THE GLOBAL STOCK CRASH!

Markets around the world have been in serious decline most of this year. In fact the Financial Times reported in its weekend issue that on a global scale the markets are now down the most in 26 years!
Inflation rates are on the rise everywhere, including China. But China can’t engage a tight monetary policy to fight inflation, because that would likely lead to a flight of hot money out of the dollar and other weaker currencies, thus leading to a strong Chinese currency which would hurt their huge exports. It could also lead to a crash of the dollar. If/when that happens, there would be a hellish gnashing of teeth heard around the globe, as wealth held in the form of dollars will be quickly vaporized.
The Chinese and other countries know the day of dollar doom is coming which is why the dollar is continuing to come under pressure.
Americans for the most part are not yet aware of the dollar’s fate and how that is going to devastate their standard of living. But there is a growing sense among foreigners that they don’t want to get paid or hold dollars lest they be holding them when the plunge in the dollar’s exchange rate leads toward zero value for the Greenback. None of the major exporting nations want the dollar to crash just yet. They want more time to trade out of dollars and into something of value if they can before the final day of reckoning hits America and its fraudulent currency.
It seems to your editor that we are approaching a perilous crossroads in economic history, with our decadent, consumer oriented, live-for-today culture on the verge of collapse. We have basically “shot our wad,” as they say, and now we are going to have to pay for our orgies. We blame no one more for our condition than the father of economic lies, John Maynard Keynes, who convinced the West that we could eat our cake and have it too. No need to save to build for a better tomorrow. You need only deficit spend and print money to fund your expenditures. According to Keynes, there was no need to worry about an infinite amount of money supply leading to infinite price increases. If only we got rid off the gold standard, we would never need to suffer any more recessions and depressions.
It is amazing how many Ph.D. economists have swallowed Keynes’s lies, hook, line, and sinker. Of course, most of the high-profile economists have had their careers advanced by selling these lies because they have benefited the Wall Street and Washington establishment. They have used Keynesian lies to deceive the public into thinking that Government can give the public welfare and wars without a price. If only the public could connect the dots between welfare and wars on the one hand and $140 oil on the other, Keynesian lies would be exposed and we would at least have a chance to return to free market, Austrian economics and limited government once again. In other words, the west could become strong and more free again if it went back to work and accepted reality rather than falsehoods.
To be sure, the Keynesian lie has worked well for quite a while. It has worked especially well for the banks that own the Federal Reserve Bank and for those who put it in place to socialize wealth while privatizing profits. But given the rising global economic imbalances, one wonders how long it can continue when we see a growing number of countries facing the same kind of problem Ben Bernanke is facing. Globally, inflation is on the rise—big time. That should be dealt with by a restrictive monetary policy by all central banks in those countries where inflation is on the rise but it is just too painful to accept reality. As we are always noting, debt is the raw material from which money is created in a fiat (as opposed to asset-backed) currency. And so, with the money supply growing exponentially debt is growing even faster than income. That is being dealt with not by policies that would force us to live within our means and rebalance our accounts. Rather it is being dealt with by a faster and faster creation of money, which in turn is resulting in a faster and faster creation of debt. In other words, what is believed to be the cure is actually the problem and making the situation worse over the longer term.
The upcoming monthly issue of J Taylor’s Gold & Technology Stocks newsletter will feature an interview with Alex Macdougall, who is a student of the German hyperinflation experience that culminated in 1923. Alex recently spoke at the Spring CMRE meeting. He drew parallels between the German experience starting in 1870 under Otto von Bismarck, and the experience of the U.S. starting in the early 1900s, when the U.S. began its socialistic policies and inserted the Federal Reserve to fund socialism.
June 28, 2008
Jay Taylor, Editor of J Taylor's Gold & Technology Stockswww.miningstocks.com