Bread and Circuses

From the Daily Reckoning:

The Greater Depression
by Doug Casey

"We don’t know what this portends, but yesterday Ben Bernanke slouched over to Congress. He must have worn lifts. For somehow, he managed to remind the world of old Paul Volcker. We remember when the giant Paul walked the earth over at the Fed. It was a different world back then, with consumer prices rising at double-digit rates and interest rates over 15%. But Volcker stood up and did what a Fed chief is supposed to do he stopped inflation."

"Even recently, speaking to an audience that included an intrepid reporter for The Daily Reckoning, Volcker said he was surprised the country had gotten away with such a long period of credit expansion...without setting off a new round of consumer price inflation. He wondered out loud how it came about and when it might end. But he, like the rest of us, had no sure answer."

“'Liquidity surged in the past decade, fueled by relaxed monetary policies of central banks, globalization, new technologies and such exotic financial instruments as derivatives. They in turn drove down interest rates and bond yields and encouraged investors to pump more money into riskier assets, propelling stock markets.'”

"If we are right, asset prices are going down no matter how much financial hygiene you practice. And it will mean, among other things, fewer Fed chiefs on the cover of Time magazine and fewer U.S. Treasury secretaries from Goldman Sachs. Speculation will cease to pay. In fact, maybe our next U.S. Treasury secretary will come from the legal profession, where he will have made his reputation in Chapters seven and 11."

"It was cheap money, as well, that fueled America’s property bubble. Now, that bubble seems to be losing gas."

"And thus we see, dear reader, something interesting. Inflation may be ‘unwelcome' in the dewy eyes of the economics professor who now rules the Fed, but the lack of it is terrifying to the wide open peepers of Speculation Nation."

"But all of America is now highly dependent on easy money. The U.S. government relies upon it to pay for its bread and circuses. Wall Street needs it to keep stock and bond prices elevated. The lumpen need it, too; their house prices will fall without it. And when housing falls, the whole kit and kaboodle comes down with it. The U.S. economy will be in recession within six months"