John Hathaway: The prospects for an orderly unwinding of QE are zero

John Hathaway is a managing director of Tocqueville Asset Management LP in New York penned an article about the meltdown of the dollar and the destruction of our currency that is taking place via the Federal Reserve.

The title is clear on its direction, Gold will outlive the dollar.  That is true obviously because on a long enough time horizon, all great empires go the way of the dodo.  His central thesis is that this destruction is imminent.  The seeds of the currency's destruction have already been laid.  The world’s monetary system is in the process of melting down. The endgame is near, but most investors are clueless.  The big question now is how long the current ponzi scheme will last and how much more damage new rounds of QE, or even more radical measures by well meaning busybodies will do.  Via Bloomberg
Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

It’s amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.
Telltale signs of future trouble aren’t hard to spot. Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the U.S. central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.
...The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence, unlikely to repeat. That is wishful thinking. Monetary policy has painted itself into a corner. Based on our present course, there will be more bubbles and more meltdowns.

...The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable. ...The recent acceleration in the dollar price of the metal to $1,381, a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.  
Full Disclosure:  I own GLD shares


Hathaway Bio
Hathaway: Gold A_Contrarians_Dilemma.pdf
Gonzalo Lira:  Hyperinflation could happen in less than an hour


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