By Aubie Baltin CFA, CTA, CFP, PhD."I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered… -- Thomas Jefferson, 1802
If policy makers are not careful, present dynamics may precipitate a worldwide Trade War culminating in a worldwide DEPRESSION, brought about by protectionist pressures exacerbated by Global, political "Beggar Thy Neighbor" motivations. (it's happened before: There is no end to the stupidity of politicians)
Past evidence of cycles suggests that we are about a third of way through what might be a 16 to 20 year DEPRESSION. However, "debt deflations", such as the one that we are in, will be much worse than typical cycles, which are also Government induced but brought on by the FED increasing interest rates and tightening credit (a la Paul Volcker in 1980). One key indicator that can be used to illustrate this idea is the ratio of the level of the S&P 500 Index to the price of an ounce of Gold, which hit a high of 5.5x towards the end of the Tech Bubble in 2001. The ratio has since collapsed to below 1x. While this is not the lowest it has been, it is an indication that confidence in owning paper assets has evaporated (that is probably what the ever shrinking volume is telling us) and the classic hard asset of Gold has won out as the only reliable STORE and preservation of Wealth, which is now fast becoming investors main concern. Similar collapses in the ratio were seen after the 1929 crash and the 1973 oil crisis.
A fiat currency is only as strong as the belief it inspires to its holders.......read on
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