Understanding Today’s Economy

 

UNDERSTANDING TODAY’S ECONOMY

The global monetary systems are broken. This simply means that most, if not all fiat currencies, or currencies by decree (the polite term for a politicians promise), are entering the twilight of their existence.

But two hostile forces are pulling in opposite directions, and the game will be played out according to who wins first, and who wins second.

The citizens of the world are pulling the economy into a deflationary phase; spooked by the ineptitude of the authorities, they have entered the default mode of financial survival, “when uncertain, save money, spend less, lend less, reduce borrowings, hold cash above all else”. Good common sense, except that when too many follow these rules, it reduces prices of goods and services as it becomes more difficult to part a man from his dollar; the prices of real assets drop, incomes will fall with falling prices as profit margins are reduced, which in turn reduces the number of available jobs because of slower or negative business growth and expansion, which makes things worse, which reinforces the whole loop.

In the opposing corner are the sovereign governments, nearly all of whom are into debt at levels never before seen, and the only way out for them is to be able to monetise all the debt, and hyper inflate their respective “currencies by decree” until the repayment of debt is done with little more than worthless coloured paper.

They also want to get re-elected, so it is not as simple as running the printing presses at maximum speed, as that will just bring the lynch mobs to their doorsteps before they can make good their escape.

While this silent, but massive battle plays out, we see another significant development coming into play. The slow but sure ascent of Gold, and it’s sidekick, Silver, back into contention as the money of choice for not only the citizens, but the governments that rule over them as well, witness the Central Banks buying physical Gold once again after decades of selling the stuff from their coffers.

Gold was unceremoniously kicked from its pedestal in 1971 by Nixon, when he shut the Gold window which allowed holders of US Dollar bills to convert them into physical Gold,essentially decoupling all currencies from Gold.

So now we have the citizens of the world, holding inflation at bay with one hand, while the other hand converts the paper cash it holds into Gold and Silver.

While the Citizens are winning at the moment, the time will come when hyper inflation will have to win, as the credit bubble can only de leverage to a certain point, after which Governments have to choose between defaulting on their debts directly like Argentina did in 2002, or monetise the debt and pay it off.

Citizens do not need a Government to survive, but no Government can survive without Citizens, because it’s the Citizens who support the Governments with their taxes and give them control through their votes. Hyper inflation and continued mismanagement will see governments tumble like bowling pins.

 

“The Breakup of the United States”, by Michael S Rozeff, Jul 26, 2010

“Switzerland Under Siege, Free Markets May Yet Save the Swiss Franc” by Axel Merk, Jul 20, 2010

“Governments Squandering the Wealth of Generations” by David Galland, Jul 16, 2010

 

Some events can push the situation off the cliff overnight, for example;

“Government Confiscation of Gold: It Happened Before — Could It Happen Again?“, by J D Seagraves

 

 

So, what is the best we can hope for here in Malaysia?

Force intellectuals into office, and hold a gun to their heads until they sort things out, gets my vote.

“The Disappearing Intellectual in the Age of Economic Darwinism” , Henry A. Giroux , Global Research, Jul 13, 2010

 

 

Jeevindra Kumar