Saturday, May 06, 2006

U.S. banking system of the future?

Is it time to start reading up on the history of the Weimar Republic circa 1923, when Germany pretty much set the standard for the textbook example of hyperinflation? We Americans, both individually and collectively, have been spending money we don't have, borrowing like there's no tomorrow. Gas prices keep skyrocketing? Keep spending and keep borrowing. War costs headed towards the $1 trillion total mark? Keep spending and keep borrowing. But what if the lenders pull the plug? Is it time to start measuring the wheelbarrow in the garden with your mind's eye to anticipate how many Big Macs (or maybe just Small Fries) you'll be able to buy by filling it with inflated greenbacks?

Billmon, who knows his way around the financial industry, takes note of rapidly rising gold prices, is reminded of the 1970s inflationary binge, which followed another big war nobody wanted to pay for, and wonders what's ahead.
The missing guest at the disco party, at this point, is the Consumer Price Index -- although I wouldn't try telling that to the average middle-class American motorist. Still, despite the sticker shock at the pump, so-called "core" inflation -- that is, excluding energy and food prices -- has remained amazingly low, considering that the commodity markets are acting as if U.S. dollars are about to turn into 1923 German reichmarks.

It just must might happen one of these days. Traditionally, the price of gold has been a pretty good barometer of confidence in the greenback -- gold holding the original trademark on the brand name "money." (Gold: it's what's for dinner.) Which in many ways makes the gold rush of 2006 a more interesting and potentially significant economic phenomenon than $3-a-gallon gas.
What does it all mean? Trouble, probably.
One way to put it is to say that the insiders in charge of the world's only superpower are going massively short their own stock -- have been for years. What's more, management is starting to talk about launching another hostile takeover, once again financed with junk bonds. Some of the non-voting shareholders have decided it's time to lighten up their portfolios.
Excerpts don't do the posting justice. Go take a look.

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