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My
last commentary "Pick your Poison Now"
touched off a mini-debate between myself and Michael Pento,
a proponent of Austrian Economics who gallantly defends his principles
against the Keynesian economists and supply-side monetarists when he makes
his appearances on CNBC's Kudlow & Company. I
too attempt to follow the Austrian economic precepts laid out by Ludwig von Mises and I think that the bone of contention between us,
in the "posted comment section" after my initial commentary, boils
down to the following von Mises' quote:
"There is no means of avoiding
the final collapse of a boom brought about by credit (debt) expansion. The
alternative is only whether the crisis should come sooner as the result of a
voluntary abandonment of further credit (debt) expansion, or later as a final
and total catastrophe of the currency system involved."
I think that Michael would prefer the
former--to initiate a dance with the deflationary devil (and take our
medicine now before things get any worse)--while I would prefer to tango with
the latter, hoping to somehow cheat inflationary death, hoping that the
growth of the emerging world might enable us to avoid a "total catastrophe,"
albeit only after a significant reduction in our standard of living. I
concede that he might be correct in that his scenario would ultimately be
less harmful and preferable to mine, (though both will lead to enormous
financial pain and suffering). I actually embrace many of his points
when I caution against the
outcomes of the inflationary road we appear to be headed down in the first
part of my commentary "Commodity Boom You Ain't Seen Nothing Yet."
I admire Michael for his ability and
willingness to take the Austrian message to the mainstream and to do battle
with the prevalent, though failing, forms of economic thought. He is
battle-tested and scarred, but remains undaunted.
The mainstream remains either in denial or unaware of the magnitude of our
plight and that we are fast approaching some form of reckoning which policies
will no longer be able to prevent.
The focus of this commentary is
intended to be more "normative" than "prescriptive" in
analyzing our current economic predicament. I contend, for the reasons I
outline under "Point Number 2" in my commentary "Market Changes are Coming Resistance is Futile! (Part 1)"
that we are going to choose inflation over deflation, and we have the tools
to do it. A common refrain among what I will call the "normative
deflationists" is "They can print all the money they want, but they
can't make us borrow and/or spend it" to whit I say "sure they
can." Money drop 1.0 is scheduled for delivery starting next month.
Money Drops, 2.0, 2.1, and 2.2, currently being drummed up, could be in the
form of coupons with expiration dates.
Who knows what kind of clever
conditions Congress and the Fed will dream up for Money Drops 3.0 and beyond. The Fed and Congress will increasingly be turning
to solutions that are more panic-induced than decisive in action. The
Congress will likely continue to turn a blind eye to the lengths at which the
Fed uses taxpayer money to prop up the system to postpone the inevitable
reckoning. Is there any doubt which policy is going to prevail after the Bear
Stearns bailout? What is now viewed to be the Fed's crowning achievement
might only be the warm-up for what is to come. They will have to pry away the
printing press from Ben Bernanke's cold dead hands before the lunacy ends.
Furthermore, because
the 1930's Depression is viewed, though falsely, to have been successfully
solved through the creation of an alphabet soup of government programs,
including the non-discretionary albatross of social security, and because half of the voting population were not around
to have a meaningful recollection of the 1970's, the tougher things get, the
more we are going to turn to the US government for interventionist and highly
inflationary solutions. 68% of the "millennial generation," the
group largely unaware of the 1970's experience and who I write about
extensively in "Debt Demographics Debasement are Destiny"
not only have a positive view of government intervention, but are coming more
to rely on it.
To those who might think a McCain
Presidency holds hope for towing a frugal fiscal policy, I remind you that it
took John McCain less than 24 hours to cave on his initial "tough
love" policy for errant homeowners and to offer enough government
assistance to at least keep him "competitive" with the Democrats. And
it is almost impossible to overstate the government largesse we would see
from whomever the Democratic nominee is.
You can debate whether or not it is
the elected officials or the citizenry who are responsible for our dire
economic circumstances, but it really doesn't matter. We have come so far
since the founding of this country...we have already crossed the government
dependence rubicon. Borrowed consumption is the American opium of the masses
and there will be no cold-turkey release from our sense of entitlement and
government bailouts.
We are not going to willingly choose
policies to stop spending, pay down our debt and end the monetary madness. Some
of us need to get over "fighting the good fight" and placing our
efforts in battling for honest, responsible government policy. This is no
longer possible. It is only after our failure that we will be forced into a
system-wide cleansing and purging of all of the excesses. Again, this is
normative and not a prescriptive call. Your time would be much better spent
preparing for and accepting this certain outcome. Just let it go. Those who
understand this inevitability and properly arrange their portfolios will be
best positioned to provide the capital to a country which will be in
desperate need of it when it refreshes and starts anew.
Now, I don't propose to know how many
digits of inflation we are going to experience. Let us hope it we don't turn
into Zimbabwe.
If you believe that we will, then you would be better off piling up survival
rations than concerning yourself with building a solid investment portfolio. In
past columns I have recommended energy, commodity and other related
investments as a way to actually benefit from an environment of increasing
inflation and a further decline in the dollar. It is hard to make a stronger
case to own anything else. Blooming investor demand and ever-growing physical
demand for anything that grows, can be drilled for, or mined, combined with
an inability for supply to keep up and worldwide inflation will suck the
oxygen out of other investment sectors and blow it into commodities.
You can read my case for a two-year
"flame-out" explosion in commodity prices in the second part of my
commentary "Commodity Boom You Ain't Seen Nothing Yet." One
commodity I would currently caution
against chasing, however, is oil. The breakaway of its price relative to
other commodities is not sustainable. There are other sectors, on the other
hand, within the energy complex which still have room to run. Three names I
continue to recommend represent an energy source whose supply has dwindled to
less than 12-days in China!
You can read about them in my commentary "Fishing in the Commodity Pond."
Kurt Kasun
www.greenfaucet.com
A
contributing writer to GreenFaucet.com, Kurt Kasun writes a high-end investment timing service, GlobalMacro, which is focused on identifying
opportunities that produce returns in excess of market with reasonable risk.
He is strategically located in Washington,
D.C., a key to maintaining
contacts and relationships which help Kurt understand global policy and economic
factors as they emerge. His investment approach has always been macro in
nature largely due to his undergraduate studies at the U.S. Military
Academy at West Point (B. S.
National Security, Public Affairs, 1989) and his graduate studies at George Mason University
(M.A. International Commerce and Policy, 2006).
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