When There's Blood in the Streets
"Don't do something....just stand there!" is my advice to people who are looking for a way to profit from the present unraveling of the U.S. economy. For instance, if you're in the market for a nice boat but they've been priced beyond your means, just be patient. There are lots of boat owners who are now giving second thoughts to their yachts. They violated the old rule against going into debt to buy a boat and those monthly payments and maintenance expenses make their cost-per-hour of use almost insane. Watch for bargains in used boats.
Houses priced beyond your budget? Don't worry. Despite the heavy spin from the real estate industry prices continue to tumble and chances are growing every day that the bungalow you think is really worth $140,000.00 will probably sell for that soon, instead of the $185,000.00 the owner thinks it should fetch now. The owner may believe the house is worth his asking price, but owners don't set prices. The market does. When circumstances back him into a corner the owner must either take what's offered or struggle on with a real estate millstone around his neck.
This doesn't sound like the American Dream, does it? Sounds pretty gloomy, in fact. Anybody remarking on the reality of today's economy is labeled a "gloom and doomer," of course, but he may not be gloomy at all. In fact, if he has little debt and some spare cash he can expect bargains to pop up everywhere.
When Baron Rothschild said in the 18th century, "Buy when there's blood in the streets," he merely meant that anyone who had the means could snap up some big bargains in times of revolution and turmoil. The Great Depression is an example. Things were so bad in the rural south people with ready cash could buy acreage for as low as five or ten dollars an acre.
The late economics historian John King sat in my backyard several years ago commenting on that very point. He had flown in for a TV interview and we were running over some things to be covered.
"People think this inflation will run on forever," he said. "It won't.....and it can't. This debt economy will implode one day and people lucky enough to have some cash will pick up bargains all over the place."
Dr. King was talking about deflation - the phenomenon that terrifies Ben Bernanke and the Federal Reserve board. The Fed is about to open the money floodgates even wider in an effort to fight deflation and the chances of it succeeding are "iffy" at best. The credit balloon is collapsing and billions of dollars of perceived wealth are vanishing. Humpty Dumpty has fallen off the wall and Bernanke's troops, plus the U.S. Treasury Department, are frantically trying to put him together again. Even President Bush is rushing into the scene screaming "Something must be done! Let's print more money and give it to the people!"
There comes a time when inflating the money supply ceases to stimulate the economy. It stalls and implodes under the weight of economic distortions caused by inflation. A correction occurs, "blood flows in the streets," masses of people suffer lower living standards while others pick up bargains as assets are liquidated. It's a routine that's been going on for ages. Our egos lead us to believe we can beat the cycle. We can't.
Commentator Pat Buchanan puts it this way:
"This self-indulgent generation has borrowed itself into un-payable debt. Now the folks from whom we borrowed to buy all that oil and all those cars, electronics and clothes are coming to buy the country we inherited. We are prodigal sons, and the day of reckoning approaches."
Looking on the bright side: The dying dollar needs a serious transfusion and this will lead to talk about re-connecting it to gold. A furious debate about it will ensue because of the discipline an honest money system requires, but logic and reason will eventually prevail and sanity will return to our daily financial transactions. As J.P. Morgan once said: "Gold is money. Nothing else."
January 15th, 2007
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