I’ve not minced words in the past when discussing the recovery. I think the government is manipulating data, ignoring the truly unemployed, and increasing welfare spending to hide the economic disaster that we’re living in. There’s also a good chance this will “work”. Please hear me out — I’m not selling out, not by a long shot.
Saying that the US economy is “recovering” is like saying that a poor man with a credit card is “rich”. You have to pay the piper at some point, and with an economy where the incomes of so many people are directly dependent on the debt-creation of the US government, the ending just won’t be pretty.
The Short-Run vs. The Long Run
Just because the ending won’t be pretty doesn’t mean we can’t “feel” like a recovery in the meantime. This is the one thing I actually liked that John Maynard Keynes said — he was wrong about almost everything important he believed, but this quote is powerfully true:
“Markets can remain irrational a lot longer than you and I can remain solvent.”
This is an absolutely critical concept for those of us who don’t believe we’re in a “real” recovery. We’re on a welfare-and-bailout based debt-bubble. It’s literally that simple. The economy isn’t doing any better — the government is just borrowing from the future to dump money into the economy to make it feel like it’s doing better.
We’re not rich, we just have a great credit card.
Someone Has to Pay the Piper
Debt has to be paid. And eventually, the inflationary economics of the US government are going to make people upset. Nobody is stronger than the bond market — absolutely nobody. Eventually the interest on the debt the federal government will be creating is going to be too high for us to pay without issuing massive amounts of debt to pay — causing the problem to get even worse.
That’s one reason the Congressional Budget Office thinks that our current path can’t even function after 2037. That’s a moderate prediction as well.
Yesterday, I published an article at Seeking Alpha, one of the leading stock market websites, and the editors posted it on the front page of the website. There was some debate about the article, and I’ll be writing a follow up soon. The title summarizes what I think’s happening: The Age of the Dollar is About to End. This isn’t just a rant — the Financial Times reported that central bankers are actually agreeing with this conclusion.
What This Means for Us
Does this mean we should short stocks, buy guns, and grow a garden? Well, the last two ideas are great (I’m armed to the teeth and am proud of it), but when it comes to investing, it might not be that simple.
Remember the quote above: the markets can remain irrational longer than some people can stay solvent. If people believe in a “recovery” that lasts for a short time, the stock market could do great during that time. That’s why over the last six months stocks have increased like 50% while gold and silver have lost ground.
This is unavoidable, folks.
That doesn’t mean you should sell gold or sell stocks — it means you should buy both. A good portfolio has stocks, gold, bonds, and cash — yes, cash. The market is irrational, the world is chaotic, and the best portfolio is a type of income-building insurance policy. That’s what I’ve written about at my fail-safe portfolio page over and over. It’s all about balance and diversity — and if gold prices drop, that means they’ll just be amazing bargains for the long haul.
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