Rising Interest And Prices, Gold And Silver Report

For years, people blamed the global financial crisis on greed. Doesn’t this make you want to scream out, “what, were people not greedy in 2007 or 1997??” Greed utterly fails to explain the phenomenon. It merely serves to reinforce a previously-held belief. Far be it from us to challenge previously-held beliefs (OK, OK, we may engage in some sacred-ox-goring from time to time), but this is not a scientific approach to explaining observed events. To properly understand a crisis, you have to look for the root cause. And if the crisis did not occur previously, your theory needs to explain why not then, and why only now.

Suppose an old company, XYZ, goes out of business. “Times change,” people say, to explain an economic phenomenon. Or, perhaps slightly less imprecisely, “the market changed.” Sometimes they’ll get even closer to saying something. They say, “Company XYZ did not adapt to changes.”

These statements are copouts.

Times are always changing. Markets are always changing. If XYZ is an old company, then it obviously adapted to many big changes during its long life. So we need to get more specific. What change occurred to cause XYZ to go under? And to really understand it, why did the company not adapt to this change as it had to all previous changes?

For XYZ, we have in mind Radio Shack (yes we know, the latest iteration is not quite dead yet). Once a fixture in every mall and every town across America, it went into decline. What happened?

When we discuss the unhinged interest rate of an irredeemable currency, we usually talk about the falling cycle (i.e. when interest rates and prices fall). It makes sense, because rates have been falling since 1981. However, it can be interesting to compare to the prior rising cycle (1947-1981, when rates and prices were rising). Last week, we wrote about Keynes infamous quote of Lenin:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.”

Most people assume this refers to rising quantity of dollars, which they assume causes rising prices, which somehow destroys capitalism… Or something. It’s a bit vague. Lenin, in Keynes’s citation, goes on to say:

“The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

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