A Christmas Carol
I spent the past weekend down in Florida for my Uncle's Funeral. The trip started in Fort Myers and ended up in Orlando. My family and I stayed at a hotel right outside of Universal Studios, and after the services on Sunday my father and I sat down together for a drink at the bar. We got some alone time together because there was not a single other person in the entire restaurant.
The bartender told us he had been working there for 20 years and he had never seen things as slow as they've been this fall. We noticed as well. My mother and I went to the mall the next evening, and it felt like a scene from Will Smith's movie, "I Am Legend." There was no one there, no one.
We did see a few people come and go in the hotel during our stay, but surprisingly none of them spoke English. I asked the lady working at the front desk and she told me that was what was missing this year; Americans.
How did it come to this?
During the 1970's we were dealing with the previous monetary expansion and excess of the past 20 years. Our Fed chairman Paul Volcker decided to take a stand and purge the system of its excess. He raised interest rates to 18% while being spit on by every politician and member of the media. This put the economy into a severe recession in the early 1980's, conquering inflation, and putting most of the unprofitable businesses into bankruptcy. The economy recovered as it always does, stronger, with fresh management and capital ready to invest in the deals that were found at the time.
Mr. Volcker left his chairmanship in 1987 to Mr. Alan Greenspan, or the Maestro, as he was known best during his tenure. Mr. Greenspan did not believe in recessions, fighting inflation, or even slowing the economy down. As historians look back on the fall of our great country, he will be sitting at the top of the mountain as the man who was most responsible for engineering its collapse.
At every hint of a downturn during his tenure, Greenspan slashed interest rates violently and poured money into the economy. The money supply exploded during the 1990's, hidden from view by many in the stock market bubble that ensued. As that bubble popped in the year 2000, Greenspan slashed interest rates down to a ridiculous 1%, kept them there for years, and once again poured money into the system.
The inflation found a new place to hide; the homes of Americans across the country. His reckless monetary policy blew up the greatest asset bubble known to mankind, and its explosion has been deafening.
So we have now begun our visits by the ghosts of Alan Greenspan that he has left with us to deal with his mistakes. The first appeared in the summer of 2007:
1. The Financial Crisis (The Ghost of Greenspan Past)
This began back in August of 2007, and is ongoing today. It is obvious to anyone paying attention that every major investment bank in the country would no longer exist at this moment without support from our government. Bear Stearns, Merrill Lynch, Lehman Brothers, J.P. Morgan, Bank of America, Wachovia, Washington Mutual, and Goldman Sacs would be bankrupt. These failures would have led us to the second storm, which we are currently entering:
2. The Economic Crisis (The Ghost of Greenspan Present)
As mentioned before, our economy is a house of cards. We borrow money from foreign countries (or print it), and spend that money on consumer goods such as televisions, vacations, houses, cars, and furniture. We produce nothing of value to the rest of the world, which is why we have a $60 Billion trade deficit every month in spite of having a weak currency. As our spending is contracting, the house of cards is crumbling.
In a normal environment these two crisis would lead to interest rates rising, tax cuts focused toward business and production growth, increased savings and paying off debts, government spending cuts and balancing the budget, and a focus toward rebuilding the manufacturing base in our country.
That is what our country needed beginning in August of 2007 as the financial crisis began. It needed real leadership. We have done the absolute, exact opposite of what was needed, and due to the mistakes made over the previous 16 months we now have another storm approaching:
3. A Currency Crisis (The Ghost of Bernanke Future)
This is the absolute worst case scenario. I don't know if this will begin this year, or if it will start in 2010, but once it starts there will be nothing the Federal Reserve or our government can do to stop it.
I began talking about the effects of the financial crisis during the fall of 2007 on the Daily Tuna discussion boards. I talked about the effect of subprime mortgages, the CDO's, the bank failures, and the carnage that was coming. However, as it unfolded over the past few months, even I was shocked at the speed it took place. Everything that happened between September and November, I expected to take place all throughout 2009.
Why did it happen so quickly? Because investors can move money now at such an incredible pace. Once the dollar begins its final free fall, it is going to be an absolute blood bath, and I don't thing it is going to take longer than a few weeks. The Fed will panic, Washington will panic, but they will be helpless. Unlike the financial crisis and economic crisis, there will be no amount of dollars the Fed can print to revive the currency, and if they try to fix the problem it will be like dumping gasoline on the fire.
