Reviews and Views

Inflation and the Dollar

In an article by Sol Palha, several interesting thoughts on higher inflation were made.  You can see the entire article by Sol Palha of Tactical Investor at Financial Sense University (http:..www.financialsense.com/fus/editorials/ti/2009/0626.html).

Some of the items that interested me were….

• Inflation is defined as an increase in the supply of money and not an increase in the cost of goods.
• A direct result of inflation is an increase in the price of goods.  It is a symptom but not the cause.
• Because the money supply has dramatically risen in the last 12 months, it appears that we have drug addicts driving the printing press to the breaking point.
• Hyperinflation is moving closer to a reality with the passage of each day.
• The next 6-9 years are going to produce profound changes.  These changes will be so extreme and deep that it will literally stun the unprepared, for the majority have not and will most likely never again be exposed to such dramatic forces again in their life times.
• What should we do?
  1.  Eliminate all debt (or as much as possible as quickly as possible).
  2.  Live 1 to 2 standards below your means (choose to live at a lowest standard of living now, before it may be pressed upon you).
  3.  Save the difference (produce more than you consume and put aside the difference into savings).
  4.  Invest in bullion and commodities (if you invest at all, do so where you think best.  There are many “advisers” with various opinions as to where your hard-earned money should go.  But you may want to continue approaching matters of personal finances cautiously).

July 8, 2009 Posted by Bill Wyler | Economy | Leave a comment

Kondratieff Winter (Economic Depression)

In an article by Tim W. Wood titled “Warning II!” dated June 19, 2009, he makes the point that there is no logical reason to see the economy in an optimistic view.  Wishing that the worst is behind us is in his opinion just a false optimism that will eventually cost the average investor dearly.  Their greed will keep them in the stock market trying to gain back their losses.

Mr. Wood believes that we are in the midst of a Kondratieff Winter.  Probably most of us are not that familiar with K-wave theory.  The following explanation comes from the website (http://www.kondratieffwinter.com/kw_wave.html).

The Kondratieff Wave is an economic theory that states that Western capitalist economies are susceptible to extreme performance volatility as they expand and contract over the years.  Unlike what is referred to as the business cycle, the Kondratieff Wave holds that these fluctuations are in fact part of a much longer cycle periods known as “super cycles” that last between 50-60 years or longer depending upon factors such as technology, life expectancy, etc. and thus must be examined over their entirety to be best understood.  The of phases that are likened to the seasons:

• Spring – inflationary growth phase, which sees the expansion of production, affluence, falling unemployment, rising wages and so on.  This growth phase lasts about 25 years.
• Summer – recession.  Growth reaches the limits of resources.  There’s a drop in production, a rapid rise in unemployment and a back-lash against an economy of abundance.  This phase last 3-5 years.
• Autumn – deflationary growth, selective industry production, innovation, rapid increase in debt as society orientates itself towards consumption.  This phase can last 7-10 years.

• Winter – depression, the economy contracts sharply, there’s an exhaustion of accumulated wealth.  Kondratieff viewed this phase as a time of cleansing when the economy can recover from times of excess and lay the foundation for future growth.  He considered this phase would be characterized by a 3-year collapse followed by 15 years of deflation and quiet innovation.  This is the phase that Wood believes that we are in now.

Personally, allow me to recommend an excellent book written by William Strauss and Neil Howe, “The Fourth Turning”. These authors show how history occurs in cycles.  According to Strauss and Howe, we have entered into the 4th turning or crisis cycle of history which lasts for about 20 to 25 years.  Notice that the 3-year collapse followed by 15 years of deflation is close to their 20-year cycle.  Interesting.

Bill Wyler

June 24, 2009 Posted by Bill Wyler | Economy | Leave a comment