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By Gary Tanashian
July 1, 200
enter the summer of 2004, our markets appear to be moving with all the
grace of Dr. Frankenstein’s creation, staggering forward, arms
outstretched and seeking sanctuary. Ideally,
of a healthy,
productive and fundamentally sound economy. But
ultimately find an
angry mob, ready to strike it down?
follows is a breakdown of the situation as I see it.
There will be no charts of trends or statistics, but
merely what I consider to be a common sense overview of the situation. I will compare what was to what now is,
Country That Was
origins of America, at least westernized America, are rooted in
independence, self-reliance and hard work. A
go for what became known as the “American Dream”. In
and in so
doing, define a great nation that seemed to out-work, out-produce and
out-compete most others. It is no wonder
that as this great vacuum was filled with productive people seeking a
better life, America was built, brick by brick and with constant
sweat-equity, into such a powerful economic and cultural force,
affecting and influencing the majority of the modern world.
early days of the industrial revolution right on through two world wars
and well into the cold war, America seemed to thrive as each new era
presented its own particular set of problems. There
1930’s. In fact, many would argue that
policies originating from the depression’s aftermath would set the
country on a course to a destination we now find ourselves approaching;
a predominantly paper-based, service oriented economy and a financial
system underpinned by credit (and its evil twin, debt), speculation and
fiat debt paper, AKA the US dollar.
less mature, formative America worked and produced itself to the
stature of superpower, we now find a bustling, mature society that
sadly feels entitled to its riches and stature. In
hubris that I believe will be its downfall. We
grandparents, grandparents and even parents saw them through. And because of that fact, we have transitioned
from production to consumption. Consumption
easier route. After
all, why work and produce for what you want when you can attain easy
credit, and seemingly get the same results. This
portion of our population
going in this direction, but the scary part is that the whole country, Uncle
Sam, has gotten on board and I would argue, has led the charge
into this brave new world of Alan Greenspan’s “information economy”.
third world nations do the work that we have risen above as an entitled
superpower. Why would we need to do the
“dirty” jobs like manufacturing after all, when we are the world’s
number one financial services provider? We
will continue to do certain dirty work, such as construction, that
can’t be outsourced. And if it’s
construction for infrastructure, so much the better.
Uncle Sam is hiring! With
your depreciating dollars.
me to the main point regarding our current economic recovery. This is a recovery built on inflation, not
real productivity. This far into a
recovery cycle, I would expect to have seen a far less accommodative
Fed, as growth has really picked up and inflationary pressures are
becoming apparent even to those who believe the official massaged
numbers in the CPI and PPI. But as a
friend of mine says, we’ll probably get “tightening lite”, or the Fed
talking the talk, but in fear of short circuiting the economy it
created through unprecedented liquidity from negative real interest
rates, a credit system gone berserk, and vendor financing agreements of
massive proportions in the form of Asian central bank purchases of our
does this leave our poor monster, sloppily stitched together and
meandering aimlessly forward? The market
will look to the economy, and being a forward looking monster, I expect
it to see one of two things; The Fed taking away the punch bowl for
real, deciding too late that the party is over, or more realistically,
it will see a Fed doing all it can to sustain the monster it created. This market was stitched together with debt,
and it will require more of the same to keep it going.
We are knocking on the door of hyperinflation, and I
believe the Fed will choose to open that door, given that it is too
late for our economy to de-leverage in any orderly fashion.
entitled modern Americans, I can envision the majority seeing this as
bullish, and Alan Greenspan gaining even more accolades as the
celebrated maestro. Frankenmarket will
probably get an extra bounce in its step. A
reality check on what hyperinflation means, do a little research on
what Germany experienced in the 1920’s. By
contrast, a garden variety Japan style deflation would have seemed very
tame. But it is too late for that now.
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