Tweet
Charles Hugh Smith "Of Two Minds" blog:
http://www.oftwominds.com/blogoct10/...tegy10-10.html
Here's an excerpt:
... and this:
http://www.oftwominds.com/blogoct10/...tegy10-10.html
Here's an excerpt:
Here is the key point I wish to emphasize: we will not "get" inflation or deflation by chance or mechanistic functions, but by a series of policy choices which will be made to benefit the Financial Power Elites and their functionaries in the Central State.
As I noted in Hyperinflation Is a Political Process (October 21, 2010), any policy which is driving inflation can be reversed politically at any time. Thus there is nothing inevitable in the current system except the following:
Demographics and the intrinsic limits of exponentially rising debt and consumption dictate that the status quo will implode at some point in the near future. Historical cycles suggest the point of implosion will occur around 2021-2022, but nothing is written in stone.
Indeed, were the status quo to transform into a financial and resource-consumption model that was truly sustainable, then the implosion could be avoided altogether. But the concentrations of wealth and political power are so profound that such a transformation seems unlikely, unless the Power Elites concluded such a radical transformation was in their best interests.
So rather than look at inflation-deflation as mechanical models, I ask: which one would benefit those with the wealth and power? If we answer that, then we can predict which will occur, regardless of what various models predict.
As I noted in Hyperinflation Is a Political Process (October 21, 2010), any policy which is driving inflation can be reversed politically at any time. Thus there is nothing inevitable in the current system except the following:
Demographics and the intrinsic limits of exponentially rising debt and consumption dictate that the status quo will implode at some point in the near future. Historical cycles suggest the point of implosion will occur around 2021-2022, but nothing is written in stone.
Indeed, were the status quo to transform into a financial and resource-consumption model that was truly sustainable, then the implosion could be avoided altogether. But the concentrations of wealth and political power are so profound that such a transformation seems unlikely, unless the Power Elites concluded such a radical transformation was in their best interests.
So rather than look at inflation-deflation as mechanical models, I ask: which one would benefit those with the wealth and power? If we answer that, then we can predict which will occur, regardless of what various models predict.
All the above leads me to this Grand Strategy for the Financial Power Elites. Most of us have a difficult time putting ourselves in the shoes of those tasked with maintaining the private purchasing power of $500 million, or $5 billion, and the inability to think on this scale leads to obsessive focus on financial minutae.
If I had $5 billion, and the political power that goes with spending a tiny sliver of that on political donations and lobbying, then here's what I would do, as an entirely "obvious" Grand Strategy:
1. I would slowly liquidate my common-stock equity and long-bond positions, and maintain my precious-metals positions (preferably ownership of the mines than the bullion) and my preferred stock in global corporations.
Insiders selling 1,169 to 1 (zero hedge)
2. I would engineer a global recession that implodes all the asset bubbles around the world--Chinese real estate, commodities, emerging market equities, etc., as demand collapsed and supply was suddenly revealed as overly abundant. (Please see my oil "head-fake" entries for how this works: Oil: One Last Head-Fake? (May 9, 2008)
This would create a mad dash for dollars and other cash to pay down debt taken on in the "easy money"/ZIRP era (i.e. 2008-2010), and lead to wholesale dumping of all assets which still have value. The higher the value (i.e. gold) the quicker they will be unloaded for cash: for instance, oil and energy-based equities.
3. I would sit on my hoard of cash while the selling created a positive feedback loop and prices plummeted in a downward panic spiral.
4. As net worth vanished in the tens of trillions of dollars/yen/yuan/euros, interest rates would rise dramatically as those desperate for funds compete for dwindling free cash. Revenues of oil exporters and other exporters crash, drying up a once-reliable source of cash.
5. When premium real estate properties and equities are selling for 10%-20% of their pre-crash valuations, I will begin buying. I won't buy long-term bonds until the yields skyrocket; then I will jump in with all four feet.
6. As the long-term shortage of commodities eventually re-asserts itself, then I (and my other Financial Power Elites cohort) will own most of what the world needs to function, including the Central State tax revenues which will increasingly be directed to making interest payments.
7. I will be a strong supporter of food stamps and other low-cost rebellion-reduction programs, and "soft" and "hard" power to enforce my ownership of assets which I purchased.
8. As interest rates rise, the U.S. dollar will strengthen, further increasing my purchasing power.
9. I will oppose inflationary policies as needless reductions in my purchasing power. I don't owe debt, I own debt as an asset.
Bottom line: expect a crash in commodity prices and other asset bubbles, a much stronger dollar and rapidly rising interest rates. I am playing it as it lays, and this is precisely what I expect to unfold between 2010 and 2014.
If I had $5 billion, and the political power that goes with spending a tiny sliver of that on political donations and lobbying, then here's what I would do, as an entirely "obvious" Grand Strategy:
1. I would slowly liquidate my common-stock equity and long-bond positions, and maintain my precious-metals positions (preferably ownership of the mines than the bullion) and my preferred stock in global corporations.
Insiders selling 1,169 to 1 (zero hedge)
2. I would engineer a global recession that implodes all the asset bubbles around the world--Chinese real estate, commodities, emerging market equities, etc., as demand collapsed and supply was suddenly revealed as overly abundant. (Please see my oil "head-fake" entries for how this works: Oil: One Last Head-Fake? (May 9, 2008)
This would create a mad dash for dollars and other cash to pay down debt taken on in the "easy money"/ZIRP era (i.e. 2008-2010), and lead to wholesale dumping of all assets which still have value. The higher the value (i.e. gold) the quicker they will be unloaded for cash: for instance, oil and energy-based equities.
3. I would sit on my hoard of cash while the selling created a positive feedback loop and prices plummeted in a downward panic spiral.
4. As net worth vanished in the tens of trillions of dollars/yen/yuan/euros, interest rates would rise dramatically as those desperate for funds compete for dwindling free cash. Revenues of oil exporters and other exporters crash, drying up a once-reliable source of cash.
5. When premium real estate properties and equities are selling for 10%-20% of their pre-crash valuations, I will begin buying. I won't buy long-term bonds until the yields skyrocket; then I will jump in with all four feet.
6. As the long-term shortage of commodities eventually re-asserts itself, then I (and my other Financial Power Elites cohort) will own most of what the world needs to function, including the Central State tax revenues which will increasingly be directed to making interest payments.
7. I will be a strong supporter of food stamps and other low-cost rebellion-reduction programs, and "soft" and "hard" power to enforce my ownership of assets which I purchased.
8. As interest rates rise, the U.S. dollar will strengthen, further increasing my purchasing power.
9. I will oppose inflationary policies as needless reductions in my purchasing power. I don't owe debt, I own debt as an asset.
Bottom line: expect a crash in commodity prices and other asset bubbles, a much stronger dollar and rapidly rising interest rates. I am playing it as it lays, and this is precisely what I expect to unfold between 2010 and 2014.
Comment