Tuesday, October 28, 2008

Hyperinflation of the Dollar will then be inevitable

I received an e-mail today from a friend who has been quite successful as a professional, and done well thereafter investing the money he earned. Through his hard work, he certainly meets Obama’s definition of “rich,” if not that of the Kennedys, Heintz-Kerrys or George Soros. I’ve deleted his full name and the fairly prominent person he was visiting, which might identify him.

He writes:

“Dear Bob,
I was at …. on Friday night, sharing some sober thoughts about what is pending next Tuesday night. ….. We are facing some rough times. Congratulations on the blog. I liquidated all of our market investments early in the Summer and went into 100% cash. We are now considering getting everything out of the U.S. and into another currency, while it is still possible. Once you see a restriction placed on the free movement of capital, you will know that that the game is over. Hyperinflation of the Dollar will then be inevitable.” --R

Maybe he’s just an alarmist. But if “the rich” flee the US Economy because they are worried about Obama’s policies, there will be no investment in jobs, no economic recovery, and those in the bottom 50%, who are voting for Obama because he’s going to take money from the rich and send them a check, will be those who suffer the most. (Look at how the hyperinflation in Zimbabwe under Mugabe has hurt the poorest people, whose life expectancy has dropped from 63 to 37.)

The reaction to the 1929 market crash was to pass the Smoot-Hawley tariff bill to “protect American jobs.” It locked in the Great Depression.

Unfortunately, even most people who are nominally well-educated have a limited understanding of economics and the role of investments, profits and prices in making us better—or worse—off.

We have got ourselves debt-free to weather the coming storm. Unfortunately, I wasn’t paying attention when McCain, Bush and others warned in 2005 that Fannie and Freddie were going to create problems, so about 40% of my IRA is still in mutual funds. I’m sure they wish they’d been a little louder when the Democrats were saying Fannie & Freddie were sound as a dollar.

But Europe and Asia were even more over-leveraged in junk mortgages than the US. Hard to see how we can blame Fannie and Freddie or George Bush & the Republicans for that. More a case of everyone seeing vast profits and blindly piling on, like the Tulip Bulb Bubble or the Darien Colony in the 1600s.

The guys with a gun and a box of Krugerrands under the bed may turn out not to be as far out as I’ve thought.

1 comment:

  1. Great site, Bob........I'll be by often.

    Thanks for your service, by the way.

    I'm an Air Force Medic (out in 2000), and always enjoyed the Marines I took care of.