Wednesday, October 5, 2011

Aufedersein, Part 2

Don't like the sound of this music?
Dr. Pippa Malmgren's advice in case of a euro collapse after Germany exits that currency: "Gold, diamonds, agricultural assets, energy prices and mined asset prices will rise.  Default reduces the debt burden and allows growth and inflation to return.  If central banks (other than the ECB) throw huge liquidity out into the market because of this event then the liquidity is going to lean away from paper financial assets other than the most trusted and liquid (US Treasuries), and lean toward hard assets.  Europe is about to become a very cheap place to go on holiday or to buy a beach house or a ski chalet or a vineyard... Countries that already have inflation can expect much more once these events unfold.  This is going to make the policy problem for Australia and Canada substantially more difficult.  The cost of living will rise but no central bank can raise rates against the backdrop of a crisis environment... The world is about to experience deeper stagflation.  The cost of living will now rise even more but growth remains stunted.  Policymakers will start to veer back and forth between dealing with unemployment and dealing with inflation.  The years ahead will be referred to as “stop go” years because policy will at times try to stop price hikes and at other times policy will try to push growth.  Luckily, the world has seen this movie before in the 1970’s.  Hopefully, we have learned something from the past and it ends rather more quickly this time around."

The Good News:  Home again!