Sobering Economic Thoughts

This guy says commodities are the way to go.

from 321gold.com

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...In a normal world we would have either a recession or inflation and that's a piece of cake for the Fed. Lower rates with the former and raise rates with the latter. Unfortunately for the Fed stagflation is the worst of all possible worlds and its complicated by the fact that most major countries are raising rates. Why is that so important? We live in a very competitive world and the Fed isn't excluded from that competition. They have to sell their junk paper to the rest of humanity and the only way they can get that done is to restrict supply or raise rates. Restricting supply means spending less money and that would drive the country into a deflationary tailspin. That leaves raising rates. I was convinced for months that Bernanke would choose that path, but now I have serious doubts. A slowing debt-ridden economy and expanding rates would lead to the same deflationary scenario. The Fed has tried to sing the bull to sleep by printing money like there is no tomorrow, but we're at the point where it's not enough. I now suspect that they will be forced to lower rates in an all out attempt to fend off not only deflation but a debt crisis. Inflate and then inflate some more! There are going to inflate debt away and in the process they'll destroy the bond and the dollar. Neither can survive for very long with lower rates, especially the dollar. A sharply devalued dollar would eliminate a lot of debt.

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CONCLUSION

I've been walking this earth for over half a century and I see things now that I never would have believed as little as ten years ago. I see the world's greatest nation in decay, and not just economic decay, but political and moral decay as well. I see a crazed administration engaged on something called "nation building" and if they've got to kill a couple hundred Iraqis a day so be it. Obviously no one in Washington has a history book because if they did, and they would turn to the paragraph on a police action called Viet Nam, they would see that that particular approach failed miserably. I've lived in Latin America for the better part of twenty-five years and for the first time, people don't want dollars. They actually prefer their own currency. Here's my last news flash for you. If a fellow with no education, a poor diet, and inadequate medical treatment living at 3,500 meters above sea level can figure out that the US dollar is undesirable as a store of wealth, how much longer do you think it can last as the world's reserve currency? The short answer is that the party is over and all things dollar related will go up the stack with it. What we saw last week is the equivalent of the first drops in a storm destined to last more than forty days and forty nights.

Mar 8, 2007
-Enrico Orlandini