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The Global Financial Crisis Explained- Credit and Credibility Part2

Stock-Markets / Credit Crisis 2009 Sep 24, 2009 - 01:20 AM GMT

By: Richard_Karn


Continued from Part1 - Consequently, the ETR believes a return to the gold standard, or some rules-based derivation thereof, is highly unlikely without either a grassroots US taxpayer revolt or an utter collapse of the fiat dollar precipitated by global consensus to end its use as the world’s reserve currency. Neither appears likely at this juncture.  The groundswell of popular dissent needed to achieve the former seems to have been largely bred out of Americans over the last generation, replaced by a distracted, self-absorbed apathy that seeks easy salvation in a president that emulates the wrong Roosevelt: what we need is a trust-buster carrying a big stick, not an interventionist appeaser masquerading as an eco-warrior.  

And as is explored in the next chapter, the reflation efforts of the Fed and the Treasury are likely to be heartily, even desperately, embraced by geopolitical friend and foe alike, for despite the dyspeptic rhetoric and economic saber-rattling there is no other currency in which to hide from the ravages of the financial crisis sweeping the world, for it is our contention that all of the world’s currencies today, which are universally fiat, have become but derivatives of the US dollar.65   In a world of fiat currencies, we believe dollar strength will ebb and flow with the advance and remission of the cancer at the heart of the global financial crisis, its strength attributable to the notion that the so-called senior currency at the center of the global economy will be the last to collapse.

So strangely enough, despite the unparalleled monetary inflation being wrought upon the dollar that will have tragic consequences sometime in the future, we see the dollar strengthening against all other currencies, not by dint of US economic strength but by the comparative weakness in all other currencies, for a less well-publicized tidbit is almost every country on earth is also inflating their currency just as fast as they dare.  The only currency against which the dollar will ultimately not appreciate is gold, which is gradually re-emerging as arguably the most senior of all currencies. 

This is why the Emerging Trends Report has been advocating since we began publishing in 2005 that you can speculate with dollars all you want, but if you wish to actually save money long term, be it for retirement or a child’s education or just to protect your hard-earned money from the relentless depreciation of monetary inflation, put it into physical gold or silver.  In 20 years’ time, you can rely on an ounce of gold or silver still being an ounce of gold or silver—who can honestly say what the real value of a fiat dollar, euro, yen or yuan will be? 
History suggests less, quite probably substantially so.

Credit and Credibility presents the Emerging Trends Report’s comprehensive assessment of today’s financial turmoil and what we consider to be five of the most pressing issues that stand to impact the global economy in the years ahead.  Each of these issues are explored in the first five chapters:

  • fiat currency, the financial abuse it engenders, interventionist policy response to perpetuate it, and the role of the US dollar going forward;
  • our contention that all fiat currencies today have become derivatives of the US dollar has stunning implications globally;
  • the extent to which emerging markets can decouple from ‘consumer’ economies, and the role of China as the litmus test for both the regional and the emerging market thesis;
  • our contention that the world has had its fill of ‘financial innovation,’ and the only way the US economy can recover will be through its traditional strengths in agriculture, manufacturing, invention, and hard work; and,
  • our assessment of the issues attendant to the anthropogenic global warming debate and pending legislation.

Credit and Credibility then delineates the investment approach demanded in this ‘brave new world,’ identifying potential pitfalls to recovery, asset classes likely to become candidates for bubble-dom, a set of leading indicators likely to mark the true bottom, and how these five issues will affect each of our investment themes. 

In order to facilitate the comparison and update of our nine themes within this context, we are including complete copies of our original coal, gold, water & food, nuclear energy, silver, electric grid, transportation fuels, material science, and natural gas reports and have appended substantial commentary regarding the performance of each going forward, including stocks positioned to outperform as well as a ranking by viability in the current environment.  The heavily annotated eBook runs to more than 430 pages of text, not including 200+ pages of source material and suggestions for further reading. 

