Saturday, November 21, 2009


When the credit markets started to implode in 07 the Fed's answer to the problem was to print money. However the scale of the implosion in the financial markets wasn't going to be stopped easily. The momentum was so great that it still took the Fed a year and a half to halt the bear.

But let's face it, in a purely fiat system with nothing backing a currency except common sense, a central bank has the ability to print however much money they want. In that case there is no financial collapse, no matter how big, that can't eventually be halted.

Unfortunately in the attempt to repair the imploding credit markets the Fed sowed the seeds of the global economic destruction by spiking commodity prices, namely oil.

That parabolic rise in the CRB in July `08 was the straw that broke the camel's back and toppled the world into a deflationary collapse.

In that environment commodities turned and followed the rest of the markets down into what turned out to be the single worst collapse in commodity prices in history.

Now the FED is back at it again. when they should be withdrawing liquidity to prevent a repeat of what we just went through they continue to push the pedal to the metal. Pumping more and more trillions into the world.

So we are temporarily back in the fun part of monetary inflation where all asset classes are moving higher.

However we are already starting to develop problems. Despite collapsing demand the price of oil is again on the rise spurred on by those trillions and trillions of dollars floating around.

That liquidity is again finding its way into the energy markets. It won't be long before the fun part of monetary inflation comes to a halt again. This time it will happen much faster than the last time because the amounts of liquidity required to halt the credit market collapse were many multiples bigger than what was required to stop the tech bubble implosion.

As I've noted in my previous posts I'm expecting some kind of corrective move soon. Once that correction has run its course I expect we will see an incredible explosion in commodity prices.

An explosion that will destroy any economic recovery and set the next leg of the secular bear market in motion.