2013 will be the Pi (π) target year for the low in interest rates from the 1981 high. The key in this giant financial crisis is still Europe. Marxism has failed. Russia & China faced that in 1989. The West has to learn this lessen as well. As a whole, Europe will post the lowest economic growth of any region in the world and in real terms will be NEGATIVE. Everything is pointing to a turn in interest rates in 2013. That is when the fun will begin. Obama and France are leading the world down the path of sheer doom.
This is the key. Those that keep preaching gold at $30,000, have been saying the same thing forever and when they are wrong it is some conspiracy. Gold will NEVER rise until there is a real crisis. That begins ONLY when interest rates turn. The same with those constantly preaching 10 cents on the dollar for the Dow. To get that kind of move requires interest rates at a peak, not a low. Here is a chart of the call money rates. EVERY panic sell off comes from high rates at the peak and the collapse in rates follows asset prices because capital flees to government as we saw in 2007. To get that today means interest rates will go NEGATIVE. You will have to pay the government 2% to hold your money. Can you really imagine that?
Analysis CANNOT be done in isolation. EVERYTHING is connected. You cannot move with such extremes without everything being effected. This is about survival. Not some religion that will bring the financial gods down in fire and brimstone striking down everyone who has more money than you. Nor is this about trying to match patterns with the single event of 1929 when the US was on a gold standard doing the same thing Germany is today – following austerity. This will be bad enough to deal with. We do not need one-dimensional analysis right now. The real world is far more complex. Trying to analyze a single market in isolation is old school. That is the same mistake the Fed makes assuming it can stimulate a domestic economy by purchasing 30 year bonds to put cash in the system but the seller is China. Dah? Perhaps I have been the first to run around the world meeting with everyone everywhere and having to look at the world through their eyes. But this is how the world really works. It is Adam Smith – squared.
We do not live in a fish bowl with only the domestic analysis. This is why the majority in analysis has been dead wrong because it totally missed Europe focused purely on the domestic economy as if the Fed can really control anything. Capital jumps from one bowl to the next. Keynes was dead wrong as was Marx. Just read Herbert Hoover’s memoirs about 1931. It described precisely the same manner that capital moved with the Greek Crisis and once Greece was in trouble, it looked around and saw Portugal, Spain, Italy, and France. Capital rushes from one economy (fish bowl) to the next in a crisis. This is its nature.
I have been requested to teach “real” international economics at universities in Asia and Switzerland. I do not have the time for such full-time endeavors. But I will try to teach one semester in each region and hopefully start the ball rolling to a new age of understanding what makes the world really tick. Milton – I will keep my promise!