Wednesday, May 23, 2007
Austrian School of Economics says Fed will cut rates soon
Safe Haven: DEARTH OF CREDIT
Since the high of 5.18% on February 23 the 3-month treasury bill has plunged to 4.74%. This is beginning to look like rather a fast move that senior central banks will dutifully follow.
As we noted in December 2000, interest rates going up indicates that the boom is on and that falling rates indicate the boom is over.
What's more, the bigger the boom the more dramatic the decline in short-dated interest rates.
Posted by sold 2 rent 1 @ 08:14 AM (341 views) Add Comment
2 Comments
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1. Wage Slave said...
S2R1
A month or two ago you seemed to think that we were in for a bout of inflation and that gold was the hedge against it.
Now it seems that you reckon we're in for some deflation. What changed your mind ?
2. sold 2 rent 1 said...
WageSalve,
You make a good point and my explanation isn't just a simple u-turn on thinking.
I am a big fan of secular cycles.
You can see the 5 previous secular cycles in the graph below
1920-1929-1948-1966-1982-2000
2 months ago I had the view that we were in the secular bear similar to the 1966-1982 run. This 1970’s bear was very inflationary.
After researching k-waves and debt cycles I now think that the secular bear we are in is similar to the 1929-1948 run. See the debt graph
Note that this graph is 4.5 years old. Debt is now 340% of GDP
The 1929 debt level was 200% and rose to 270% by 1933.
Will debt levels rise to 400% or even 450% of GDP this time?
Many of the gold-bug websites are comparing today’s secular bear to the 1970s secular bear and have done well on the rising price of gold.
Gold has failed to hit the high of $720 an ounce of last May and is now struggling in the $650 region. Maybe the markets can sense that the inflation threat is falling and the Fed will cut rates before the autumn.
Gold-bugs know that the coming stocks crash will cause gold to drop along with everything else.
IMHO gold will be a good buy after the stocks crash but not as a hedge against inflation. Its use will be as a store of value when assets fall and debts default.