Why Washington Is Petrified Of Honest Interest Rates
“The only way that this game can continue is if the U.S. government can continue to borrow gigantic piles of money at ridiculously low interest rates. And our current standard of living greatly depends on the continuation of this game. If something comes along and rattles this Ponzi scheme, life in America could change radically almost overnight.”
There are two big points that i have been trying to drive home lately.
The first is that a boom is the antithesis of growth; that it taxes the true sources of growth and wages. Hence it can’t be growth. Although it feels like growth because the policy that creates it subsidizes consumption and investment together (over-riding the trade-off keynesians don’t see), it is actually net harmful to capital, wealth, and progress -while it is occurring, not during the bust.
The bust phase is simply the free market system’s attempt to liquidate imbalances and return to sustainable ratios. The implication of all this is that the illusion of growth will disappear if and when the policy that produced it is withdrawn, leaving a larger hole in the foundation than the one that existed and was used to justify the policy that papered over it. The boom in the boom-bust cycle is where all the damage is occurring…and where capital is being consumed, wasted, or misallocated.
The second point I’ve been trying to emphasize - since 2009 in fact - is that there is no exit from this policy today because the government has accumulated too much debt, and it can no longer afford normal interest rates. Even in Europe we see that the fix to the Euro crisis is the suppression of interest rates, and not actual austerity or reduction in the debt. Indeed the interest rate suppression post 2010 in Europe is a dangerous one, as it has tended to encourage the build-up of even greater amounts of debt. These polices have not fixed the problems that were evident in 2008-10.
They have merely postponed the fall out.
When economic law takes over and forces interest rates higher, the gig will be up.
But the fact is, the economy is not recovering; the government has created another ephemeral boom to distract the population, and now it has become trapped in this policy.
I have nothing against stocks. I like stocks, at the right price.
The problem is that at today’s values, the stock market’s fate is tied to the government’s.
The precious metals, whether they go lower or not, are much better value than any other hedge against this state of affairs today. The one thing we can say with almost certainty is that the US economy is not growing as fast as the malinvestments that are undermining it.
Reports of economic growth are overblown and misguided.
What you are seeing out there today is what a delusion looks like when it is working.
Ed Bugos is a mining analyst, investment banking professional, and senior analyst at The Dollar Vigilante (an online guide to surviving the dollar crash), with more than 20 years experience in the investment business advising clients on portfolio and trading strategies.