The Inflationary Depression

Check the link above to Business Spectator and the comment from Alan Carr on the disburbingly resilent inflation despite the severe economic downturn. We are beginning to see the outlines of how The Great Recession is playing out. Following the Keynsian mantra governments around the world are seeking to spend their way out of this depression, and invariably are in the process of creating a severe stagflationary environment.

In the absence of productive growth this deliberate attempt to use the global printing presses to rescue the world economy will attack real incomes in a vicious way. Although a careful balancing act could prove the right medicine to deleverage the world - what the great minds are currently thinking - it will probably fall victim to its success. What the western world and particularly the United States needs now is to increases its domestic savings and reinvest in its productive capacity. The sad irony is while individual savings rates are rising government expenditure on frivolous bailout (and in Australia handouts) appears out of control.

You no doubt are asking what the irony is? If I am saving 10% of my income to invest productively why should I care what the government spends? The reason is that governments have no productive capacity in themselves. The government's debt is your debt paid through taxation just as your mortgage is your debt paid through monthly installments.

Imminent Social Dislocation

"When I travel around talking to groups and individuals about the crisis these days, what everyone wants to know is: when will it be over? In fact the question should be: when will it begin?"

Now is the stage when we will begin to see the worst of this crisis hit Australia. Although some people have lost their jobs there is not yet a pressing sense of desperation in the country. The reality is, this is a decade long phenomenon and as Alan Kohler writes in today's Business Spectator, the question is not when this will end but when it will begin. We are on the verge of a social calamity equal in severity to the Great Depression. People losing their jobs today may be out of work for a decade.

Our governments need to act now and decisively on employment guarantee mechanisms and government employment initiatives to ensure work is an option for all citizens. When cannot permit our society to decend into a situation where 15, 20 or 25% of the population have no work.

Our social order is at stake as is the human dignity of hundreds of thousands of Australians in the immediate future. Traditional unemployment benefits will not be enough, and imbecilic middle class handouts waste the nation's capital at a time of crisis.

From The Australian today the first news article discussing the "currency wars" that are about to commence. We raised that term in 2005 and now it is finally coming into play. China can no longer accept the sovereign risk on its US debt and currency holdings. With the United States opening the printing presses it is now on a possibly inexorable path to currency destruction.

Time and time again I have said, and I'll say again, this will lead to a rapid rise in global interest rates. Protect yourself.