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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Panacea For a Mismanaged Nation is Inflation of the Currency

Currencies / Fiat Currency May 31, 2009 - 09:43 AM GMT

By: Michal_Matovcik


Best Financial Markets Analysis Article“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” Ernest Hemingway


Twain observed in 1873: “I never can think of Judas Iscariot without losing my temper. To my mind Judas Iscariot was nothing but a low, mean, premature, Congressman.” Amen.

  • Constitution never said our government should enact laws and enforece policy decisions that would force us to create Federal Reserve, give the Fed Dual Mandate (they failed to keep single mandate, purchasing power of Dollar), pay your neighbors mortgage and debase US Currency also in relation to zimbabwean currency.
  • This is a nation by the Banks, for the Banks, and of the Banks and their demimonde in Washington and the media. Arthur Cuthen
  • The backbone of America is made of entrepreneurs and small business.  Most of them are living in fear and in a fetal crouch, looking for a hole to climb into and something to cover themselves as a shield from the onslaught from Washington that anyone can see coming.  Growth in income comes from a growing PRIVATE sector, NOT growth in government as many public servants believe.  NO ONE in the US is starting a new business except crony capitalists who are on the government’s purchasing lists, and then they get the business sent to them through EARMARKS. Ty Andros
  • These governments refuse to do what everyone is doing and what needs to be done to built a base for future prosperity. Please cut Spending.
  • The regulation of the toxic assets and over the counter derivatives, which Treasury Secretary Geithner has proposed, was written on Wall Street. But no one cares. Maybe that’s why we are in this.
  • I have a question for you.  Have any of your day-to-day expenses for food, energy (after the initial plunge in the fall of 2008), electricity, rent, healthcare or anything you actually consume regularly gone down? And in coming years you would prey to have this year’s rise in prices.


  • There is no doubt the legislation will be MONETIZED.  NEVER IN HISTORY has it NOT BEEN MONETIZED. Ty Andros. So be prepared for bond market bust, extreme expansion of FED balance sheet and gold mania.
  • FED will withdraw the money from system  at the right time, hah…When was the last time a central bank set out to shrink the money supply? A similar question: when was the last time a gang of thieves put property into people’s houses rather than took it out? Or: when was the last time a fox protected hens from harm?
  • “I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis… Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP? Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.” Richard Fisher, Dallas FED
  • Chinese government grill[ed] me about whether or not we are going to monetize the actions of our legislature.” He adds, “I must have been asked about that a hundred times in China.”   Richard Fisher, FED
  • Central banks are never blamed for producing undesirable inflation or deflation by expert opinion in the country, at the time the problems occur. So don’t wait for that now, it never happened in history. They’ll point at spending, labor unions, market bubbles, OPEC, crop failures, banking crises, stock market crashes, or international forces.  There is no end to the list of excuses.
  • Those green shoots about which the media has been talking are nothing more than US Dollars, Japanese Yen, British Pounds, Swiss Francs and now Euros being tossed about and printed like confetti. Ty Andros


  • Obama and his staff know how to plan an economy. Private bankers do not know how to structure executive compensation and manage risk, so the federal government must enact new regulations. Banks were too leveraged, so the federal government must enact new regulations. The economy was destabilized by a wave of excessive optimism followed by a wave of excessive pessimism, so the federal government must enact new regulations. These new regulations will prevent another subprime crisis because government officials know what to do… D.W. MacKenzie
  • The subprime boom was itself an unintended consequence of “well-intentioned and carefully thought-out policies” to promote home ownership and stimulate the economy.
  • The challenge for an economy in a recession is to develop new patterns of specialization and roundabout production. This process takes time.
  • EVERY economic report is becoming more and more a fantasy.
  • The recent monthly employment report without government hiring would have been over 610,000 jobs lost, and that was with the BIGGEST POSITIVE seasonal adjustment ever made for the month of April.  Unemployment is NOT getting better, and is set to accelerate to the downside.

