Thursday, January 21, 2010

Another crash on the way

Doug Casey comments on what governments have done to "save" us and what it means.
Everyone was afraid the world was going to come to an end a year ago, and it almost did. But governments all around the world stepped in and printed up trillions of their various currency units – it's not just the United States. And still, retail price inflation hasn't blossomed. It seems that governments are bent on keeping asset prices up to avert panic. They focus on controlling perception instead of fixing the problem. It stems from an economic version of the theory that all we need to fear is fear itself. As long as we have the right psychology, everything is going to be okay – total nonsense.

It's the Wile E. Coyote theory of economics. As long as you never look down after running off a cliff chasing the roadrunner, you can keep treading air. Unfortunately, although the power of positive thinking may help in many ways, it's of zero use if you continue living above your means and making stupid decisions. . . .

I've been bearish on general equities for years, based on fundamentals. Whether they go up is no longer a reflection of prosperity – it's a reflection of how much money the government creates and where it goes. But I am feeling particularly strongly bearish on Wall Street right now. That's my gut. The social mood of the country is going to turn ugly and gloomy; people won't want to call their brokers and "get into the market." [Emphasis added] . . .

[T]he government has been suppressing interest rates for a long time now, which is exactly the opposite of what they should be doing. These artificially low interest rates discourage people from saving and encourage them to gamble, hoping to outrun inflation. But eventually the market will force interest rates to go higher, and that will kill the stock market . . .

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