John Carney, editor of Clusterstock made an interesting observation today:
Let’s address an inflation related problem here. The Fed has been pouring out dollars for a year now. Meanwhile, we’re doing less work and making less stuff. That looks like a recipe for inflation but the consumer price index is dropping. How’s that? Well, remember that inflation doesn’t have to occur in the kind of across the board way that shows up in the CPI. Instead, it can pour into bubbles in specific assets. (Need an example? How about housing, circa 2002-2007?) So what’s looking bubbilicous right now?
We asked an analyst with one of those major international non-government entities that specialize in telling emerging market countries how to emerge.
"I think the bubble is in financial assets," she said. Her conclusion is that the global liquidity provisions and bailouts were allowing banks to hold assets at inflated prices. Got that? She thinks we’re in a financial bubble now. What a miserable idea.
It is a miserable idea, because we know what happens to asset bubbles- they burst.
Mish's Global Economic Analysis
Northern Virginia Housing Bubble Fallout
Bubble Meter
UK House Bubble
Ohio Fraudclosure
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So what do you put money into to prevent a failure of “financial assets”? Food?
If the Fed could find a way to prevent a failure of financial assets, they would have done it by now.
If you wish to protect yourself from financial loss when inflated assets collapse, don’t loan money against those assets. Now you see why the banks are choking off the credit markets–they have to if they are to survive.
At the personal finance level, buy short-term Treasury debt (no more than two years) and keep the rest of your assets in cash. When the bubble bursts is when you use your swag as down payment against a house and a lot. Live in it or rent it out and devote a part of the revenue stream to the purchase of tangible, hard commmodities such as silver/gold, beans and bullets.
When the banks begin fearing for their survival is the time to start thinking seriously about your own.
Malthus, beans and bullets have been backordered at my store for about a week. We must try to keep this quiet.