The following is commentary that originally appeared at treasurechests.info for the benefit of subscribers on Tuesday, March 1st, 2011.
It’s happening. The world is getting smaller. No, the physical world is not shrinking. And the number of people populating the planet is not going down, at least not yet. Instead, what we are referring to here is the human condition on mother earth. How we have become masters of our destinies through technological development, and how all this has effectively shrunk the world in terms of resource procurement, international trade, and economic organization. And while it may be true that within all this so called progress that in the end we are largely controlled by a centrally planned Neo Liberal aristocracy, which apparently would like to see the world get even smaller as it continues to enrich itself, unfortunately for these types, forgotten frailties associated with the human condition need to be reintroduced to them, meaning our political economy is to cease shrinking on an increasing scale.
What does this mean? In a nutshell, basically it means that the trend towards increasing centralization of power in the hands of a few greedy elitists is about to come to a screeching halt. What’s more, and this is the bad news for elitists, dictators, and oligarchs alike, the trend towards centralization is about to reverse, meaning organizational and economic power will decentralize, which will eventually end the Fed and the free reign it and it’s international counterparts have enjoyed in exploiting a set of extreme circumstances within the human condition that will not be repeated for a very long time, if ever. Because increasingly, as process unfolds, fewer and fewer members of the elite’s bureaucracy’s will no longer be able to confiscate public wealth at a sufficient rate in order to maintain their bloated lifestyles. And then, increasing numbers will be forced out, cut off from a weakening food chain, forced to join the ranks in the real world.
This is of course what is behind the rioting, revolts, and revolutions increasingly percolating in periphery economies to the core Western coalition, soon coming to an economy near you in good time. And this has already begun in earnest with the election in Ireland this past weekend, whereas process unfolds, political / economic revolt against the blatant fraud self-interested banks and crony capitalists is now becoming the popular movement; which again, is also the beginnings of moving away from the central planning gone amuck that has brought us to this collective juncture. So, it’s important you understand that while the Fed, BIS, ingrained bureaucracies and political parties will not disappear from our larger socio-economic landscape overnight, still, their influence has likely peaked, making way for more localized organizational forces to increasingly shape our lives.
Of course such thinking is nothing new if one shares the views of E.F Schumacher, and the society that was created based on his views, where it was recognized long ago ‘small is beautiful’ in matters of local economy, and that even when integrating with larger organizational systems, this should not be forgotten. And his views are going to become a lot more popular moving forward for the uniformed as well, where once global trade begins to breakdown in earnest as the larger fiat currency economy implodes, people will have no choice but to reorganize, and the reorganizations will be locally / regionally oriented due to practical considerations. (i.e. peak oil, unemployment, etc.) Again however, it should be remembered that this will all take time, and international trade will not disappear overnight, but what essentially happens under such an outcome is trust between trading partners breaks down, which could spiral into a profound condition.
What would be a profound condition? Well, how about no crude oil shipments to the US. People in the know think peak oil has arrived and that crude oil procurement will become increasingly difficult. (i.e. and expensive.) Or, how about the trade loop between the Chinese and US (all Western economies) breaking down, where they no longer accept our worthless paper currency for manufactured goods. If this occurs, all the things we import from cheaper manufacturing economies abroad, with China at center, would then need to be made at home or go without. Of course many of these things are necessities, like shoes, clothing, appliances, you name it), so going without is not a realistic longer-term solution to such a state of affairs. So, people would be put back to work in making these things, which is going to be the investment opportunity of a lifetime for those with savings at some point, which will reinvigorate local economies on a smaller scale in everything from manufacturing at the base, to tertiary services, to agriculture.
In the meantime however, in order to procure things from abroad once such conditions arrive (think anytime now), new and improved exchange mechanisms will need to be developed, which is where history, and precious metals, come into the picture. Because in order to facilitate international trade when your foreign trading partners no longer trust you (or your un-backed paper currency), we will need to back our external currencies with something they do trust, and that something will be gold. (i.e. leaving silver as a primary intermediary to back internal currency.) And as alluded to above, calls for such a reorganization are already popping up across the political landscape, and will necessarily need to become a cornerstone any new world order moving forward. And when momentum in such a movement arrives, it will become self-evident to even the less endowed that the dollar’s ($) role as the world’s reserve currency will be kaput, meaning increasing inflation and perhaps even hyperinflation might hit the US, because the economy is not equipped to handle the austerity that such an outcome would eventually be forced on a dazed and confused population. (See Figure 1)
Figure 1
And one must wonder if those days have in fact arrived, where although the fate of all fiat currencies will be the same in the end (replaced by gold or silver backed currencies), in the meantime attempts to maintain the status quo by our bankers / elitists will undoubtedly go on, meaning those currencies perceived to warrant interest will rise against the $, which is exactly what is happening to the Canadian Dollar (C$) above, and the British Pound below. What’s more, in spite of the fact both the Canadians and Brits are big trading partners with the US, or perhaps because of this, we can tell a lot about what to expect in the larger economy and financial markets by watching their relative movements, the former as it pertains to the economy, and the latter to stocks. That is to say, when the C$ is rising against the $ one should expect to see rising commodity prices either concurrently or in the future, the same for stocks when the pound is out-performing.
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. Along these lines, you should know your subscription to Treasure Chests would include daily commentary from either the myself or Dave Petch. As you may know, I cover macro-conditions, sector timing, and value oriented stock selection, while Dave covers the HUI, XOI, USD, SPX, and TNX technically each week. Mr. Petch is a world class Elliott Wave Theory technician.
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Good investing and best of the season all.
Captain Hook
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