Tuesday, January 11, 2011
Where's The Approaching Steamroller? Or If A Financial System Collapses In The Wilderness, And No One Hears It, Does It Really Collapse?
"Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage and political will to recognize the mess and act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched and where the rot is by far the deepest".
- Veteran Financial Editor Harry Schultz.
Gold, The Improbable Answer To Life, The Universe, And Everything
It is no accident that the dollar started its slide and gold its rise both around early 2002. The terrorist attacks of 9/11 alerted the world to the unthinkable, the possibility that all the powers of US could not provide protection against the new type of threats. The ensuing domestic and international policies of the Bush administration tirelessly proved this right. Perhaps more importantly, the Bush administration showed the world that, lacking the ability to generate organic growth and wealth, the US is perfectly willing to abuse the trust the world had bestowed upon it, by making the dollar the global reserve currency, in order to fund a war without fronts, borders, goals, endings, or clearly definable enemies. Obama strangled any budding audacity of hope by resolutely wasting the best historical opportunity for financial/economic/regulatory/legal reform in generations, allowing himself to be bullied around and weakened in the process.
Somewhere along the process, however, the Perverse Gold has become more than the dollar hedge. It gradually dawned upon the world that we're faced with a paradox:
A. The dollar cannot serve as the global reserve currency, and
B. There's no alternative to the dollar as the global reserve currency.
How to get out of this Catch 42, nobody knows, although creative/crazy ideas abound. Gold is most definitely not the answer, at least not in the old style of gold-backed currencies. But when everything else proves even uglier, the original ugly begins to look better and better. I still don't believe we'll go back to the old gold standard but it's the least improbable among the improbables. And, with the Infinite Improbability Drive technology owned by the Fed, it's becoming less and less improbable...