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The Problem With Modern Monetary Theory

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Modern monetary theory has been…

Rodney C. Cook

Rodney C. Cook

Currently Rod is the founder and manager of Bull Trout Capital, a boutique investment company, and author of the FishWrapper, a private investment newsletter.

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The Right Stuff

Amazing how prescient our Fed Chairman and his cohorts were regarding a jump in employment statistics. You would almost think they had advance information regarding the employment report two Fridays past. I suppose they expected that their long term view of an extended jobs recovery would be bolstered by the accuracy of their short term forecasting. Imagine their disappointment when there was no rally in the financial markets. You could almost hear a heavy sigh as Sir Greenspan took his toe out of the tepid bath water: Softening language on loose monetary policy was quickly reversed. By the end of the following week, the rubber ducky was squeaking once again: Rates will stay low until spring.

So Mr. Market seems less inclined to rally on federal jawboning alone. The continued parade of stock and mutual fund fraud seems to have raised some skepticism. I have long maintained that this culture of dishonesty and denial is pervasive and extends well into the governmental institutions designed to protect the individual. And the SEC has demonstrated this by showing that its only interest is in protecting the status quo. As such, more and more professional investors are raising an eyebrow when the Fed speaks. The power of the imperial jawbone is waning, and may have to be replaced with brute force. But hold that printing press. There is a big pile of money already printed and ready to go.

Many foreign central bank reserves are brimming with money. Well, dollar denominated debt, which is as good as money. Right? Well, it seems that these dollars are losing purchasing power. So is a use it or loose it mentality is manifesting itself? With the bear market in the dollar confirmed in the minds of institutional money managers and the monetary authorities, is there less reluctance to spend these dollars? Isn't that what you would you do if you were China? Go shopping with these inflated reserves. In addition to the basic materials that fuel industrial growth, I would buy strategic assets: airplanes, plants, property, equipment, jobs, high technology, intellectual property, nuclear secrets, and slaves.

Slaves? And who might these slaves be? You and me perhaps? Do you have lots of stuff? More finished goods that you can use let alone keep track of? Did you buy this stuff with credit? Have you refinanced your home to pay for this stuff? And still increased your consumer debt? Where will you be if your earning power drops relative to what you owe on your home? Remember, the banks finance your earning potential not your home. Will you wind up stuffed and hanging on the wall of a house owned by foreign creditors? If so you are in the process of being sold by our monetary authorities.

This process is much more insidious than most can imagine. We are now a debtor nation. As a creditor nation we could once take individual sovereignty for granted, but no longer. The path to freedom is now only wide enough for a small remnant, and if the elites are to remain in power, it is essential for this path to be hidden, while the highway to debt slavery continues to be widened.

China is a net creditor nation. As such the path to individual sovereignty is wide and well marked. It is in the midst of simultaneous revolutions in agriculture, industry, technology, politics and finances. So it is not surprising that there is such a diversity of opinion regarding their current economic boom. This size of the population alone indicates that this could be the largest economic expansion in the history of the world. It will be fraught with booms and busts; these will be largely unpredictable in character.

But one thing for certain is that the central bankers will continue to create liquidity by writing each other bad checks. And they will Ponzi this debt up a few notches and create even more money, err debt, err liquidity. This will create more money outside of the traditional definitions and increasingly beyond the understanding of the masses. And this money will grow astronomically compared to the stuff that it can purchase. So when will it end? No one knows. But those who sell two 5000 dollar cats for one 10,000 dollar dog will soon fight like cats and dogs: Trade wars are inevitable. How will it resolve? History is helpful in this regard.

China as a net creditor will likely suffer deflation but enjoy increasing freedoms. The path to freedom is paved with gold. This can be seen in the liberalization of the Chinese gold market. America as a net debtor will suffer hyperinflation and widespread economic slavery. This can be seen in the disdain for gold by our slave holders. Do not get caught up in the pundit's arguments regarding the sustainability of the Chinese driven commodities bull. Play the underlying fundamentals because buying by sovereign Chinese and the sovereign individuals of other creditor nations will ultimately drive gold to astronomical levels. Levels unimaginable as measured in dollars. Protect your freedom. Buy the right stuff. Buy gold now.

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