November 05, 13
A Crackup Boom is a term you may hear more often in the next 18 months. The concept refers to what happens when the “velocity of money” suddenly accelerates as money goes to work to escape the impact of currency debasement through massive purchases of alternate stores of value. Smart money has already figured this out and is moving fast to deploy capital into assets. Although precious metals and commodities have gotten a lot of media attention lately, farmland is a long-time high-roller favorite. Although outdoing Ted Turner’s 2 million acres may well prove to be a challenge, Online real estate is still a wide-open market ripe for large-scale rollups into significant defendable niches.
It is said that if you gradually turn up the temperature, you can boil a frog alive. That is actually a myth, which has been debunked scientifically — the frog figures out the “hot tub” thing is not working out so great for them and then attempts to escape. In the world of consumer finance, the frog is getting pretty hot — underemployed, indebted, living paycheck to paycheck, and now enduring rising costs. On February 22, I declared that the **** is hitting the fan. I stand by that call. The boiling frogs around the world woke up from their “relaxing hot tub”.
What about the Dollar and Fiat Currencies in general?
I have talked previously at length about currency risks, here, here, and here. As the following graphic depicts, the tectonic forces are far from done realigning the economic landscape. The process “ends” in a currency crisis, followed by chaos, followed (theoretically) by a successor currency regime. Along the way, a lot more businesses close, and a lot more folks lose their economic sovereignty — that is to the extent they have not already lost it.
The Mainstream media would have you believe we are in the midst of a nascent economic recovery and that QE1 and QE2 were good things that accomplished their intended mission of averting a double-dip recession. Not only do I believe we are already in the double-dip, I would submit that we actually never stopped dipping since 2001. The wealth effect of rising housing prices in the early 2000′s and a stock market recovery were/are an illusion based on currency debasement through loose monetary policy. These distortions in the economic reality have also allowed a portion of the population to become (fabulously) wealthier at the expense of the masses. Mortgage-backed Securities are only one prime example.
GDP adjusted for true inflation — Introducing the Epik GDP-Gold Deflator
The below chart took way too long to create. It is worth a look. I was searching on the web for any prior analysis that adjusted US National GDP with a deflator based on the price of gold. I was surprised that such a chart was not easy to find. After all, a Gold-deflated GDP would be a logical way to get a truer gauge of economic health adjusted for the impact of currency debasement.
As you can see from this chart, the economy enjoyed a relatively steady upwards trajectory from the 1930′s through 1971. This was then followed by a precipitous fall from 1971-1974 when Nixon took the US off the gold standard in the wake of a global run on US currency redemption into gold. After a decade of economic pain, it was “Morning in America”, and we experienced the Reagan boom from 1981 through 2001.
Most people on Main Street would agree that it has been dog eat dog since 2001. Consumers have been working longer, harder and smarter (perhaps not!?!) in order to maintain their standard of living. Those folks who did not — or could not — up their game have seen their standard of living drop since 2001. Of course there is no shortage of economic success stories (e.g. Apple, Facebook, GroupOn, etc.) but — in the aggregate — it has been a tougher fight for what has actually been a shrinking pie. Large companies like Wal-Mart, Microsoft and Oracle got bigger which is why it is still possible to have a rising stock market in a shrinking economy but even that is an illusion as demonstrated by the Dow-Gold ratio which shows that we have been in free-fall since 2001.
Put down the Kool-Aid and Reclaim your Economic Sovereignty
I would submit that is high time to put down the Kool-Aid, switch off the television, and Reclaim your Economic Sovereignty. I am 100% convinced that individuals can reclaim their economic sovereignty by building globally competitive businesses. I know of no better way to do this than developing web-based businesses that focus on highly specific “defendable niches” about which the business owner is knowledgeable and passionate. I am also 100% convinced that large corporations have zero competitive advantage in highly specific markets. As we saw from the recent trashing of JC Penney and Overstock search engine ranking on Google, large companies have no advantages in building sustainable ranking in the search engines. Pick one “defendable niche” and go dominate it.