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Richard Russell: Austerity or Inflation

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Posted by King World News

on Tuesday, 14 February 2012 02:24

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With investors globally wondering what central planners are up to next and how it will impact gold, today the Godfather of newsletter writers, Richard Russell, was discussing this very subject:  “A few months ago I wrote a piece about avoiding pain in the economy.  How do we do it?  We do it by turning away from austerity and embracing inflation.  And the question -- will the inflationary method of avoiding economic pain kill our economy, just as the drug (taking drugs) way of avoiding pain has killed so many talented musicians?  I think the results will be the same.”

Richard Russell continues:

“The world has drunk at the punch-bowl of good times and debt ever since World War II.  The world has avoided the discipline of pay-as-you-go and austerity for decades.  But sooner or later the piper must be paid.  Up to now, the piper has been ‘paid’ with vast amounts of fiat paper.

The politicians want to make the people happy.  The Fed is beholden to the politicians.  The voters want it all, and they don't like pain.  The Fed and the politicians want to make the voting public fat and happy causing as little pain as possible.

Examples: courtesy of Bill Gary's great publication, ‘Price Perceptions.’

Last week the Fed announced that they were extending the current near-zero interest rates out to the end of 2014.

The European central bank gave in and finally reduced interest rates to 1%.

The Bank of England is meeting next week to decide on another round of QE. (money printing).

This week the Bank of Australia will decide on whether to reduce rates again. 

The Swiss National Bank placed a currency floor of 1.2 francs per euro in September to prevent further strengthening of the franc.

Japan has been printing for years in an effort to keep the yen cheap and competitive against other currencies.

Every nation wants a cheap and export-friendly currency.  The result is a blizzard of (fiat) paper money blowing across the face of the earth.

Inflation is the central banks' method of avoiding the pain of austerity.  Inflation is the current economic narcotic that is used by modern nations.  It's the old ‘beggar thy neighbor’ system, and it will ultimately result either in all out hyperinflation and a collapse of the fiat currency system or a corrective deflationary crash.  Either way, the last currency standing will be gold.”

To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE. 



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Currency

New Inflation ETFs

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Posted by ETF Daily News

on Friday, 10 February 2012 13:04

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Inflation can be deadly to your investments. It’s a silent killer, too — one that reduces your “real” asset value even when the “nominal” worth looks higher.You can now defend Yourself From The Fed With new Inflation ETFs offering direct exposure to U.S. inflation and deflation expectations.

 

....read Defend Yourself From The Fed With These New Inflation ETFs (INFL, DEFL, RINF, FINF)



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Currency

3 Charts That Confirm Greece's Death Even After Restructuring

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Posted by ZeroHedge

on Wednesday, 08 February 2012 08:23

Perhaps after today's budget miss in the Hellenic Republic it is time that the focus shift from the reality of a pending #fail for the voluntary PSI (for all the reasons we have at length discussed no matter how many headlines the markets tries to rally on) to a post-restructuring real economy reality in Greece. Whether self-imposed by devaluation or Teutonia-imposed by Troika, austerity is in the cards but there is a much more deep-seated problem at the heart of Greece - a total and utter lack of innovation and entrepreneurship. As Goldman's Hugo Scott-Gall focuses on in his fortnightly report this week "the competitive advantage of innovation is one that developed markets need to keep" and in the case of European nations that desperately need to find a way to grow somehow, it is critical. Unfortunately, Greece, center of the universe for a post-restructuring phoenix-like recovery expectation, scores 0 for 3 on the innovation front. Lowest overall patent grant rate, lowest corporate birth rate, and highest cost of starting a new business hardly endear them to direct investment or an entrepreneurial dynamism that could 'slow' capital flight. Perhaps it is this reality, one of a Greek people perpetually circling the drain of dis-innovation and un-growth, that Merkel is starting to feel comfortable 'letting go of'. Maybe some navel-gazing after seeing these three doom-ridden charts will force a political class to open the economy a little more, cut the red tape (after a drastic restructuring of course) and shift focus from Ouzo, Olive Oil, and The Olympics. We also suggest the rest of the PIIGS not be too quick to comment 'we are not Greece' when they see where they rank for innovation.

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As if these were not bad enough, via Wikipedia, we also note the following three fun facts about the glorious Mediterranean nation:

Greece has the EU's second worst Corruption Perceptions Indexafter Bulgaria, ranking 80th in the world, and lowest Index of Economic Freedom and Global Competitiveness Index, ranking 88th and 90th respectively.

Quite impressive...and no wonder 5Y CDS held their high cost of protection even when immediate credit event triggers were doubted...sooner rather than later they will default again unless something drastic changes and our admittedly premature discussion of more violence is becoming more and more likely every day as social unrest seems the only catalyst for change in a surreal world of central bankers, banks, and politicians.





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Currency

Jack Crooks: A self-feeding loop of confusion...

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Posted by Jack Crooks - Black Swan Capital

on Wednesday, 08 February 2012 08:23

I think by most conventional measures, used by most professional investors, European Central Bank Chief Mario Draghi has been a success. He has bolstered the returns for equity funds considerably since his decision to utilize a three-year term, instead of one year, in the ECB recent liquidity injection to European banks.
 
The fact is I missed the trees for the forest on this, and it has hurt. Failing to understand this lending-which reduced stigma associated with 1-year terms and better matched the funding needs of banks, led to more participation than expected. This in turn created a classic self-reinforcing positive feedback loop for asset prices:



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