Saturday, May 13, 2006

Naughty Central Banks

Now we have more evidence that war, China and that unruly Middle East are not the only causes of our recent commodity turmoil. Even the UK Telegraph got it right when they said:

" Behind [all this increased stealing of metals around the world because of skyrocketing prices] is excess liquidity created by four years of easy money from the world's central banks."

[Click on image for a larger version of this dragon discovering thieves in his treasure trove. And thanks to for the image.]

Yes-siree, they've hit the nail on the head. It's bubbling excessive purchasing media chasing after too little goods -- coinciding with the normal, cyclical reevaluation of these commodities vis-a-vis demand. That's what speculators do with excess liquidity. They search out undervalued investments to hike up the price beyond demand and suck up the profits before moving on like locusts to more profitable pastures, assuming there are any left.

If there were any, that would be commotion enough; but the alternative is a general business crisis, which at this point is more likely, because there aren't many such pastures left -- except to come back to where they've already been, like the Dow, etc. Ultimately, this whole spiraling bubble has to come to an end, and it won't be pretty.

You see, Devil Inflation does not follow the rules of central bankers. It does not necessarily start with the CPI so that our kind fiscal overseers can get a handle on it. Rather, it starts where it wants, this time for example, with the Dot-Com Bubble in 2000, and it moved on to real estate. Now it's moving onto commodities, and ultimately it may -- or it may not -- show its ugly head in our general price level. Of course, even if it does, signaling to our overseers to react, by then it'll be too late.

What they don't realize is that they created this Monster back in the 90s, when they refused to let things continue to cool off and to allow the general price level to fall, in accordance with Volcker's intentions and the general principles of economics, especially those of foreign exchange. The result is our precarious situation today. And the war, China and the Middle East situation don't help.

I must also pause to make clear to my readers the distinction between Devil Inflation and price increases. Sometimes, price increases are a good thing, just as price decreases are not always the Great Depression. (Ask me for an explanation and I will afford same.) But for some reason, our gentle Fed Fathers of this world have chosen to ignore these two facts, facts which they must surely know, being as they are all perfessers and docters of economics. (Or if they've forgotten, perhaps they should go back and read their John Stuart Mill.)

See more about how French bandits are digging up copper lines along the super-fast trains otherwise known as the TGV, in this article.


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