Financial Disaster Update

16 February 2011

I have blogged previously on the topic of impending financial disaster. Hey - you don't have to be a genius to see it coming!

A toxic mix of excess liquidity (money printing) and capital misallocation (new investment flows directed towards assets of declining value such as uncompetitive automakers and residential real estate) has resulted in falling employment, declining tax revenues, and skyrocketing consumer and government borrowing. Inflation in consumer prices is now wending its way into the mix. Both government officials and Federal Reserve Board members believe that we can spend our way to prosperity. Wait a minute! Don't you increase wealth by saving, not by spending?!?!?

For those perhaps new to the topic, here is a link to a concise Business Insider article offering a quick overview of the fundamentals of financial disaster (US style): "10 Charts That Embody Everything That's Wrong With the U.S. Economy."

I wish it weren't true, but this is what is happening, and the people in charge are trying to fix it by borrowing and spending more. You don't need a degree in economics to know that an approach of this kind is doomed to catastrophic failure!

As to the topic of inflation - don't believe the totally made up government figures of 1-3 percent per year. The chart below tells it like it is (based on the way inflation was calculated in the "olden days" of 1990):

As you can see, real inflation (according to Shadowstats) has been running at about 10% per year since 2000, and it began travelling above 5% as early as1987. That is a lot of currency devaluation, and has much to do with explaining the decade-long rise in the gold price....

What has saved the US in the face of such a disastrous inflationary policy? Well, so far, everybody else is inflating their currencies too.

The problem? It's just that the US owes more in debt payments ($50.7 trillion in 2009 and rising at about $2 trillion/year) than all the other countries of the world put together (total world debt is about $100 trillion).

Now that is a hard problem to solve!

17 February 2011: This embedded video is not the scenario I most expect for how the US dollar collapse will play out, but it does serve as a reminder that gradual changes can lead to sudden changes.

Presented by the National Inflation Association, an organization which anticipates hyperinflation. In my view, other things will more likely happen first. But it could happen as this video predicts. Something to think about....

Click here if the video doesn't work.
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