Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Death of the American Empire...

Politics / Recession 2008 - 2010 Sep 25, 2009 - 02:39 PM GMT

By: Clive_Maund

Politics

Best Financial Markets Analysis ArticleThe general public, who never understood the global financial crisis in the first place, have been hoodwinked into thinking it's over. It's not. None of the underlying structural abnormalities, distortions and excesses within the global financial system have been addressed and rectified, because to do so in a meaningful way would involve allowing a constructive depression to purge the system of dross and parasitic elements (like much of government itself) in what would amount to a teardown and rebuild.


Instead, the same crew who got us into this mess are still in charge, and their "solution" to the global financial crisis has been even more extravagant helpings of what created the mess in the first place - namely money and credit creation. This shameless procrastination has not and will not fix anything - all it has done is postpone the day of reckoning and guaranteed an even worse crisis later.

Recession, depression and deflation have their rightful place in the scheme of things, which is to straighten the system out after a prolonged period of profligacy. The willful obstruction of these forces is ultimately counterproductive and futile. Almost all of you will be aware of the longstanding inflation versus deflation arguments, which still rage. What happened last year is that the deflationary forces that had built up to explosive proportions suddenly burst into the open. However, instead of allowing these cleansing forces to do their grim work, The US Fed and government and then Central Banks worldwide decided to beat them back with a massive inflationary frontal assault of money and credit creation.

There should by rights have been many more bloated carcasses like Lehman Brothers floating down the river, but instead we have the legacy of an army of zombie corporations, hopelessly corrupt and mismanaged, lurching towards us like the figures in the The Night of the Living Dead. The same rotten management with their crony connections in government, the same leeching off shareholders and the public purse, and the same soaking of gullible foreigners with share and bond issues. However, there is a limit to everything, and as made clear by Karl Denninger in his recent article "WARNING: Deflationary Collapse Dead Ahead", the US debt is continuing to accelerate into the stratosphere, racing way ahead of GDP so that it is effectively unserviceable already.

Any significant increase in interest rates would make it blatantly obvious that it is unserviceable and lead to default - this is why interest rates have been held at such an artificially low level for so long, but this itself is creating massive problems. For a start it is undermining the dollar which is threatened with collapse, and extremely low rates and inflation of the money supply are also encouraging another carry trade boom in commodities and other assets. Another big danger is that the US can no longer count on dull-witted foreigners to keep buying increasingly large tranches of Treasuries to keep the party going. Foreigners are slowly wising up and refusing to fall for it, which means that in order to meet its funding requirements the US Fed and government are having to buy their own garbage, which is of course hugely inflationary.

So what we have is a bizarre stagflationary situation, where an attempt is being made to beat back massive deflationary forces by means of further money and credit creation. This continues to ramp up the national debt to astronomic levels requiring a continuance of zero interest rates to avoid default. The zero interest rates and continued expansion of the money supply threaten to destroy the dollar, but if rates are raised significantly default will rapidly ensue. This is a classic Catch 22 situation and it is quite clear that the United States is on its way to becoming a third world country. If default occurs and the banks in the US close their doors things could get ugly really fast, with the prospect of 100 million people with guns going on the rampage looking for food and essentials - and someone to blame. Martial Law and a curfew with a "shoot to kill" policy would have to be declared instantly - fortunately this has been catered for by the provisions of the Patriot Acts.

There is however one escape route that might enable the US to avoid the indignity of ending up like Zimbabwe, and that is for it to "surrender" to its creditors and submit to being economically carved up by them. In effect sovereignty would be lost, but face-saving measures might be permitted such as allowing the inhabitants to continue to celebrate Independence Day, and to fantasize that the Constitution of the US still applies and to plaster flags everywhere, provided that the "Made in China" reference in the corner of the flag is clear to see. On the plus side the paranoid nonsense at airports will probably be curbed and meals may even be reintroduced on flights, with curries and sushi as an option. The creditors will call the shots and the US military machine will be neutered, so that there will be no more military adventures on the other side of the planet to secure geopolitical objectives. US military bases will all be closed down or maybe refurbished as schools. Israel could find itself with a sudden severe funding crisis.

Major US corporations will effectively be run by foreigners who will restructure them as they see fit - which could be good news for US waistlines as workers start their day with Tai Chi and a session on the treadmill. Large tracts of Real Estate and other assets will be taken over in lieu of debt repayment. The Hamptons may be largely peopled by Asian entrepreneurs. There will be work for Americans in their own country, however, with plenty of vacancies bagging groceries and stacking shelves in supermarkets at decidedly modest rates of pay and plenty of other service opportunities for their new masters such as gardening and window cleaning. "Green cards" may even be permitted for the lucky few - not to enter the country but to leave.

Since those in control of the US have demonstrated their unwillingness to allow recessionary forces to do their necessary work of correcting the extreme imbalances within the economy, there are only two options left - default and deflationary implosion - ruin, or a comprehensive takeover of the country by its creditors, both of which options probably occurring after a period of runaway inflation as the Fed and government desperately try to stop the inevitable. If the former occurs the shockwaves will reverberate around the world, like last year, and we can expect a collapse in commodity and stock markets.

Until that happens it will be case of inflate and inflate, to forestall rising rates and liquidity problems, which will make gold and silver probably the best investments around, but you sure don't want to be around once the music stops. It is therefore to be hoped for the common good that the US authorities make the right decision and surrender to the mercy of their creditors before it's too late. Either way the American Empire is finished.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2009 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules