by: Thomas MacLeod
August 20, 2009
We've had some interesting times perusing recent IMF reports. It seems that they estimate the combined cost of the financial rescue as $12 trillion, equating to $3,300 per person on the planet or about 20% of the world's economic output. To put it in a context that we all can understand, just a shade under my wife's monthly credit card bills.
Every accountant knows that every debit must be matched by an equal and corresponding credit. Just as every economist knows the consequences of the Weimar Republic.
Economies that have significantly increased their monetary supply, mainly 'developed', have a very high risk of depreciating their "paper money"; a process more commonly known as inflation.
If value is removed from "paper money", basic accounting tells us that it must go somewhere. So which ledger holds the opposite side of the transaction? The market is already telling us this. Commodity markets are showing the beginnings of a trend of higher prices both in USD and non-USD terms. This is not something conjured by Penn & Teller or David Copperfield and it is not magic. Value is moving from "paper money" to "hard assets" right before your very eyes.
Maybe the Weimar Republic analogy was a little over the top and economics is definately not as certain as accounting. But the lessons of a massive increase in monetary supply and the effect on "physical asset" prices are there for all to see.
We see commodity prices rising well into next year at least and most likely for a few years.
Every accountant knows that every debit must be matched by an equal and corresponding credit. Just as every economist knows the consequences of the Weimar Republic.
Economies that have significantly increased their monetary supply, mainly 'developed', have a very high risk of depreciating their "paper money"; a process more commonly known as inflation.
If value is removed from "paper money", basic accounting tells us that it must go somewhere. So which ledger holds the opposite side of the transaction? The market is already telling us this. Commodity markets are showing the beginnings of a trend of higher prices both in USD and non-USD terms. This is not something conjured by Penn & Teller or David Copperfield and it is not magic. Value is moving from "paper money" to "hard assets" right before your very eyes.
Maybe the Weimar Republic analogy was a little over the top and economics is definately not as certain as accounting. But the lessons of a massive increase in monetary supply and the effect on "physical asset" prices are there for all to see.
We see commodity prices rising well into next year at least and most likely for a few years.
We are accumulating commodities on dips.
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