- Nothing has been fixed by all the bailouts and stimulus. All it did was to paper over the problems and to make them worse. It basically threw good money after bad and allowed people with bad financial behavior to do more of same.
- The fed is operating as if the economy has had a heart attack instead of as if it ran out of gas. In other words, Bernanke assumes people just got scared and thus stopped borrowing instead of the truth which is more like the people are up to their eyeballs with debt as many of them enter retirement. They do not want more debt, they want to be debt free in retirement. A debt based economic Ponzi requires ever increasing levels of debt or it will collapse. That people are not borrowing ever increasing amounts of money (i.e. the paradox of thrift) is the primary cause of the global economic problems.
- With a heart attack you can stimulate the heart and get it to beat again but if the gas tank is empty then spraying starting fluid into the engine will only make the engine run in fits and starts and it will eventually damage the engine by wiping all the oil off the cylinders.
- The fed is not a bottomless pit of free wealth. There is a limit to how much they can stimulate even if we don't know exactly what that is at this point. They only have so many cases of starting fluid in reserve. After they burn through that they are essentially powerless to do anything. This fact requires them to stop spraying the fluid once in awhile to see if the damned car will actually run on its own. This is what Galland expects will happen with the end of QE2 - Bernanke will signal that he is stopping the stimulus and then he will observe market behavior. Galland suspects that markets will take a nose dive because the only reason anyone was in the markets in the first place was because Bernanke was pissing away their buying power via inflation. He made them get into the gambling pit by debasing the currency. Thus, if he stops they they will march right back out because the markets are overvalued given that we have 16% real unemployment, tens of millions are on welfare and food stamps, historically high levels of debt, a big portion of the population entering retirement, etc.
- Gold and silver could see a big pullback if the stock markets collapse. Remember, the higher level trend is actually deflation because we have many trillions of Wimpy Promises out there and not nearly enough money in existence to pay them off (a point which Bob Prechter made very strongly in his 2002 book, "Conquer The Crash"). The monetary base may have been expanding because of Bernanke but the credit supply is still in a long term downtrend. Indeed, the reason he has been expanding the monetary base is to try to counteract the effects of collapsing credit on the money supply. I say that if gold and silver get a big pull back then buy into that action because the dollar is eventually doomed just like all other fiat currencies. Dollar cost average into gold and silver but if they take a big hit (i.e. 38% pullback) then double down. If they pull back to the 50% fib, triple down. If they go back to the 61.8% fib, go all in.
- When Bernanke cuts off the free money and the markets panic, Galland believes Bernanke will again come in with another round of Quantitative Easing. There is no telling how much of a tantrum Bernanke will allow the markets to throw before re-starting the fiscal pacifier. I personally suspect that if he waits too long before repacification that it might not work - markets can lose confidence in the fed if they lose too much in the short term. It's just like a teething baby. Pull the pacifier out of its mouth and it starts crying. If you quickly put it right back in then there is a very good chance that the baby will re-pacify and forgive the recent removal. But if the pacifier stays out long enough and the baby gets whipped up into a full blown tantrum then you can shove that pacifier back in 20 times and the baby will spit it out and just cry harder. This is truly the best analogy that I can think of to cover my humble view of the situation.
- The US and other large nation states are "fundamentally bankrupt" and will eventually have no other recourse but to default according to Galland. Physical gold and silver in your hands (not paper gold or silver of any sort) can never, ever default. The world will blow up before people look at gold and silver coins and say "they have no value". Fiat currency, not so much.
- Galland states that US spending and deficits are out of control and, worse yet, politically uncontrollable. That is a direct indictment of the American people. Galland is basically saying that even if a politician wanted to do the right thing, the people would not vote for him because they correctly fear that he would pull back the spiked punch bowl and everyone would develop a massive hangover. Of course, such thinking ignores the fact that your liver is going to fail if you stay drunk continuously and that is a Hell of a lot worse than the worst hangover can possibly be. Every fiber of my being hopes that Galland is wrong about the American people. I hold high hopes that Americans will one day wake up en masse and figure out that all wealth held outside of commodities in a fiat currency and fractional reserve banking system is nothing but a Grand Illusion. I hope that as a result of this awakening they will tear that old system down and return to honest money.
I will leave you with the observation that I made very early in 2008: Alan Greenspan (architect of the big con) said many times that there is no sustainable recovery until real estate stabilizes. Smart people will not ignore the con man in chief's advice on this. According to many analytical sources with great track records (including Meredith Whitney), real estate is still overvalued by at least 20% and has another leg down coming.
Kudos again to John Mauldin for having such a useful free website for people to get the real economic picture that the mainsteam media has been ignoring up for several years now. Mauldin is one of the good guys IMO.
