Monday, February 23, 2009

Burn Baby Burn

"I would like your opinion. I understand your graphic on the money supply of various different nations, and how the exchange rate is matched by the relevant abundance of each currency. However, can you say something on supply and demand.For example, if the USA was to double its cash supply by just printing it, and country X did nothing. "

Hope you don't mind the indirectness, but I would like to answer with a metaphor:

Let's say the total currency supply of a given nation is a house, and day after day, construction crews slave to add rooms to the country's mansion. In that case, let's call it the norm, yes, country X can dial up their construction rate (their inflation rate) by hiring more crews. They can either encourage shakier borrowing to pay for it, or they might emigrate a new pool of hard workers willing to build for less. So during normal operation, they may voluntarily devalue their nation's currency by method of inflation, so as to increase bank profits.

Today is not the norm.

Today, fire crews are on the scene. Rooms hastily added have caught fire. There is an inferno in progress. What little construction we can muster is dwarfed, both in pace and scope, by the blaze.

So to me, your question is sort of like asking the Fire Marshal, "How long before you double the size of this house?"

The reality is that all national mansions are burning. Since burn rates dwarf construction rates, the comparative rate of decline is fairly even all around, scary fast, with no effective way to temper or control pure entropy.

If you want to complete the metaphor, make the Fire Marshal an arsonist who also happens to be the listed insurance beneficiary. Now, ask the same question...


  1. Great analogy FDR.

    As an aside, Dow/gold ratio has dropped rapidly over last 2 weeks from 9-plus to just over 7. Long-term trend shows resistance here. Either equities advance or gold retreats (short-term counter-rally) IMHO.

    I believe now would be good gold short for awhile.

  2. FDR,

    Thanks for another great post.

    I have a question from your previous posts regarding stashing away cash. Wouldn't a treasury C of I account be just as susceptible to confiscation, if not more so, than cash held in a safety deposit box.

    It seems that they could just freeze a C of I account rather than going to the trouble of raiding a safety deposit box. Thoughts?

  3. Given the brazen confiscatory actions of the last few months, I think you are probably right and no one will be permitted to keep any money in the end game of the Coup. Stashing all the cash you can handle is probably a better bet.

    Maybe we are figuring out why they embedded the magnetic strips in $10's and higher - search and seizure.

  4. Stash cash away and hope you never get sick or need medical care.


    This is an interesting tidbit about the Federal Reserve and the value of the dollar...the interesting thing to consider is how quickly will this crash and burn reverse what the FED has insidiously done to our currency since 1913.

  6. FDR,

    What are your thoughts now that the Fed Funds Rate is beneath the market driven 3 month treasury? Temporary?



    At the risk of overloading the website with links here is another article that is interesting. Basically gold appears to have topped compared to oil by historic standards which suggests a top in gold prices.

  8. Tony it's a good sign.


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

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