Monday, June 6, 2016

On Eroding Currency and Economic Dislocations: The Consequences are Coming Including Business and Labor at a Standstill

By Robert Wenzel

The above warning comes via Harry Browne  (1933-2006).

When I have commented that we are currently in the boom phase of the business cycle, comments inevitably come in that this time it is different that there is a  "major end game" ahead.

For example, one commenter has written:
I think most "Austrian-lites", as you have referred to them, are seeing things a bit differently from you, Robert, because you are viewing this as just another ordinary business cycle boom. In other words, they are seeing an economic end-game ahead and you are not.
People have been expecting the "end game" for a very long time. The below clip shows the important Austrian economist/financial adviser Browne warning about the future in 1970!

To be sure, there were some very difficult times after he issued his warning. Price inflation climbed for more than a decade. There were booms. busts and stagflation. But there was no "end game," even though  Browne wrote in 1970 in his very important book How You Can Profit From the Coming Devaluation (It made me an Austrian) that a retreat would be needed where consideration should include:
considerations of electricity, water, waste disposal, protection, etc.
Browne later stated he regretted including the retreat advice in his book, which was mostly about financial protection.

The government manipulates the economy in many different ways, It is a very weak economic structure but this doesn't mean that an "end game" is going to arrive anytime soon where all the buildings in Manhattan will collapse and people will be scavenging for food. The weak structure has at its base the strong bedrock of relatively free markets.

We are in a very typical business cycle with admittedly a large debt hanging over the economy. How all this plays out is completely unclear at this point. A key factor will be price inflation, which I expect will intensify. This could actually ease the debt crisis and benefit those holding long-term assets. It could, and this not a forecast at this time, but it could mean a major inflationary boost to stocks.

What all investors and economic observers need to do is to understand what can and can't be known about the economy at this time. We know just a few things that are very likely;  interest rates will trend higher as will price inflation. The current boom will turn into a bust but there is no indication that it is imminent.

With pretty much everything else, at this time, we just need to see how things play out.

It is one thing to hate the state and the Fed, I am in both camps, but this doesn't mean that the entire economy is going to collapse tomorrow because of this hate.

I am not saying collapse can't ever happen. Venezuela is in collapse, Germany had major two hyperinflations. but there is no indication these situations are imminent here. And by imminent I mean I see no end game full out collapse over the next year. And after that we just don't know, a lot of developments are possible that could swing the economy in  many different directions down the road.

Keep in mind, everything Harry Browne warned about in 1970 in terms of general trends (without the end game) occurred with many, many people making muti-millions and living very well for decades.

You need to be prepared and own gold, but to run your life and all your investment as though you see in the financial tea leaves an end game collapse at this time is pure folly.

 Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics. His linked page is here. His San Francisco Review of Books essays are here.


  1. "The current boom will turn into a bust but there is no indication that it is imminent."

    It would be more accurate if you would phrase things with the words "to me" inserted after the word "indication".

    Plenty of people see indications of a bust beginning. That you don't see indications is your perspective and not indicative of a monopoly wisdom on your part. We all are human and often rationalize our world views as long as possible, even in the face of mounting contrary evidence.

  2. I see it as a debt bubble that the Fed is propping up. I don't see the inflation risk because there isn't a lot more room for credit expansion. They didn't fix anything after 2008. At some point I expect another major correction.

  3. True. I honestly don't know what is holding up the whole house of cards, but apparently it shows no signs of imminently tipping over. Eventually the takers will outnumber the producers (maybe they already have!, The collapse, if it happens in our lifetimes, will be when the perfect storm of high interest rates and baby boomer retirees draining Social Security and Medicard. But the Fed may very well end up inflating itself out of those problems. So that rather that a cathartic collapse, we will have a slow, painful decline.

  4. I suppose the difference of opinion resides in how you view the 2008 financial crisis. To some, it was just another recession. To others, it was the death knell for a financial system that is now being kept alive with easy money. If the easy money is stopped, the system dies. If the easy money is continued, the system still dies but the death is delayed substantially and the catastrophe can be more easily blamed by the political class on the free market rather than government interventions into the economy. Remember, Ben Bernanke had "the courage to act." I'm sure Janet Yellen will have such courage to act as well if faced with an economic downturn. Such courageous action involves the use of a single tool, loose monetary policy.

  5. "Collapse" is a poor choice of words because it makes us look around for something that is actually falling over. No matter what happens, the survivors will always reach some point where they say, "well that wasn't so bad" because the people for whom it really was a collapse didn't survive and they're not around to chime in.

  6. The decline of the USA is likely to be less Venezuela and more Great Britain.

    If you want to talk "end game" when preparations for disaster may be a matter of life and death there are some real things happening in our environment to consider: