Wednesday, May 12, 2010

Fool's gold and the real thing

The catastrophe unfolds: Don Luskin lays it out. When the European Central Bank needs dollars to stave off disaster where are they going to get them? The Fed will print them.

He makes the point that we are in a V-shaped recovery and not a V-shaped expansion. When an objection is raised about how good the numbers look to many Luskin responds, "They were saying the same thing in 1935."

Robert Samuelson: Depression 2010?

Robert Samuelson is an economics pundit who always has insightful things to say and is noticeably free of partisan passion of the Right and the Left.

Today in Depression 2010? he writes:
Against that backdrop, today's unresolved problems -- over the welfare state, leadership in the global economy -- become more ominous. They suggest that major adjustments won't be made until they're compelled by some sort of crisis. This possibility defines the present economic drama. Will the recovery encourage conscious changes? Or is recovery providing a false sense of security? The stakes are, of course, enormous, because -- as everyone knows -- the economic suffering of the Great Depression transformed many countries' politics for the worse and led to World War II.
I don't see that we have the political will nor the moral moxie to counter the unfolding catastrophe. As the unfunded mandates of social programs wreck havoc actually in Greece, Spain, and Portugal, as well as in California and many other states and potentially everywhere else it is clear governments don't have the will to address these issues. Indeed, the present Administration is busy re-duplicating European social democracy just when its contradictions are undermining the foundations of the entire socio-economic order.

As for us, we lack the moral moxie to realize that we desire the moon and have increasingly no desire for personal responsibility. In a system where we all want "the government", i.e., other people and anyone else but us, to pay for everything we want, it should come as no surprise governments lack the will to address issues threatening to destroy the present order. They are pandering to us and giving us what we want.

Depression 2010? I think Samuelson is on the money when he writes:

"Now, as then, we may be prisoners of deep and poorly understood changes to the world economic system."

The Unfolding Catastrophe

I am increasingly pessimistic that the world will be able to avoid an economic catastrophe of the magnitude of the Great Depression. I see neither wisdom nor will on the part of both the political classes and electorates, i.e., us, to do what needs to be done.

What has motivated me to start writing this is Don Luskin's remarks on Larry Kudlow's show on May 10, 2010. He recommended to the individual investor to buy gold because people want a currency they can count on and neither the dollar, the euro, nor any other currency is maintaining credibility.

We have spent so many resources on the necessary tasks of preventing systemic catastrophe in a world we have less to stave off other financial crises. He says that we have established a Maginot line, and we need to hope that it holds. Maginot line - that pretty much says it all.

Gold is "a perfect response to a world that is printing its way back to prosperity."