I figured out Bernanke’s 2008 economic roadmap

January 15, 2008

In early July of 2007, before the August panic, I sold everything and went 100% cash in several currencies. I held on to my cash for many months while studiously trying to figure out how the sub-prime fiasco would pan out and how the Federal Reserve would respond. I finally figured it out.

The first thing everyone needs to understand is that Ben Bernanke, the current Federal Reserve chairman, is an absolute nut. After reviewing some of his published papers (via Marc Faber’s reports) I am now convinced he’s a pompous arrogant asshole who doesn’t even understand basic economic theory. If you don’t believe me, just watch his answers to Ron Paul’s perfectly reasonable challenges on youtube then ask people in Zimbabwe if the only consequence to a weakened currency is higher prices on imported goods.

Ben Bernanke has spent his entire career proselytizing the omnipotent power of central banks to cure every economic flu with inflation — that’s right, inflation — and now he has control over the printing press. Have no doubt, he intends to use the American economy like a lab rat in a vain attempt to prove his asinine theories. He’s betting the stupidity and ignorance of average investors will compel them to believe fraudulent economic figures published by the government despite contradictory evidence produced by their own eyes and wallets.

Don’t get caught in their trap and don’t believe their lies. Wishful thinking is not a long term investment strategy. If you want to make money you have to put your emotions aside and wake up to the reality of this catastrophe. Inflation is not contained, it’s rising dramatically. GDP is not growing slowly, it’s contracting. The US dollar is not a valued currency, it’s worthless paper.

The second thing you need to understand is that all central banks around the world are working in collusion to export American inflation abroad. They are trying to spread price increases around the world to cushion the impact on America’s failing consumer driven economy. Despite what you’re hearing on typical business news propaganda networks, every major currency is being vastly outperformed by gold — even the Euro. And that’s not unique, in fact many commodities are rising faster than any of the major fiat currencies.

Ben Bernanke’s plan is simple. The primary cause of this economic calamity is that foreigners are no longer willing to lend Americans money to buy the goods they produce, therefore, the solution is to debase the US dollar by whatever means necessary to entice foreigners to re-enter American markets. He believes that frozen mortgage resets and government bailouts of corporations through money auctions will tide everyone over until foreigners are willing to come snap everyone up for pennies on the yuan. In that scenario, the market will hit a bottom even without a large decrease in nominal asset prices and useful idiots everywhere will continue their consumption binge. He ignores inflation because he believes an economic slowdown in the meantime with create enough disinflationary pressures to counteract higher commodity prices.

Of course, his plan is ridiculous. International trade is now a game in which Americans produce dollars and foreigners produce things dollars can buy; if people are no longer willing to accept those dollars because they’ve been so terribly debased, we’re right back to where we started. Obviously foreigners will buy some cheap American assets, but that won’t solve the problem. The average American will not be able to consume more products because Citibank manages to barely escape bankruptcy. Banks are not loyal to any nation, they will invest anywhere profits can be made. No matter what happens with the stock market, easy credit is gone and the American consumer is toast.

Also, the inevitable consumer driven slowdown will not spread as dramatically as many people predict. Conventional wisdom tells a fanciful story of coupled economies that rise together and fall together in tandem, which couldn’t be further from the truth. It’s normal for some regions to experience growth while others suffer. Are people really arguing that China is more coupled with America than Texas is with Michigan? Economies are not coupled by geography, they are coupled by industry and capital — all of which is abroad. If Americans had money they wouldn’t be begging Arab oil sheikdoms and Chinese communists to rescue their faltering businesses.

What everyone needs to understand is that China doesn’t benefit when their people work around the clock at slave wages (by American standards) to send cheap goods abroad in return for currency that will soon be worth less then their own. If the Chinese allow their currency to float they would benefit much more by consuming those products themselves. And the Arabs can sell their oil anywhere — last time I checked oil burns just as easily in Asia.

Historians used to call WWI the great war, then WWII happened. Let’s get real, the end result of helicopter Ben’s disastrous monetary policy will be a new depression much worse than the first, because this time it will be inflationary. Protect yourself by buying anything that can’t be replicated at rates equal to Bernanke’s ability to print money. Taking into consideration changing weather patterns, it appears to me that food may be the new black gold. All commodities and precious metals that have stable demand will increase in price.

Buy agriculture, buy gold, by Asian, get rich.

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