Memories are short lived

Just to remind what recently has happened, there was:

•    The biggest stock crash in history
•    The biggest property crash in history
•    The biggest deficits in history, four times the previous record
•    The biggest bailouts in history the numbers are mind-boggling
•    The biggest bankruptcies in history
•    The auto industry and the finance industry are largely nationalized
•    President Obama now makes financial decisions for previously private industries.

And don’t forget the depression with its hyperinflation.

"Get ready for inflation and higher interest rates," warns Art Laffer in the Wall Street Journal.
“But also in the Wall Street Journal don't worry about inflation,” writes Harvard professor Gregory Mankiw: “Inflation is just what we need. In the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative."

Mankin is probably motivating people to spend more of their savings much faster.

To demonstrate that there is really reason for concern:

The bond market shows what a little bit of inflation really does with savings. Look at US Treasuries bought during the panic of '08 for safety purposes. Now people that bought them are getting what they deserve and not what they expected. Prices of 10-year Treasuries have come down from $110 as recently as 5 months ago to just $94 this week. That’s a 15% loss for safety!

The BRIC countries are now better called BIC, for Brazil, India and China, since Russia is in a severe recession and has spoiled the good time when oil was over US$100 a barrel.
But not a coincidence: “Russia and Brazil both announced they soon are selling $20 billion in US Treasuries in exchange for IMF bonds.” Result: More loss for the rest of Treasury Bondholders.

"It's a smart move to diversify out of the dollar because the IMF will pay these bonds back with a basket of global monies,” which must have sent a clear signal to the US government.
"This support is important to help end the international financial crisis," said Brazilian finance minister Guido Mantega. Since the money will go to the IMF's emergency fund, Brazil and Russia give the impression being generous and cooperative global players, but that is just bogus, the real and only intention is to get out of US Treasuries. And this is in addition of an earlier notification:
"Coupled with India and China's recent call to sell US bonds for IMF paper, that's $80 billion in US debt to be sold... just what the struggling bond market needs." Consequently causing more losses!

The world's governments - led by the United States of America - are spending trillions to head off what they believe could be a terrible depression, which this way almost certainly will be. Yet the theory on which they hang their reasoning is such a thin string, some of the world's leading thinkers can't seem to hold onto it. Angela Merkel the Chancellor of Germany thinks this theory is wrong.

Time will tell, -when it may be too late- but for the time being it looks more that Merkel will be right. The following example explains her vision, because “Money is not all”, as Germany perfectly knows from the reunification experiences.

“Imagine a town where people borrowed and spent too much. Faced with unemployment and a slump, the mayor borrows money to build a new town hall - thus putting ‘idle’ resources back to work.

He doesn't ‘crowd out’ private activity, because private citizens are hunkered down, trying to pay off their debts. They save. They lend to the mayor. Private borrowers have no better use for the money.

That is the theory of it. On the surface, it appears that the mayor's stimulus plan is a big success. Pretty soon, people are working again. Money is changing hands. The new city hall is going up.

But what has really happened? The citizens will have a new town hall. But it's a building they hadn't particularly wanted when the good times were still rolling. And now they have their share of the debt the mayor incurred to build it.

Yes, it may look as though the town is more prosperous - with people employed on the new town hall, collecting paychecks and spending money. But the prosperity is phony. Citizens got not just one thing they didn't want but two - a new town hall and more debt. And somehow, sometime in the future...other spending plans will have to be shelved so that the town hall can be paid for!”

That's exactly what Angela Merkel said in her attack on the central banks a week ago.