To purchase Credit and Credibility as an individual report, or on an annual subscription basis, we invite you to visit our website at:

By Richard Karn/ETR

310 Arctic Boulevard #102
Anchorage, AK 99503
Phone: 510-962-5021

1 Chayefsky, Paddy: Network; MGM: 1976. The  “Mad as Hell” soliloquy may be viewed here:

2 Langely, Noel (screenplay): The Wizard of Oz; Metro-Goldwyn-Mayer: 1939.

3 Kotlikoff, Laurence J.: “Is the U.S. Going Broke?”; Forbes: 29.09.2008.

4 Altman, Roger C.: “The Great Crash, 2008”; Foreign Affairs: January/February 2009.

4 Welsh, James E.: “The Financial Commentator on the Economy”; Welch Money Management: Vol. 5, Issue 28, 04.05.2009. (subscription required)

6 Whitney, Meredith et al: “Consolidated Lending Market Poses Risk to Overall Consumer Liquidity”; Oppenheimer: pp. 1: 30.11.2008.

7 Kotlikoff, Laurence J.: “Is the U.S. Going Broke?”; Forbes: 29.09.2008.

8 Laise, Eleanor: “Some Consumers Say Wall Street Failed Them”; The Wall Street Journal: 29.11.2008.

9 Williams, Walter J: “Still-Intensifying U.S. Inflationary Recession…”; Shadow Government Statistics: No. 47, pps. 45-6, 14.11.2008.

10 Johnson, Simon: “The Quiet Coup”; The Atlantic: May, 2009.

11 Greenspan, Alan: “Gold and Economic Freedom”; the Objectivist: 1966.

12 The Federal Bank of Minneapolis: “What is a dollar worth?”; undated.

13 Grant, James: “The Confidence Game”; Wall Street Journal: 18.10.2008.

14 Kemp, John: “U.S. & UK on brink of debt disaster”; Reuters: 10.01.2009.

15 Williams, Walter J.: “Government Economic Reports: Things You’ve Suspected But Were Afraid To Ask! The Consumer Price Index”; Shadow Government Statistics: 01.10.2006.

16 Associated Press (not attributed): “Despite Crisis, Bankers get $1.6 Billion”; Associated Press: 22.12.2008.

17 Mares, Arnaud & Cailleteau, Pierre: “How Safe are Safe Havens?” Moody’s Global Sovereign: April 2009.

18 Central Intelligence Agency (CIA): World Fact Book: 2008; CIA: last update 14.05.2009.

19 System Restore is a software program that returns a computer’s setting to a time when the system was operating properly.

20 For a chronicle of programs extant through early June 2009 when we go to press, please refer to Appendix 2.

21 Please refer to Appendix 2 for Dalio, Ray: “1Q 2009 Client Conference Call”; Bridgewater Associates: slide 7, 22.04.2009.

22 Daggett, Stephen: “Cost of Major U.S. Wars”; Congressional Research Service Report (RS22926): 24.07.2008.

23 U.S. News & World Report: “U.S. Population, 2009: 305 Million and Counting”; U.S. News & World Report: 31.12.2008.

24 Nolan, Doug: “Debt Trap”; Credit Bubble Bulletin/Prudent Bear: 06.11.2008.

25 Pittman, M., Ivry, B, & Fitzgerald, A.: “Fed Defies Transparency Aim in Refusal to Disclose”; Bloomberg: 10.11.2008.

26 Wutkowsky, Karey: “Fox Business sues Fed for information on bailouts”; Reuters: 12.01.2009.

27 Willoughby, Jack: “The Lessons of the Savings-and-Loan Crisis”; Barron’s: 11.04.2009.

28 McAvity, Ian: “Deliberations on world markets”; IRIS Ltd: Vol. 37, No 8, pp. 3, 28.01.2009.

29 Nocera, Joe: “So When Will Banks Give Loans?” New York Times: 25.10.2008.

30 Enrich, David, Crittenden, Michael R., & Tamman, Maurice: “Bank Lending Keeps Dropping”; The Wall Street Journal: 20.04.2009.

