Re: The Gathering Storm

On April 19th and 20th we ran a couple of posts that gave my brother Bill's view of the nation's near-term economic future. Bill is pessimistic that it will work out well. A reader named D.P. who works in the financial sector wrote a response to Bill to which Bill then replied. We give D.P the last word:

Frankly, I was again disappointed in Bill's response, as it included quotes used out of context, and some references that were downright misleading or confusing. For instance, after responding to my "expertise" quote, Bill says "you don't have to be an expert", and immediately references Bill Gross, whom I presume he considers an expert. But, while this retort was confusing, it was also blatantly disingenuous in that I could list a whole cadre of "experts" who have moved the exact opposite of Mr. Gross. It seems Bill missed my general point, which is that no one knows with any certainty what will come tomorrow, and that those sounding off with certainty serve to alarm folks.

Bill's next rebut is aimed at my observations regarding inflation, to which he offers a definition. I searched the web for a definition consistent with his and couldn't find it. Most definitions of inflation were along the lines of this one which I found in the Merriam-Webster Online Dictionary: "a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services". Of course, as I mentioned in my original note, the government’s actions are intentionally inflationary, but so far inflation itself, the broad increase of prices for goods and services, has been very low for a long time. As evidence of inflation Bill focuses on a very narrow example of commodity prices over a very brief period of time (3 months).

This is, of course, not very scientific (and totally, purposefully misleading). I could just as easily reference housing prices or technology or average wages, and for significantly longer periods, to argue for disinflation. My ultimate point is, Bill doesn't know; in fact, industry academics are generally split on what the future holds for prices.

Next, Bill makes a flippant and vapid retort to my critique of his observation that gold is cheap. Come on, Bill, is that the best you could do? I look at the COMEX pricing of gold every day and have yet to see them post it as follows: CHEAP!

As for the dollar's fall, "the point", as Bill says, is to protect one's self from dollar devaluation RELATIVE TO GOODS AND SERVICES PURCHASED! See broad inflation data and previous definitions for reference.

In Bill's next two challenges he attempts to defend himself from my critiques of his use of absolute statements (he should know better!) The first is his reference to a "zero-risk investment". I am dumbfounded that he took issue, as I rightly pointed out that there was, in fact, risk involved. His defense was just as confounding, as he argued, it seems, that the time value of money risk I rightly referenced was minimal (note that he DID NOT argue that it was ZERO!), then his example was no less minimal. Next, he observed that "no entity" was interested in U S debt.

Of course, the US debt is the single largest daily volume security class in the world, but let's not let the facts get in the way. As for his concerns about the FED's involvement, I agree and share his concerns. If this had been his original argument I would not have had anything to critique. Again, confusing.

As for my hope, while I agree it is not a strategy (nor did I present it as such), I stand behind my argument that the future of economic success lies with the individual and one’s drive to live a better life for one's self and one's family. Of course Bill can find narrow examples of human failure, like his Katrina example, but the broader examples in human history, in fact OF human history as a whole, support my argument, and my hope. When faced with an economic doomsday virtually NO ONE I KNOW will curl up in a corner and wither. Rather, they will do WHATEVER IT TAKES to deliver a better life for themselves and their families. Consider everyone you know and see if you don't come to the same conclusion!

Whether D.P. or Bill is correct about the economic future is, as D.P. says, something no one knows. It's my untutored opinion that Bill is surely correct that the FED can't keep printing money, and the government can't keep spending it, without driving us over the cliff. Until the FED and Congress put the brakes on, and until fuel prices stop climbing, I don't see how we can avoid a calamitous outcome. Even so, I hope D.P. is right that things aren't as dire as Bill forecasts and I fear.