Economic Theory

  • economics is the study of human action not only forecasting, financial analysis, and quantitative estimates of various investments, rate/tariff policies, etc. Lynne Kiesling
  • GDP gap is the difference between the economy’s actual and potential output which is equivalent to about a trillion dollars this year and next, and that gap in output will not close until 2013. To close the GDP gap, should we go back to producing millions of houses to be bought by speculators and financed by hundreds of billions in junk mortgages?
  • Unemployment undermines support for a free society by robbing ordinary people of their independence and self-respect.  By this standard, the U.S. is temporarily doing poorly.  But it won’t last.  In the U.S., unlike Europe, high unemployment is not a way of life. Bryan Caplan
  • Anyone can push the monetary inflation button and interest rates will fall and the politicians will jump for joy. The hard part is reversing this policy. It will involve the Federal Reserve selling assets like government bonds and asset-backed securities back into the financial markets. This would soak up liquidity, but it would also reduce bank reserves, reduce credit availability and loans, and increase interest rates. If they start the reversal before the economy recovers, they may be able to beat down price inflation in the economy, but what will the politicians and pundits say to higher interest rates and restricted credit while unemployment is still rising? If they wait until the economy has recovered, most experts think it will be too late to prevent the emergence of higher price inflation in the future.
  • Austrian school have always emphasized the importance of the gold standard where gold and silver serve as money. When money is a tangible thing like a silver dollar and banks are required to hold checkable deposits on reserve, a central bank could not have caused the housing bubble that led to the multi-trillion dollar bailout/stimulus policy. Gold secures the value of money and prevents reckless government spending.
  • As Friedrich Hayek noted decades ago, Keynesian economics is a theory of abundance where unused reserves of resources can be brought online through fiscal or monetary stimulus. Keynes himself speculated that in a couple of generations we might “solve the economic problem” by satisfying all of our real economic needs. Fairy-tale..
  • I’m on the road today.  As I checked out of my hotel room — rolling my suitcase behind me — I wondered how many bellmen jobs were destroyed by the innovation that put wheels on luggage. Don Boudreaux

Bond Market

  • The bond baddies are singing a slightly different tune. They are concerned about the inflation outlook in a few years time. In their hearts, the bond traders know that the Fed really kind of wants inflation. The challenge is that inflation is a lot like Lays potato chips. You only want a little and then all of a sudden there’s an empty bag and grease and whatnot is all over your face.
  • Rising rates of interest for Uncle Sam mean a higher mortgage rates, a rising budget deficit, and a threat to any nascent recovery in the housing market. In short, the green shoots are at risk of being trampled, and investment decisions will only get tougher as 2009 progresses. Investors might be best served by investments that benefit from uncertainty itself. Jack McHugh


  • Foreign observers of Germany might be tempted to believe that the largest nation in the EU avoided the worst aspects of the crisis through a combination of prudent financial regulation and good old fashioned conservatism. But such a view is very far from the truth. In fact, Germany faces an financial crisis in its private and state sector banks that, relative to the size of that nation’s economy, could be every bit as serious as the US crisis.
  • My guess is that the Landesbanken alone will cause ultimate losses of 8-10% of German GDP, which is real money. Compare that sum with the 5% of GDP costs for the US S&L crisis. Achim Dübel
  • The traders basically dismissed all of the bank’s economists and risk managers. They said they were running the bank properly using purely tactical, short-term trading methods. They would draw triangles on charts of market data and call that risk management. Achim Dübel
  • The typical German savings or state bank has 25-30 board members. This becomes a harbor for politicians, who are given sinecures on these boards when they retire. Maybe US will follow this scenario in next few years.
  • Remember that the European economy depends on banks much more than does the US.

New age energy policy

  • The Kansas City Star reports (with a straight face): $100 million upgrade coming to federal building. Stimulus money to pay for modernization of federal building downtown. More than $100 million in federal stimulus money will be spent on Kansas City’s Richard Bolling Federal Building to modernize its energy system, U.S. Rep. Emanuel Cleaver announced Tuesday. Construction should begin in about 120 days and will continue through 2014. The federal government expects to save about $45,000 a month with the new energy system.  It would take more than 180 years of those savings to pay the cost of the upgrades, but a spokesman for (Rep.) Cleaver said people shouldn’t expect a dollar-for-dollar return on energy conservation investments..stop this insanity…

Accounting, Regulation

  • The whole Basel II framework, for example, is an economist’s model, that is, a fantasy that has no link to the real world of finance and commerce.
  • It is tempting to conclude that the U.S. (and other) governments should regulate compensation practices to eliminate, or at least greatly reduce, go-for-broke incentives. But the prospects for success in this domain are slim. (I was in the Clinton administration in 1993 when we tried — and failed miserably.) The executives, lawyers and accountants who design compensation systems are imaginative, skilled and definitely not disinterested. Congress and government bureaucrats won’t beat them at this game. Alan Binder

Good luck,

    by Michal Matovcik

    I will not tell you where you can make a living, I could, but everyone has to find his own way to become wealthy. When you find it, you will be a lot happier, because you made it, not me, you will find the way how to be independent financially and I will feed your brain with all kinds of brain meal.  The basic motivation must be hunger for knowledge and other things will come up. After a week? Forget about it, there are other websites which claim they can make wise and wealthy investor in a short time. My basic intention to start absolutideas were my dear friends, who suffered big losses during the crisis years 2007-2008. I saw it coming, I also wrote about it but sometimes it is very hard to be honest and take responsible actions, although it only means to protect all the family wealth and no interesting yields for some time. Want to gain some stock market, forex markets, commodities insights? You will have the opportunity here. So don’t waste your expensive time in “about us” …

    © 2009 Copyright Michal Matovcik - 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.

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