Why You Need to Buy hard Assets

For two years, financial markets have repeated the same error predicting that US interest rates will rise within about six months, simply to see the horizon recede. This particular serial misjudgment is the result not really of unforeseeable events, but of a failure to grasp the force and global nature of the deflationary forces now shaping the actual economy.

We are caught in a trap where debt problems do not fall, but simply change among sectors and nations, and where monetary policies on your own are inadequate to promote global demand, rather than merely redistribute it.

These two opening paragraphs came from an article on Project Syndicate. It calls itself the worlds viewpoint page.

Whether it is I dont know in the end, theres a whole internet for that!

But I reckon it summed up the global economy better than any popular article Ive read recently.

In under 100 words, the opening paragraph explains the three key economic problems were facing: interest rates, a deflationary period and the shifting of debt.

The author goes on to point out that no matter what the Fed along with other central banks try, they simply cant stimulate demand to grow the worldwide economy. Pumping up markets with quantitative easing isnt working.

The truth is that QE alone cannot promote enough demand in a world where other major financial systems are facing the same challenges. By boosting asset prices, QE is meant to spur investment as well as consumption. But its effectiveness in stimulating domestic demand continues to be uncertain.

Seven years after 08, global leverage is greater than ever, and aggregate worldwide demand is still insufficient they are driving robust growth. More radical policies C such as major debt write-downs or increased fiscal deficits financed by permanent money making C will be required to increase worldwide demand, rather than simply change it around.

After reading this article, Jim Rickards summed it up on his Twitter feed: Peoples QE is another form of helicopter money. Technical name is permanent monetization.

Seven years after the market accident started and emergency steps were introduced, it looks like those emergency measures are actually the brand new normal.

Less than a decade ago, it was impossible to think the actual American economy would end up with permanent monetisation.

The permanent part means its merely in case of emergency to keep the actual economy humming. It means government will continue to create debt for the central bank to buy, in the belief it will stimulate economic demand.

Continuing to monetise the governments debt all comes down to the rising cost of living outlook.

In the US, inflation information has run below 2% for 40 consecutive months.

So it makes sense that permanent monetisation would be considered.

You see, if inflation is actually running to target, or going back to targeted levels, permanent monetisation have a dangerously stimulative effective on the economic climate.

Right now, theres no chance of that happening. The Wall Street Journal wrote throughout the week that even Given staffers estimate inflation wouldnt hit the 2% goal after 2018.

Why is the Fed so hell bent on inflation?

Simple. It reduces the governments debt burden.

As Rick explained in his book The Book Drop exclusive to subscribers of Strategic Intelligence:

There is a stated reason and unstated reason.

The stated reason is that the Given occasionally needs to cut prices to stimulate the economic climate. The unstated reason is that rising cost of living reduces the real value of the actual U.S. debt. At this time the US has about $18 billion of Treasury debt outstanding. When the Fed can achieve, say, 3% rising cost of living for about 20 years, the real worth of the debt is cut in fifty percent, to about $9 trillion in todays bucks.

Of course, this slow, steady kind is a form of unseen theft from investors.

Its not really Inflation its deflation

They keep trying, but the US hasnt been able to manufacture inflation. However.

As the article above points out, theres a failure to grasp the strength and worldwide nature of the deflationary forces now shaping the economy.

Jim reckons it makes perfect sense. The way he views it, the US is in the depression, so its natural to be experiencing a deflationary period.

The problem is, few people under the age of 90 actually have lived through a sustained period of deflation.

Until inflation takes control such as Jim predicts over the subsequent few years in times of deflation it pays in order to load up on hard property. Think cash, land, art work and bullion.

These hard property are all part of Jim barbell technique. The idea is to prepare your portfolio to protect you from either a good inflationary or deflationary environment. You can click the link to learn more.

Regards,

Shae Russell,

Editor, Strategic Intelligence

From the Port Phillip Publishing Library

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