Thursday, March 06, 2008

Stagflation Today Hyperinflation - Depression Tomorrow

By Roger Wiegand
Mar 5 2008 4:43PM

"In today’s essay we are going to scare you like you’ve never been frightened before. If this spoils your day do not read this report. I am deliberately doing this as many of our gold bulls suspect this spring selling cycle is the end of the precious metals movie. We totally disagree. Is there a significant selling event for precious and base metals this spring? Yes! Is this the end of those gold and silver rallies we’ve enjoyed for the last six years? No! In fact, we have new information telling us the primary growth phase of gold opens for business this fall of 2008. In our view, those who bail out now and run for the hills will miss 80% of the upside in precious metals." - Traderrog

Elaborate discussions sugar-coating economic reality are dumped on us daily by Washington, D. C. and New York mainstream promoters with an agenda to prolong their fun and our agony.

Mr. Greenspan, as we wrote last week during his Jeddah speech erased trillions in the blink of an eye telling the Arabs to “get oil sales off the dollar peg.” We suggest this was akin to screaming fire in a global economic theatre. It’s not against the law but certainly should be. While our former Fed Chairman helped speed disruptions along, an irreversible mess is coming at us irrespective of these kinds of news events.

The Federal Reserve instigating its inflation disease upon the land since founded in 1913 has given us a dollar valuation loss of -95% in 95 years. Some smart guys say the remaining 5% of value is even closer to 3%. At this point splitting hairs on this pathetic mess doesn’t matter. What really matters is when do we feel the brunt of these problems and more importantly what do we do about it right now before it’s too late?

There have been several ordinary recessions since 1913 and they should be considered a standard event in capitalistic economies. Depressions are something much worse. As bad as these disasters are they soon fade away if manipulators keep hands off and permit free market economies to heal themselves. It doesn’t matter if we have to deal with a recession or, a depression; the natural tendencies of free enterprise, capitalism and liberty consolidate the problems, repair them and enable a new foundation for following growth periods.

We’ve noticed in studying economic history since the 1837-1843 depression these downers take progressively longer to heal and correct themselves. Political, economic, and civil war made the American time span of 1853 to 1871 a passel of really nasty years. Thankfully, the Republic survived those times and began a longer major growth period spurred on by the American Industrial Revolution. Our problem today in this world of super-fast computers and “mico-managed competitive economies” is these buggers cannot allow business and investments to operate without interference. The worse things get the more they interfere. This is a spiral of defeat that continues to feed upon itself.

When the very scary Panic of 1907 whacked Wall Street, it sufficiently frightened the New York investment and trading community as well as our folks in the capitol. Their responsive problem solving intentions were good; as they wanted to “do something.” That is, either eliminate or, maintain some semblance of control should further panics ensue in the future. Noble idea but the Federal Reserve solution in 1913 set the ground-work for our current impending disaster and the destruction of national fiat currencies throughout the world.

Computers are a wonderful invention for many reasons but in our view have also been put to some evil uses in the realm of derivative trading and investments. Those PhD. nerds running sophisticated math problems and their resultant Long Term Capital disaster proved that the elegant, human equivalent “art in judgement” as well as math-science problem solving is mandatory for profitable trading. That massive error was the simple mistake of excluding human judgement expedited by failures in Russian bonds. Who would have thunk it? What’s funnier, two guys designing the failed models got Nobel prizes!

Now, not having learned from that multi-billion disaster, these dudes were back at it again with all their magnificently stupid derivatives ideas. The primary difference is that this time they are not only out of control but have no answers to contain or, stop the fallout. We used to laugh at the comedian Red Fox when he put hand on heart feigning a heart attack crying for sympathy saying, “Here I come Elizabeth, this is the big one.” He was a great comedian with perfect timing. Wish we could say the same about Chopper Ben, Hank Paulson, Alan Greenspan, and the balance of that gang.


Unlike Comedian Red Fox We Are in “The Big One”

The Federal Reserve economic model is totally dependent upon inducing inflation and growth in a giant pyramid scheme. This nonsense can only continue as long as promotion of infinite growth in money supply, bonds, materialistic purchases and free-running credit are permitted to exist. They can’t continue anymore as the credit is toast. The credit toaster burned-up and the bread is burnt dollars.

Where the game has gone awry, is the fact credit dried-up due to lack of trust and confidence by the banks among each other and by the general public who is watching their massive, fraudulent disaster unfold. The Hank and Benny team have almost run out of money bullets. Worse, confidence in their Confidence Game has vanished. When the little professor said in a speech yesterday in Florida that the bank and mortgage lenders should give bad housing loans some slack by arbitrarily cutting mortgage principal, we knew he was grasping at the final straw. We’ve seen lots of really dumbo moves but this one was off in never-land-beyond any comprehension. Is this dude promoting a grand bank robbery?

