American Economy: Man The Lifeboats!

Yes, the Fed can crank up its magical printing presses and pour dollars on the flames, but there is in actuality very little that the monetary authorities can do to fix the problem. In the long-run, the only real effect of the Fed’s actions will be to further decimate the value of the dollar.

In October and November of last year, I advised readers to buy gold and the yen and to sell short the S&P and bank stocks.

It was my opinion then (and continues to be now) that after years of economic overindulgence (the scale of which was made possible only due to the dollar’s unique position as the world’s reserve currency) the wheels were finally falling off the US economy.

In times like these, there is little that government or central banks can do to counter the tidal waves that are flowing through the economy. Assurances by President Bush and Fed Chairman Bernanke that we are unlikely to experience a recession are starting to sound tragic-comical. The question isn’t whether we’re in a recession, its whether we are going into a depression.

As I have done previously, I would like to offer a couple of “survival strategies” for those who agree with my analysis and wish to minimize the financial damage in the weeks and months ahead.

Unfortunately, it is my belief that the current crisis is of a particularly tricky variety (often described as “stagflation”), which means that virtually all kinds of assets are at risk. In a typical business downturn, one can move money from stocks to bonds and feel relatively secure. Conversely, in an inflationary environment, money can be moved from bonds to stocks and precious metals. However, in a stagflationary environment, there are no safe-havens.