“Jim Grant made the astute observation that the world we live in is akin to a movie called the Truman Show.  In the movie, the main character is unaware that he is living an artificial life as entertainment for an audience.  It was a charade.

As we await the two big events of the week, the German high court decision on the ratification of the ESM and the announcement from the Fed on Thursday about further monetary stimulus, it does indeed feel like a variant of the movie.  The main difference is that the audience is also part of the charade.

It is most likely that we will get more of the same.  There really is no other choice, and it has been so for quite some time.  As economic activity declines in the major economies of the world, one would have to try really hard not to see what is unfolding....

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“Japan announcing that they will likely run out of cash barely caused a ripple.  We are becoming desensitized to the gravity of our situation and our likely fate.

For a time, there were economic adversaries.  What we have now are economies that are close to synchronous meltdowns.  Announcements about unemployment rates, growth rates, and inflation used to have meaning.  Now, they are predictably just part of the show. 

One gets the sense that the adversaries are banding together to forge common policies, and their citizens are just hoping that the status quo can be maintained, even though a rational adult should know better.  Synchronous policy responses must lie in our future.

The choice was clear in early 2009.  The balance sheets of the central banks were relatively modest and no other entities could provide the $20 trillion it took to jumpstart a global economy in cardiac arrest.  That stimulus package did the job. 

Unfortunately, the structural changes that were necessary to our financial system and our economies were not made.  The status quo has been demanded, and that is what we have achieved.  People argue about getting their piece of the pie at all levels of society while the undercarriages of our economies rot away.

We should not be surprised if nothing dramatic occurs this week.  Politics will most likely drive both the German court decision as well as the magnitude of any announcement by the Fed.  Both of these vignettes are part of the show.  There can be no other outcome other than more obfuscation and more printing.

In the short-term, more of the same will be viewed as a positive.  The stock market should continue to grind higher and gold, silver and commodities in general will likely do the same.  Interest rates should be rising, but that will not happen.  Financial repression is with us until it cannot be done anymore.  When that occurs is impossible to divine.  We will just go along with the show until the final curtain.

We provided a glimpse of how the show probably ends in last week’s piece about the late 1970s.  Fixed income will be destroyed, but zero is an effective boundary to the downside.  While it cannot go through zero, what will be different this time around is the speed of the destruction.  Rates will go nowhere until they suddenly skyrocket in a short period of time. 

Equities will go up until the system itself begins to roll over. The outperformance of gold was dramatic in that period of rising inflation and interest rates.  However, as zero is the effective boundary on the downside for fixed income, there is no effective cap on a move to the upside for gold.  We believe that the appreciation will be several multiples of what we saw in the late 1970s.

Some writers have likened the current situation to a beach ball held under water by a strong force, or financial repression.  Once the force is released, the beach ball will come shooting out of the water.  For those engaging in the financial repression your hope is that the pressure can be released so that only equity and real estate valuations rise, but not other hard assets such as gold, silver and other commodities. 

Interest rates, the prices for gold and silver and inflation in general, those are “transitory”.  Those can be managed by sophisticated policies and obfuscation.  That is delusional.  Everything is going to come flying out of the water once the pressure is too much to bear.  This is more akin to trying to inflate a beach ball under water.

There is another aspect to pushing down that beach ball.  If the depth is too great, the pressure of the water will crush the beach ball.  That is the conundrum and the danger.  Too much repression, and the global economy is crushed.  Too little, and rising rates and inflation could wreak havoc.

Markets will win in the end.  Positions in real assets such as energy, gold and silver should be regularly accumulated for that day.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Michael Pento just had an extraordinary KWN audio interview.  He lets listeners know exactly what to expect this week from central planners and how it will impact key markets.  The tremendous KWN interview with Michael Pento is available now and you can listen to it by CLICKING HERE.

The interviews with Michael Pento, Gerald Celente, James Dines, Marc Faber, James Turk and Art Cashin are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included Egon von Greyerz, Sean Boyd, John Hathaway, Eric Sprott and Jean-Marie Eveillard by CLICKING HERE.

Eric King

KingWorldNews.com

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© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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