Tuesday, May 17, 2011

The Parable of the Zoo, A Crack-up Boom on the Horizon as Currency and Debt Markets Decouple

5/17/2011 Portland, Oregon – Pop in your mints…
Last week we raised the specter that the Job, Sovereign Debt, and Housing markets were essentially carcasses, mere shadows of an economy that was.   While the financial authorities all across the globe are spending their time and other people's money trying to revive the carcasses, a new economic model is springing up largely beyond their reach.
We offer you a brief recap of where we are, disguised as a zoo metaphor.
The financial authorizes first built the zoo to cage the capitalist beasts in North America back in 1913 when the creation of the Federal Reserve hijacked the money supply.  They took them down and dragged them to the zoo one by one as FDR signed the order to confiscate gold on April 3, 1933.  The beasts have been languishing in captivity for nearly 80 years.  Some of them have grown old and passed away in captivity.
By the time they died, the beasts had become so lethargic that all they did was sit around and eat all day.  The beasts had become so bloated that the zookeepers didn't even to bother to take them out for their daily exercise.  Why would they?  They had grown fat themselves charging the price of admission to see the beasts.
In their lethargic state, all the zookeepers could do was make their daily rounds to feed the beasts, not even bothering to see if they are alive or dead.
Such is the state of things today, circa 2011.  The FEDs shovel cheap money and credit into the cages and assume that the beasts eat and are satisfied.
The Health Care Industry wasting away in the Zoo
 What they don't know, due to their self delusions and inner laziness, is that the food the leave is no longer being consumed by the caged beasts, rather, beasts that are still in the wild enter the zoo unimpeded and snatch away the food.
Even if the zookeepers were aware, their own lethargic state (see the current US Debt ceiling standoff) leaves them helpless to put a stop to it.
And so we watch as the carcass of housing rolls over, and Sovereign Debt begins to rot.  Finance, the best fed of all the caged beasts, is going into cardiac arrest and Health Care is helpless to save it, hopelessly caged in and wheezing, while the auto industry struggles in its shackles.
Meanwhile, commodities, technology, and their offspring, which have either never been caged or managed to escape along the way, are now openly raiding the zoo and taking down the stores of food as quickly as the zookeeper sets it out.
Soon, the stores of food will be gone and the agile beasts will once again forage in the forest, remaining nimble, while the caged beasts and their keepers perish.
As we see in this parable, we are witnessing a dramatic decoupling of the currency and debt markets.  The food is currency and the debt markets are the bloated and dead carcasses.  Now that the debt markets are unable to absorb the flood of currency, bizarre manifestations of depression and hyperinflation (what Ludwig Von Mises referred to as a "Crack-up Boom") are beginning to rise to the surface, like a boiling cauldron.
Something new is forming outside of the Federal Reserve's US Dollar system and the agile industries are busy building it, using what is naturally available outside of the system (the entire world!) and sustaining itself on what is left of the food at the US Dollar zoo.
The visitors of the zoo are those seeking employment inside of the old system.
The logical conclusion?  One is better off taking their chances out in the wild.
Stay Fresh!
P.S.  Please check out our latest 72 Hour Call at www.davidmint.com
Key Indicators for Tuesday, May 17th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.