The above graph shows why most prices are rising (sans iPad 2’s). The graph shows the amount of major currencies in circulation. The increased amount of money in circulation is the only reason why equity and commodity prices are rising. Case in point, it didn’t take long for the Nikkei to begin trending upwards after an earthquake, tsunami and nuclear fallout decimated Japan. The Bank of Japan, fearing the worst, injected the market with Yen.
The reason is simple, when any signs or fears of signs, or fears of fears of signs, emerge that the stock market might be weakening, central banks around the world just flood it with fresh fiat currency, thereby nominally increasing stock values. Everyone feels richer when the stock market goes up. They can go on pretending the economy is recovering.
We have entered into a world of unbridled inflationism. Never before has it been tried on such a grand scale. It used to be that certain countries tried to inflate away their debts, which led to hyperinflation in many cases. When virtually every currency is in a race to the bottom, what will the outcome be? Who knows, maybe Ben Bernanke et al. have discovered the secret to long-term prosperity and who would have thought, all they had to do was print gargantuan amounts of pieces of paper. Why didn’t anyone try this before…?
Like the drug addict who needs stronger and more frequent dosages, we are addicts for more and more fiat currency in order to get high. We keep saying we are fine, we don’t have a problem. I mean, the stock market is up, therefore the economy is recovering. I don’t have a problem, I can quit anytime I want. It’s so simple, don’t you understand? What? Are you stupid? You don’t understand? I’LL KILL YOU! Sorry, I’m so sorry, I don’t mean to do it…
Above was the representation of the classic symptoms of fiat abuse. To cure this scourge of mankind, there are three paths to take.
1) We continue on the path to self-destruction, kidding ourselves that flooding the market with more and more pieces of paper will keep us high forever, until one day no matter how much fiat we do, we can no longer get high. The result is either death or we finally wake up one day and realise we chased away all of our friends, lost our job to someone in another part of the world who is cleaner and more sober, our girlfriend probably left us (did we have a girlfriend?), and we performed unspeakable acts on others for ever more fiat, and nobody wants to ever be around us ever; or
2) We slowly try and cut back on fiat and hope there comes a time when we can either kick the habit altogether or allow it to continue at a politically acceptable level (ie. where people stop rioting and warring all over the world). The danger here being that we will never truly be free from our addiction, only attempting to manage it. It seems likely that this course would lead to relapses into fiat binges and benders in Monaco; or
3) We go cold turkey. We accept the untold damage we have already done to ourselves and determine not to do anymore. This time we are serious. We promise. Come on, you gotta believe us this time! We turn off the printing presses and tacitly accept that fiat doesn’t make us richer or happier, thereby inducing a deep recession/depression. Things will get grim, perhaps for a long time. We’ll have violent night terrors and get the shakes when trying to do anything. There will be those among us who will beg for more fiat, saying the world will end if they don’t get it. We must not heed these cries, for they are really just cries for help.
We must be strong. Our pain and hardship will not be suffered in vain. Slowly, our vision will clear and the fog will be lifted from our minds. We will start putting our lives back in order, working hard, saving money for the future, a future that for once looks truly bright. We will be ashamed when we see videos and photos of our past, the dark times when we were addicted to fiat. They will serve as a stark reminder of how weak we once were.