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| Watch the Dollar - Casey's Daily Dispatch |
| 2009-10-22 |
| Dear Reader, While I can never be completely sure, I suspect today's edition will be rather short due to the competing work load associated with producing the next edition of The Casey Report. Speaking of which, in addition to our usual assortment of coverage on powerful investment trends, the issue includes a special feature by our own Terry Coxon on the best ways to hold cash. (Learn more here.) Of course, in time, as the inflation we see as inevitable kicks in, holding cash will be the last thing anyone will want to do. But for now, a healthy stash of cash ensures sufficient powder to snap up the bargains in everything from real estate to high-quality stocks we see becoming available in the months just ahead. Specific timing, you ask? Regrettably, theres no sure formula for that calculation. Especially given that these United States now operate on a “quasi-command” economic model. In a true free market, we'd be able to look at the pro forma of individual businesses, or the supply and demand picture for various commodities, and draw some fairly useful conclusions about where they are likely to head next. The business cycle and other aspects of the macro-picture, while worth a periodic glance, would warrant relatively little attention. In the world we now inhabit, however, the macro-picture – and even down to the micro-level – is dominated by the Wizards of Washington. It is they who decide which constituents should do well (e.g., green energy, big banks, automobile companies, mortgage holders) and which should do worse (e.g., coal companies, mining, dollar holders). Then they attempt to enforce their preferences through new or enhanced bodies of regulations that serve much the same function as a cattle chute in a slaughterhouse, forcing businesses and even the economy in the desired direction. Christopher Whalen of The Institutional Risk Analyst just published what I thought was a very cogent paper titled “Are the Fed, the Congress and the Primary Dealers an Alliance of Convenience,” which touches on related topics… The evolution of the US from a democratic republic into a more statist, more corporate formulation that looks more and more like the states of Europe and Asia every day, is what makes concepts such as too big to fail ("TBTF") and "systemic risk" viable. The migration of the US from a society based on individual liberty, work and responsibility, to a society where a largely corporate and socialist perspective holds sway, in my view, is changing the way we look at our financial and monetary system. Because of the huge and some would say illegal subsidies provided to Wall Street firms during the early part of the crisis, particularly in cases such as the rescue of American International Group, the American electorate is engaged in an intense, sometimes angry debate about financial policy and government. This debate is also very intense among the bank regulatory community, where you have FDIC Chairman Sheila Bair, the FDIC and state regulators, and smaller banks supporting a traditional if somewhat legalistic American view of banks regarding issues like insolvency and resolution, on the one hand. Then we have the internationalist tendency represented by the large banks, the Federal Reserve Board, Treasury and White House, who like the leaders of the EU advocate a socialist and proudly statist perspective where banks are "too big to fail" and under the table subsidies to well-connected institutions are encouraged. Whereas in the 1800s the New York banks advocated hard money and sound banks, and the inflationists were among the agrarian populist ranks, today it is Washington, Paris and Berlin, among the largest dealer banks and their political allies, that are found advocates of inflation and public sector debt. Our friends at the Fed and Treasury seem to know nothing about American values when it comes to insolvency or bank safety and soundness. Our founders embedded bankruptcy in the Constitution not out of generosity, but because they knew that prompt resolution and liquidation of claims benefitted all of society. The internationalist set, like their counterparts in Europe and Japan, talk of the ill effects of resolving zombie banks via traditional bankruptcy, but fail to notice the benefits with equal concern. If we do not have losers as well as winners in our society, then we shall have neither. For every loser in the case of the failures of Lehman Brothers and Washington Mutual, there were winners at JPMorganChase and Barclays PLC, which bought the assets of the failed companies for pennies on the dollar and absorbed thousands of valuable employees. Most insightful balance at the link. |
| Posted by:Besoeker |
| #4 ..time for me to buy all the commodities.. I see a future in secure commercial storage property. Now if we can convert all those empty malls..... |
| Posted by: Procopius2k 2009-10-22 17:32 |
| #3 Widespread bank insolvency is THE major issue now, and the rest of the government's shenanigans is to cover that up. holding cash will be the last thing anyone will want to do Yup, time for me to buy all the commodities I will ever need for the rest of my life, and a bigger yard. And a bigger safe. And pray harder. |
| Posted by: Anguper Hupomosing9418 2009-10-22 13:13 |
| #2 Anticipate empty shelves and more poor people. Good jobe dems. Equality is about making everyone more poor. |
| Posted by: newc 2009-10-22 09:56 |
| #1 Of course, in time, as the inflation we see as inevitable kicks in, holding cash will be the last thing anyone will want to do. Too many pensions to include Social Security are indexed to inflation. If you think SS takes up a hefty percentage of the budget, just wait and see what inflation will do to it then. Those governing will invoke Nixon's old wage and price controls before it gets rolling too high to protect their sorry asses. That will in turn lead to shortages, flatline any economy, and create a major black market, cutting tax revenue, particularly at state and local levels. |
| Posted by: Procopius2k 2009-10-22 08:22 |