Monday, August 8, 2011

If Alan Greenspan is Correct...

...that the government (the Federal Reserve) can print any amount of money to payoff U.S. Treasury debt, and I think he is. Then the market reaction should be one of climbing prices for commodities and stocks that will benefit from price inflation, because there is a debt problem and Fed printing, as Greenspan pointed out, is the ultimate "solution" as far as the government is concerned.

The market is justifiably in panic, but I am not sure it understands in what direction it should run. Outside of gold, commodities and stocks that benefit from inflation are not climbing in price, though they should.


  1. If this is true, why I have been forced to pay federal income tax and payroll taxes all these years?

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  3. Commercial real estate is going down, residential real estate is going down, oilis going down, agricultural commitites are going down, base metels are going down.

    If the govt prints money and spends it there will be inflation, but there is no political will to increase spending from these levels. The trillion dollar bump up in baseline spending that is apparently with us forever is nothing next to the amount of private spending and assets gone.

  4. To me, the core catalyst for the fall in the markets is investors' expectation as to whether there's going to be an increase in the demand for money relative to the supply or whether the supply of money will be growing relative to demand. Medium and longer term, I think most investors would agree with your assessment (i.e., excess money supply) and that it will be driven largely by the US government's fiscal position.

    In the short term, however, the debt ceiling nonsense demonstrated conclusively that those in control of the political process either have no understanding of the nature of the problem facing the US (i.e., the size and pervasiveness of government) or, if they do, are unwilling to address it. Consequently, there is essentially zero likelihood that the those factors currently impeding restructuring and investment (and thus the recovery) - fiscal policy and regime uncertainty - will be reduced. In fact, the noise surrounding potential tax increases only adds to them. Consequently, the chance of a recovery just receded further into the distance. People dump everything that isn't money or money-equivalent. Margin calls kick in, etc.

    Once people start to realize that the S&P thing is a currency downgrade not a debt downgrade, the process may reverse.

  5. Inflation is not good for stocks, as an asset class(some individual and narrow sectors may benefit), thisas shown in the 1970's.
    And Alan Greenspan is given any credibility

  6. Correct...The talking heads on the idiot box were all in sync this morning reminding the sheeple that the counterfeit racket can only produce inflation and therefore buy the markets.

  7. He is really saying that the State/Banking cartel own us all with their gun-backed funny-money, and that we all should just be happy with that and buy stocks.