Preparation Time is Running Out

Different circumstances then the 1979-1982 bear market and this current depression level event. In the 1979 to 1982 recession, the main cause and effect was oil cartels and loose monetary policy from going off the gold standard in 1971. That created widespread, rapid inflation.

In the current event, we are in a deflationary spiral and a very nasty currency crisis of 40 years of loose monetary policy, war expenditures, the entitlement system teetering and near bankrupt, massive looting and fraud of Treasuries. The US as the world reserve currency can only supress long-term interest rates through Federal Reserve manipulations temporarily. The manipulations further devalues the currency and bonds. The long-term rates will rise, Volcker doesn't have much work to do. When the currency is worth something then the Volcker solution works. When the currency is being rapidly devalued you get higher interest rates and commodities like oil imports go through the roof. The solution will be massive taxation on top of inflation and higher interest rates. There is no easy way out. That is why they call them Depressions and in general they last 18 years. It started in 2000 and was masked by a tidal wave of credit and the housing bubble. See ya in 2018.   

 Dear rwm -

This is a darn good question!!!  I wrote about this before in some detail, but haven't been able to locate it, roughly 250 articles in 1.5 years causes amnesia sometimes.  To fully answer it though, I need to write another article on the US treasury market and also interest rates :)  so let me give you the short answer instead and some articles

The very short answer is 1) the Dollar Carry Trade, similar to the Yen Carry trade of the past 20 years except that no one is writing about it yet.  Very simply its when large investors (aka "Smart Money") borrow currency at lower interest rates (say dollars at 0.2%ish) and purchase other securities at a larger interest rate (say 6% maybe Russian or some European T-bonds).  These traders will go to significant efforts to 1) keep depressing the US interest rate and 2) keep the foreign exchange rates neutral or favorable.  However, this time around, if I was smart money I would be borrowing dollars and buying physical gold (not ETFs or other paper substitutes)...... which might be what's occurring instead.

This is really just arbitrage, like traditional banking operations (lend at 6% and give out interest on CDs at 2%, pocket the 4% "profit" after subtracting operation costs) 

and 2) the shock of A) having our monstrous debt GROW in purchasing power (USTreasury) and B) having future goods worth (say 20% annual interest) higher than future goods will likely be too much.

Please reply to this and let me know if I need to add more detail, it will help me when I write the article

To understand here are two articles on gold.  In the second link, pay special attention to the Real Interest Rate and also Gibson's paradox.

http://towneforcongress.com/economy/rip-the-london-gold-pool-1961-1968-1

http://towneforcongress.com/economy/unlocking-the-money-matrix-the-summers-gold-price-suppression-scheme-part-1315

 Anonymous's answer is pretty decent :)  Although I wouldn't use the phrase "deflationary spiral," its for sure a "credit contraction".

Deciding on whether inflation or deflation will occur is pretty difficult, and, as I argue below, impossible unless the $592 trillion OTC derivatives market is made transparent.  

http://www.nolanchart.com/article6260.html

http://towneforcongress.com/economy/bring-light-to-dark-derivatives-1

Dear Anonymous -

On second thought, I wanted to send you a link to a 40-page essay "Deflation and Liberty" by one of the sharpest monetary economics minds on the planet, Dr. Hulsmann, who taught me a LOT this summer at Mises University.  Its at mises.org as well.  

The essay will explain the logic behind why a deflationary "spiral" will not occur.  Deflationary period is a possibility, no arguments from me there :) 

http://www.scribd.com/doc/20606379/Jorg-Guido-Hulsmann-Deflation-and-Liberty-2008 

 Dear Jess - 

Definitely need help.  Are you in the 15th district?  There is a pizza volunteers night tomorrow evening.

I don't think you registered with the site so I do not have your email.  Mine is jaketowne AT gmail DOT com