to learn.
3. The good news may perhaps be that a coming deflation spiral may be fixed by the inflationary effects of massive stimulus. It will likely take quite a while, but we will get there. I personally think this stimulus will take perhaps years before it leads to massive inflation, but in the end that is the likely outcome. Frankly though, I am not too worried about oppressive inflation any time soon. World demand ain't commin' back any time soon.

What we are doing is building a nice foundation for a nice new bubble. And this one will be even more toxic and disastorous than the present one. This one will take years to form, but so did the last one. Just wait, you will seem - or not.

We have identified some of the causes for the current problem, yet we are repeating them and taking them a step further. Go figure. I just hope I am reading this wrong.

Disclosures: None