Wrong!
Over the years, I've lost track of the number of times this one has come up, in various and sundry guises. All those "gloom and doomers" of the 1970s shore got shown up, didn't they. All those fellers prattling about the "death of the dollar" and the "age of inflation" and the "debt trap" and the rest.
Actually, all those 1970s guys got it right, dead right. They predicted exactly what was going to happen in the 1970s - before it happened. Better still, they told anyone who would listen to them precisely WHY it was going to happen, and how to protect against it. They dealt with REAL "fundamentals". They dealt with the nature of money, of interest rates, of free (and unfree) markets, of inflation, and of government intervention. They traced the history of the progressive debasement, not just of the US Dollar, but of the understanding of economics AND politics which had led to the situtation they faced. They did not obfuscate, they did not sugar coat, and they did not pander to anyone. They did not work for the big banks and they held no tenured positions in "academe". None of them had any chance (well, there was Alan Greenspan but he's the exception which proves the rule) of getting jobs in Washington or on Wall Street.
Several of them are still around, and doing as good if not better work than they ever did. Several more are sadly no longer with us. But everything they said about what was happening and WHY it was happening in the 1970s was and is correct.
What they did NOT foresee, and neither did anyone else at the time, was the nearly three-decade period of global fiscal, financial, monetary and political insanity which is now, thankfully, nearing its end. This has been a MUCH more inflationary age than the one they so eloquently warned against in the 1970s. The growth in the global stock of money has dwarfed anything and everything that preceded it. But the invention of ever more bizarre methods of pyramiding promises to pay on top of promises to pay and funnelling the toxic waste product into the markets for paper "assets" of all descriptions has very effectively disguised what was going on behind the scenes. The facade kept being ripped asunder as monetary and financial crises followed in an ever accelerating rhythm throughout these decades. None were successfully resolved. All were successfully papered over with more and bigger doses of paper.
But the end result was always going to be the same. And the longer the facade stood intact, the worse the situation was going to be once it could no longer be maintained. As should be clear by now, a mere eight months after the first "chink" in the armour was breached in the Bear Stearns debacle of July 2007, the facade can no longer be maintained. How ironic it is that more and more "mainstream" economists and analysts are now saying that the US is facing a "return" to the 1970s.
The US, and the world, never escaped from the 1970s - or from the economic malpractices of which the 1970s were the second symptom - the first being, of course, the 1930s. What the US and the world did was to convince themselves of two things. They convinced themselves that money was wealth. They also convinced themselves that a debt was an "asset". As witness what is presently going on in the "credit markets" all over the world, the second conviction has been fatally wounded. From there, it is but a short step to the demise of the first.
That step, the end of the delusion that money and wealth are the same thing, is getting closer by the day. Seasonally, the period between the end of January and the middle of March have always been "bad" for Gold and Silver. Not this year. Over the (shortened in the US) week just ended, $US Gold is up $US 41.90 or 4.64 percent while Silver has leaped by $US 0.92 or 5.38 percent.
Those "1970s guys" were always right. The tragedy of it all is that it has taken nearly three "extra" decades for the collapse of the debt based fiat money system to actually unravel all the way. That is the process we are watching unfold as 2008 progresses.
And remember what happened to "save" the US Dollar at the end of the 1970s? Remember the 20 percent plus interest rates which were needed to lure Americans and non-Americans alike back into Dollars? We are now seeing exactly the same thing in the collapse of the "market" for US "auction-rate bonds".
This "market", like most of its debt leveraging counterparts, is a child of the credit explosion which followed the 1970s. It began in 1984 with securities sold by American Express. It rolled along in the background, known by few and noticed by even fewer, for well over 20 years with nary a hitch. Until the end of 2007, there had been 44 "failures" in the auctions since their inception. On February 20, 2008 alone, there were 480!
All of a sudden, it has hit a brick wall. The "signal" auction-rate bond failure so far has been one for the Port Authority of New York and New Jersey where the rate offered suddenly jumped from just over 4 percent to - that's right - 20 percent.
Hidden, so far, in the talk of "subprime" crises and bailout announcements is the fact that wider and wider swathes of the US economy are facing HUGE penalty rates, rates every big as high as they were at the end of the 1970s, to continue to finance their activities. Here, long delayed, is the concrete evidence of the damage which has been done by nearly three decades of RAMPANT monetary inflation disguised as financial boom after financial boom.
Nope, those 1970s guys never got it wrong, they were merely ahead of their time. They forecast precisely what would happen, they did not think it would take this long to happen. But now, it IS happening. And it's going to get a lot worse than the most pessimistic prediction of the 1970s before the world, quite literally, gets to the bottom of it.
PS: Alan Greenspan wasn't actually a "1970s Guy". He was a "1960s Guy". By the mid 1970s, Mr Greenspan had become a member of the President's Council of Economic Advisors. It was all downhill from there.
On Thursday, February 21, spot future Gold rose to another all time high when it closed at $US 946.10. As you can see, this pushed the high on the chart four clear "X"s above the previous $US 927.10 high set at the end of January. And that, in turn, produced a big new breakaway gap on the chart. On a point and figure chart, especially a long term chart, a breakaway gap is usually a sign that the price increase which established it is going to accelerate. Gold certainly accelerated this week. It may be challenging the $US 1000 level in the VERY near future. We'll see.
(Chart appears here in original analysis)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. Now, with the exception of the Aussie Dollar Gold price, that has been repeated as Gold moved up to $US 946.10 on February 21. The Aussie Dollar has seen the biggest gains of any major currency against the $US so far this year, just beating out the Brazilian Real.
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