31 Younglai, Rachelle & Wutkowski, Karey: “U.S. nears mark-to-market accounting guidance”; Reuters: 11.03.2009.

32 Hale, Clive: “Debtor’s Prison”; FullerMoney Daily Comment: 30.04.2009.

33 McTeague, Jim: “Marking Down Honest Accounting”; Barron’s: 04.04.2009.

34 Norris, Floyd: “Troubled Bank Loans Hit a Record High”; The New York Times: 29.05.2009.

35 Weil, Jonathan: “Wells Fargo’s Profit Looks Too Good to Be True”; Bloomberg: 16.04.2009.

36 Welsh, James E.: “The Financial Commentator on the Economy”; Welch Money Management: Vol. 5, Issue 28, 04.05.2009. (subscription required)

37 Hussman, John P., PhD: “On the Urgency of Restructuring Bank and Mortgage Debt, and of Abandoning Toxic Asset Purchases”; Hussman Funds: 30.03.2009.

38 Saulny, Susan: “Banks Starting to Walk Away on Foreclosures”; The New York Times: 29.03.2009.

39 Rosenberg, David A.: “North America: Morning Market Memo”; Bank of America/Merrill Lynch: pp. 6, 06.04.2009.

40 Mady, Levente: “BondWorks”; Institutional Advisors: 09.06.2009. 

41 Bush, George W: “Fact Sheet: America’s Ownership Society; Expanding Opportunities”; White House Press Release: 08/09/04.

42 The father of modern fiat currency abuse.

43 Quinn, James: “The Great Consumer Crash of 2009”; Prudent Bear: 19.08.2008.

44 Norris, Floyd: “Troubled Bank Loans Hit a Record High”; The New York Times: 29.05.2009.

45 Quinn, James: “The Great Consumer Crash of 2009”; Prudent Bear: 19.08.2008.

46 Forsyth, Randall W.: U.S.Wealth Plunges—Before Madoff Scam”; Barron’s: 13.12.2008.

47 Welsh, James E.: “The Financial Commentator on the Economy”; Welch Money Management: Vol. 5, Issue 28, 04.05.2009. (subscription required)

48 Mutikani, Lucia: “U.S. manufacturing shrinks at slower pace in May”; Reuters: 01.06.2009.

49 Kaletsky, Anatole: “Market fundamentalism took us close to disaster in 2008”; The Times: 29.12.2008.

50 Economist Intelligence Unit (not attributed): “Manning the barricades: Who’s at risk as deepening economic distress foments social unrest”; The Economist: pp.6, March 2009.

51 Mutikani, Lucia: “U.S. manufacturing shrinks at slower pace in May”; Reuters: 01.06.2009.

52 Taibbi, Matt: “The Big Takeover”; Rolling Stone: 19.03.2009.

53 Johnson, Simon: “The Quiet Coup”; The Atlantic: May, 2009.

54 Leising, Matthew & Runningen, Roger: “Brooksley Born ‘Vindicated’ as Swap Rules Take Shape”; Bloomberg: 13.11.2008.

55 Abbottt, Charles & Drawbaugh, Kevin: “U.S. regulators seek OTC derivatives crackdown”; Reuters: 13.05.2009.

56 Whalen, Christopher: “Statement to the Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment”; pp. 10, June 22, 2009.

57 Willoughby, Jack: “The Lessons of the Savings-and-Loan Crisis”; Barron’s: 11.04.2009.

58 Crittenden, Michael R.: “House Panel to Probe BofA’s Merrill Deal”; The Wall Street Journal: 07.05.2009.

59 Crittenden, Michael R. & Fitzpatrick, Dan: “Lewis Takes Heat but Defends Merrill Deal”; The Wall Street Journal: 12.06.2009.

60 Ibid.

61 Farrell, Greg & Braithwaite, Tom: “Bernanke e-mail claim in Merrill sale saga”; The Financial Times: 11.06.2009.

62 Taibbi, Matt: “The Big Takeover”; Rolling Stone: 19.03.2009.

63 Loser, Claudio M.: “Global Financial Turmoil and Emerging Market Economies: Major contagion and a shocking loss of wealth?”; Asian Development Bank: pp. 7, March 2009.

64 Mogato, Manny: “Global financial market loses $50 trln—ADB study”; Reuters: 09.03.2009.

65 This concept was originally raised in 2006 in discussions with John Trudgian, our business partner and Managing Partner, Austral-Asia, for the Williams Inference Service.

© 2009 Copyright Richard Karn / ETR - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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