-First up is the latest installment from Doug Noland at The Prudent Bear. It is full of stats on how much more levered the world has become, and how much higher stock markets have gone, all while we see quarter after quarter of weak GDP numbers. I thought this bit was useful: “A few weeks back the markets were again indicating fragility – and the Fed once again demonstrated its market-pleasing low tolerance for market weakness. The flaw in aggressive QE is the notion that the Fed will be able to back away from market intervention without major consequences. Fed stimulus can spur debt issuance, market risk embracement and speculation. But if that debt is mispriced and predominantly non-productive, the system faces unavoidable debt problems. If speculative leverage is playing a prominent role in inflating securities and asset markets, the system face unavoidable de-leveraging issues. If the already vulnerable household sector continues to load up on mispriced stocks and bonds, there will be negative consequences.”
-Next up is an article from the RT website that details how the U.S. has busted through the debt limit ahead of schedule. So far, it has not gotten much attention. As an aside, one interesting forecast in the Stockman book was premised on the notion that the U.S. no longer has a real appetite for large increases in the outstanding debt load. Thus, the “fiscal cliff” silliness of last year is set to become a recurring soap opera, with politicians always trying to do just enough to keep the ball moving. However, it stands to reason that the impact will be deflationary, with consumers trying to re-trench and saving more in the face of a slowing economy. Thus, we will probably see even more depressing GDP prints over time, even as the Fed tries to print us to prosperity. And as that process plays out, and the Fed’s balance sheet grows ridiculously large, credibility will inevitably be lost as the impotence of the QE program is revealed. Gold should do well in such an environment.
-An interesting thought experiment on what a Chinese move to peg the dollar (not the yuan) to a gold standard could look like.
(All articles come courtesy of Ed Steers’ daily email.)