Years ago, we used to pooh-pooh those worrying about the earth’s limits to support massive population growth. Now that problem is very real. China and India with exploding populations converting to western diets have imposed inordinate pressures on water, food, air and demand for commodities. The worst of these problems is of course energy. We are seeing water, grain (food) and energy stretched to limits where an obvious crisis is imminent. One analyst predicted a global famine within three years. He might be correct as wheat prices have skyrocketed and reserves sink almost to zero. To make matters worse, cyclical drought, not phony global warming, is now in play. There have been numerous instances of this most recently in the 1930’s dust bowl years and the early 1950’s when new heat records were set for 3-4 years in a row. Australia is suffering a 1,000 year drought.

The crude oil shortage is running -3mm barrels a day and promises to get worse. The obvious supply and demand answer is higher prices. U.S. drivers are reducing trips as gas demand in the states is now off -1.1%. Conservation is implemented with unleaded prices solidly above $3 per gallon and rising. As inflation worsens and buying power diminishes economic conditions sink further in a non-spending spiral as commerce slows and finally stops.

For now we have stagflation. This is a stagnant non-buying, non-productive economy with price inflation. Business is slowing and prices of necessities are rising. This many months’ sink into the mud will be followed by ever faster inflation as our Ben-Hank duo print money faster and throw credit to the bank wolves who only save the cash not spend it. Hoarding of everything from cash, gold, silver, food, energy, and most of all valuable hard goods (merchandise) smothers free-flowing spending cash, so dearly needed to keep the economy in-play; alive and moving.

It’s too late. This economy is terminal but the Sheeple don’t see it yet. What the Sheeple are seeing is major job losses, no spending power, nasty energy prices, home values dropping swiftly and no bank credit to be had anywhere. Mortgage lenders have squeezed terms too tight. This lending market might as well be closed. Further, consumers do not want to borrow for fear things fall further (they will) and Mr. Lender would prefer they not apply for credit.

Housing is toast for years and prices are in a scary free-fall. Top 2006 house prices will return to 2003 prices. In some cases; much lower. In the previously hottest housing markets, retail prices increased +100% from 2003 to 2006. Guess what? Now they go down as much as they went up. In some cases even lower. One analyst figures 10,000,000 homes are foreclosed with keys returned to lenders in 2008. In 2009, it gets even worse.

States, cities, towns, villages and counties go bankrupt by the thousands. Fire and police will be laid-off or, fired. Muni-bonds default as there’s no tax income for interest payments. Homeless people multiply by the millions and food banks and welfare agencies are overrun with unfilled demands. Crime skyrockets as big city gangs run rampant without an effective police force. Urban fires will be more common and utilities are shut-off by the thousands for non-payment.

The federal government will install martial law, capital controls, and close banks for a spell while the armed forces are overrun with applicants by those needing food and a bed. Many cities become uninhabitable due to crime, disease and neglect. Large parts of Detroit have already returned to the wild with coyotes and other unusual birds and critters living in burned out homes and huge vacant land parcels where stately homes once stood. In lieu of valueless dollars, rural people in particular will use trading and goods barter instead of paper cash. There are two million guns in the United States and they are going to be used on criminals, to settle old grudges and the cops who will not be able to cope.

Those reliving the 20 year’s ago economic fairy tale will suffer the most. Those with the ability to substantially reduce their standard of living will do better. Farmers with an independent existence (Think Amish) will see no changes at all). They are self-serving independents and need zero help from outsiders. In fact their lives ought to significantly improve as the “English” as Amish call them get lost.

Many will give up cars entirely, moving to small towns or, villages growing gardens and walking to all needs. Bikes, walking, motorcycles, and horses become the newer method of transportation for many. Several will grow to like it as health-exercise improves and stress melts away. Lower expectations shall serve many well. Those unable to adjust or, change jump-off buildings, go nuts or, cope badly.

Will there be a total departure from our modern way of life. No, but societies including America will see changes. Energy conservation becomes a religion and wastefulness of all kinds shall disappear. Smart people see these things coming and shall quietly and unobtrusively prepare. Low key is best while flash, dash and rah-rah materialism turns passé.

Are we overstating this problem? Maybe, but what if we aren’t? Think about 1921-1922 Germany. Think about post war Germany in 1945-1946 when millions of German citizens starved to death. Think about Argentina, Brazil and other hyperinflative events. Think about Zimbabwe with thousand’s percent inflation- right now! Watch Asia and Europe tank first this fall of 2008 with the U.S. falling in late 2009.

We suggest wise precious metals traders with their friends and families could make the best of this forecast eliminating most of these getting-by problems before they’re a crisis. You would be amazed at how little you need for a happy productive life once 95% of the useless materialistic crap is dumped. I once lived in a 5,600 square foot home with six bedrooms and four bath rooms and hated it. Now my 1,000 square foot townhouse is too small but not by much. Simplify your life, make some excellent gold and silver trades and you’ll smile with satisfaction, not frown with fear or, portray a “Deer in the Headlights Stare” like the Hank-Ben duo. Their sleepless worrisome example proves money isn’t everything. Those guys are scared witless. – Traderrog

Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at