Gold cracks $US1,000

There will be much written about this, so I may as well add my tuppence worth.

There is no mystery as far as I am concerned. The arch villain, A. Greenspan, simply created too much money, de-regulated the financial system and allowed the egregious growth of derivatives. All of which means there is too much money sloshing around.

So far it has been everywhere, Jack, and unless all the excess money is taken out of the system then the world economies will be like a giant balloon that no matter how hard you try to squash it, just keeps popping out in odd and unexpected places.

All that money has created the problem and the solution, according to the most powerful central bank, the US (well, for the moment at least), is more freaking $$$$$$$$$$$$$$$$$$’s. More! And just how does it inject these dollars? Through more debt. As if we all need more debt.

Notice how the subprime fiasco is morphing from the lower classes – who, let’s face it, deserve all they get, after all, they are poor which means they don’t know how to make a quid through the giant stock-market gambling machine, so they saw that the way to make money was to hop onto a rising commodity, houses, and become rich ………………… rich I tell you, beyond the dreams of avarice, ‘cept, of course, they didn’t, which is their fault – to the middle classes who funded their spending spree on debt.

CPI had been slain by largely ignoring it and manipulating it out of any connection with the real world, all helped by the China/India effect. Interest rates had been sat on by the Central Banks as they could point to the dodgy CPI figures and say that everyone was imagining the price of groceries going up. Anyway, you can offset the grocery budget by buying a new computer or another dress, made in China. Edible dresses could be the way of the future.

Now, it is all catching up and the central banks have lost control of interest rates which have been taken over by the market. The solution? Benanke throws more and more money out of his helicopter and wonders why the price of everything physical and real goes up but bloody stockmarket and houses don’t. Houses used to be real – hence called real estate – but they have been turned into ATM’s. Great while you withdraw, but not so great when you have to pay it all back, with interest, and the market has taken over pricing interest and wants a real return.

Add to all that China and India, which have the world’s greatest renewable money making resource, cheap labour. Cheap labour that they have swapped for massive capital reserves – which the US is desperately trying to devalue out of existence with the fall of the $US – that they can use to build up their infrastructure and make their countries wealthy and strong based on real wealth, not borrowed or printed bits of paper and fancy derivatives.

So, all in all, the central bankers in the west will try to emulate Zimbabwe and print more and more money, so consumers can buy more and more things, so the economy can inflate – which is a good, good, thing, where as deflation is a bad, bad thing – ALL until the law of diminishing returns and the price of bread at $1,000 a loaf calls a halt to it.

$1,000 a loaf is considered a steal in Zimbabwe.

Nah …………… the central bankers aren’t that stupid. Are they?