Professor Elam

Tuesday Jan 19 2009 

 Marc Faber lives in Hong Kong and travels the world. There are many forecasting an imminent collapse in the US Dollar. Well it has to collapse against something, Other currencies around the world are in much worse shape than the US Buck. We have been posting about this but to re cap

PIGS are Portugal Italy Greece Spain, google those countries and debt and read the articles. The trouble with the European Union is that it has requirements about what a country must do with budget and currency. But there is not much enforcement. Will those countries take harsh measures of scaling back spending and debt?  I doubt it. 

Meanwhile look at that chart of the Japanese stock market in my other posts today. Japan as Mish points out, has an aging population that is not being replaced. Russia has the same problem where they are paying women to have babies, really. 

The cycle goes like this. Governments and business start taking more risks and financing the risk with debt. Eventually bubbles in asset sectors, like housing in the US emerge. A bubble is irrational exuberance in any investment sector, the price is unsustainable. Asset values collapse ala our housing market, but the debt remains. In the meantime governments have made unsustainable promises to the population, read fat pensions for govt employees at the state and city level here. In an effort to make it work, the governments print even more money, which is precisely what Obama is doing here following Bush doing the same thing. Now governments are attempting to tax banks and brokers to regain some money but that hardly fixes a system where banks and brokers are more gambling lottery houses than financial institutions. This leads to asset deflation which is where the US is now. Look around you, Burger King is advertising its $1 hamburger is superior to the MCD $1 hamburger. Prices have not been there since the 1970s. Pizza Hut is advertising ten bucks for whatever you want, just buy something. That friends is deflation. Yes the government money has buoyed speculation but it has not put anyone back to work. Discontent is on display in MA today. 

Eventually all this money printing leads to hyper inflation, the sort of thing that brought a Hitler to power in post WW I Germany. Mood turns horribly negative which allows a monster like that to gain power. Hyper inflation leads to the govt finding another enemy for the people which is precisely what Hitler did, starting WW II. 

Along the way we have massive speculation in currencies and markets, crashes and rallies, and finally the ultimate negative human emotion, war. Hugo Chavez is continually talking war, his country is already falling into the hyperinflation category, he devalued the currency this past month. 

Okay you have your road map.