Four (Financial) Horsemen of the Apocalypse

For today’s missive, I’m grateful to Teeka Tiwari from Tycoon Report. This is a section of a recent post – you can read it in it’s entirety here. It is a little US-centric, but it applies to us here in the UK and Europe, too. In a globalised world, we’re all sharing the pain!

There are four key events on the horizon — four Horsemen, if you will — that are getting ready to rip you apart from your money, from your home, from your retirement, and from your security …

HORSEMAN #1: Fed Money Printing Devaluing the Dollar

Back on April 20th I asked the question, “is Ben Bernanke a Traitor to his Nation?”  This question seemed to inflame my readers both pro and against the concept of Bernanke being a bad guy.  But think it through before automatically rejecting this idea.

Bernanke either has to be complicit in the devaluing of the dollar, or he has to be an incompetent.  There is no middle ground here, friends, it is one or the other.  The ugly naked truth is that Bernanke is committed to killing the dollar.

Why Kill the Dollar?

This is a back door way of defaulting on your debt, and it’s exactly what happened in Germany after World War I, when the German central bankers started devaluing the Deutsche Mark in order to meet their war reparations debt.

Will we see post World War I German style inflation here in the States?

While unlikely, I can’t say it is completely out of the question.  If I had told you 10 years ago that Lehman Brothers, Bear Stearns and Merrill Lynch would be out of business, that GM would file for bankruptcy, and that AIG would essentially go belly up, you would have called me insane and would NEVER have read another word I wrote.

Think about that — don’t shoot the messenger, I have no axe to grind against Bernanke.  I’m sure in his private life he is a very pleasant man … this isn’t personal.  It is an unvarnished appraisal of the unspoken truth that lies behind Bernanke’s actions.

Truth is seldom pretty, or neat and tidy, but there are a million other sources that you can read if it’s only the “pretty” news that you are after.  I trade my own money in the market every single day, and I cannot afford the luxury of a more socially refined view.

The motives of the men and women who run the world that we live in are far darker than you could ever imagine.  Men and women of great power will always, always act in their own best interests, while cloaking it in your best interest.  That, my friends, is exactly how we got hoodwinked into allowing the Federal Reserve to come into being back in 1913 … but that’s an article for another day.

HORSEMAN #2: Debt

In times gone by, the overlords would simply compel the peasants to work for nothing, providing only the land to live on.  Their tools were fear, death, horrific punishment, and absolute authority.

Today, their primary weapon has changed.  Today they bind us through the bonds of DEBT.  Easy access to credit is both the carrot and the long sword held by the moneyed barons of today.  While the overlords of ancient times are gone, they have been replaced by a hegemony of corporations.

The sadness of this, though, is that many of us are willing participants in this bondage.

We cannot continue to abdicate our good sense and sense of self worth just for the sake of a few pieces of silver.  And that, my friends, is what cheap, easy to access credit is: The promise to pay tomorrow what I buy and consume today.  It is an illusory dream that has ensnared millions within its narcotic grip.

What is the Exact Nature of This Hallucination?

The great fraud perpetrated upon the masses has been the trading of real personal wealth for the symbols of wealth.  We have been confused into believing that the car we drive, or the watch we wear, or the clothes on our backs, equal wealth.  Nothing could be further from the truth — it is just another part of the great hallucinogenic cloud that has enveloped our country for more than 50 years.

Each day we trade our future financial security away for another hollow symbol of wealth.  Real wealth can only come from living beneath your means, from consuming less than you earn, and investing the rest for a profitable return.  Real wealth cannot be acquired by owning the right brand names!

In the pursuit of this hallucination, our country, both on a national and personal level, has seen its debt explode.  At some point this debt overload will cause interest rates to skyrocket, as the world wakes up to the fact that America cannot pay its bills without first printing more greenbacks.

An immediate impact you will see in your life will be more of your paycheck and/or business income eaten up by taxes.  Your social security, pension payments and medical benefits will all be cut.  This is absolutely unavoidable, and if you are living beyond your means or you have extensive debt, you will be devoured by this series of events.

HORSEMAN #3: China Labor Costs Rising

For years now, the emerging markets, China chief among them, have been instrumental in keeping the costs of goods down all across the world.

It’s a fair assessment to say that, because of China’s very low labor costs and non-existent pollution and labor laws, they have been effectively exporting deflation.

Prices for manufactured goods have been shockingly low for decades now.  In fact, electronic goods have been rapidly dropping in price while rapidly improving in quality and features since the late 1970′s.  But all of that could be under assault as the average Chinese worker starts to demand a better standard of living.

The last time we saw this phenomenon at work was in the 1970′s when Japan, which had been the low cost manufacturer to the world, went through a great social change.  All of a sudden, Japan started to see dramatically higher labor and regulatory costs wreak havoc on their cost structures.  Profit margins across the globe came under pressure, business ground to a halt, and stock prices got devastated.

HORSEMAN #4: Inflation

Whenever a nation spends more than it takes in, and then attempts to pay those debts by printing more money instead of embracing spending cuts, inflation always results.

And not mild inflation, but massive, retirement eating inflation is always the result of this policy of “print now, pay later”.

There are several reasons why this has not yet shown up as extensively as one would imagine that it would or should.  The first is that global growth has been in the dumps for several years now, and this has helped put a lid on the price of everything.

The second reason is that the numbers at the government level are, for the lack of a better word, actively “massaged”.  Things like food and energy are not counted, as if they did not matter.  But ask yourself this: Outside of your rent/house payment, aren’t your two biggest bills food and energy?

In fact, we can already see the politicians sweating the inflation picture as they desperately try to manipulate oil prices down by “strategically” releasing 60 million barrels of oil.  We’ve also seen attempts to massively manipulate other commodities lower in the futures market, as the CFTC (the body that governs the futures market) has acted very aggressively to pump up margin requirements to try and contain runaway commodity prices.

Over the last 10 years, commodity prices have skyrocketed while the value of the dollar has plummeted.  And while this relationship of a weak dollar and strong commodity prices can invert from time to time, the bigger long term trend of a weak dollar and strong commodity prices will be with us for many years to come.

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So what to do?

Well, Teeka goes on in his article to advocate trading ETFs. That’s not my world, but property is, and I would say that buying property remains  one of the best investments for the long term. Yes, I think house prices have further to go (downwards!). Against that, we’re in a buyers market now, and will be for some years now. Plus, rents are rising, and yields are rising.

Whatever you choose to do with your money, just don’t leave it in the bank or under a mattress – it’ll just erode away there before your very eyes.