Merry Christmas to everyone. I hope that my family and friends can open their eyes and see that the world that we live in is changing very quickly around us. You still have time to protect yourself, but that window can close at any moment.
The bartender told us he had been working there for 20 years and he had never seen things as slow as they've been this fall. We noticed as well. My mother and I went to the mall the next evening, and it felt like a scene from Will Smith's movie, "I Am Legend." There was no one there, no one.
We did see a few people come and go in the hotel during our stay, but surprisingly none of them spoke English. I asked the lady working at the front desk and she told me that was what was missing this year; Americans.
How did it come to this?
During the 1970's we were dealing with the previous monetary expansion and excess of the past 20 years. Our Fed chairman Paul Volcker decided to take a stand and purge the system of its excess. He raised interest rates to 18% while being spit on by every politician and member of the media. This put the economy into a severe recession in the early 1980's, conquering inflation, and putting most of the unprofitable businesses into bankruptcy. The economy recovered as it always does, stronger, with fresh management and capital ready to invest in the deals that were found at the time.
Mr. Volcker left his chairmanship in 1987 to Mr. Alan Greenspan, or the Maestro, as he was known best during his tenure. Mr. Greenspan did not believe in recessions, fighting inflation, or even slowing the economy down. As historians look back on the fall of our great country, he will be sitting at the top of the mountain as the man who was most responsible for engineering its collapse.
At every hint of a downturn during his tenure, Greenspan slashed interest rates violently and poured money into the economy. The money supply exploded during the 1990's, hidden from view by many in the stock market bubble that ensued. As that bubble popped in the year 2000, Greenspan slashed interest rates down to a ridiculous 1%, kept them there for years, and once again poured money into the system.
The inflation found a new place to hide; the homes of Americans across the country. His reckless monetary policy blew up the greatest asset bubble known to mankind, and its explosion has been deafening.
So we have now begun our visits by the ghosts of Alan Greenspan that he has left with us to deal with his mistakes. The first appeared in the summer of 2007:
1. The Financial Crisis (The Ghost of Greenspan Past)
This began back in August of 2007, and is ongoing today. It is obvious to anyone paying attention that every major investment bank in the country would no longer exist at this moment without support from our government. Bear Stearns, Merrill Lynch, Lehman Brothers, J.P. Morgan, Bank of America, Wachovia, Washington Mutual, and Goldman Sacs would be bankrupt. These failures would have led us to the second storm, which we are currently entering:
2. The Economic Crisis (The Ghost of Greenspan Present)
As mentioned before, our economy is a house of cards. We borrow money from foreign countries (or print it), and spend that money on consumer goods such as televisions, vacations, houses, cars, and furniture. We produce nothing of value to the rest of the world, which is why we have a $60 Billion trade deficit every month in spite of having a weak currency. As our spending is contracting, the house of cards is crumbling.
In a normal environment these two crisis would lead to interest rates rising, tax cuts focused toward business and production growth, increased savings and paying off debts, government spending cuts and balancing the budget, and a focus toward rebuilding the manufacturing base in our country.
That is what our country needed beginning in August of 2007 as the financial crisis began. It needed real leadership. We have done the absolute, exact opposite of what was needed, and due to the mistakes made over the previous 16 months we now have another storm approaching:
3. A Currency Crisis (The Ghost of Bernanke Future)
This is the absolute worst case scenario. I don't know if this will begin this year, or if it will start in 2010, but once it starts there will be nothing the Federal Reserve or our government can do to stop it.
I began talking about the effects of the financial crisis during the fall of 2007 on the Daily Tuna discussion boards. I talked about the effect of subprime mortgages, the CDO's, the bank failures, and the carnage that was coming. However, as it unfolded over the past few months, even I was shocked at the speed it took place. Everything that happened between September and November, I expected to take place all throughout 2009.
Why did it happen so quickly? Because investors can move money now at such an incredible pace. Once the dollar begins its final free fall, it is going to be an absolute blood bath, and I don't thing it is going to take longer than a few weeks. The Fed will panic, Washington will panic, but they will be helpless. Unlike the financial crisis and economic crisis, there will be no amount of dollars the Fed can print to revive the currency, and if they try to fix the problem it will be like dumping gasoline on the fire.
Merry Christmas to everyone. I hope that my family and friends can open their eyes and see that the world that we live in is changing very quickly around us. You still have time to protect yourself, but that window can close at any moment.
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