SP 500 and NDX March Futures Daily Charts

Tomorrow is the US Non-Farm Payrolls report.

This ought to be interesting.

SP 500 and NDX March Futures Daily Charts - Non Farm Payrolls on Friday

"It was possible, no doubt, to imagine a society in which wealth, in the sense of personal possessions and luxuries, should be evenly distributed, while power remained in the hands of a small privileged caste.

But in practice such a society could not remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupified by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realise that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance."

George Orwell, 1984

This is the ultimate failure of oligarchical, crony capitalism, as it is being trumpeted today from several diverse circles of thought as the new thing with China as its model. Oligarchies can not allow for the rise of a thriving middle class, with decent education, substantial wages, and rising standards of living, because that is a threat to their power. The fascists were much admired for their economic recovery from the Depression, but they maintained their control of the people through the iron grip of fear and terror, even while the East coast establishment lionized Mussolini and Hitler as economic miracle workers.

And this is why the oligarchical classes even in the US and the UK favor austerity over reform. Reform diminishes their illicit access to unproductive wealth and power, and austerity hammers the middle class into submission.

On a lighter note, Wall Street has decided that Egypt is really not all that important, with the likely passage of power to another puppet if Mubarak should fall. So the big tickle will be the Jobs Report on Friday. The key metric for them is the anticipated unemployment rate which is expected to be 9.5% or thereabouts.

"Now it is fairly well known that the unemployment rate is a less important metric, since people stop being counted as unemployed when no longer receiving unemployment benefits, or when they take a menial low paying job. And in a prolonged downturn you can therefore have improvements in the unemployment rate without any real improvement in overall unemployment like the labor participation rate and the median wage, which are the key indicators of a sustainable recovery.

So it makes me wonder what antics the government and the pigmen might have up their sleeve to rattle the swill bucket for mom and pop to get back into stocks, and most likely once again at a top."

Gold Daily and Silver Weekly Charts - Hyperinflation vs. Deflation Debate

Just another day with the money makers.

I wanted to bring your attention to the Deflation vs. Hyperinflation debate coming up between Stoneleigh and Lira. I respect both of the participants so I am sure it will be interesting. 

I ought to note that, alas, I disagree with both of them I think. As you know my forecast has, for quite some time, been for stagflation. I consider both deflation and hyperinflation to be on the tails of probability and less likely excepting policy error in a purely fiat currency. With a fiat currency the outcome is most likely to be the result of a policy decision, tying in both the fiscal and monetary authorities.  By pure I mean not encumbered by external forces such as the gold standard or a dollar peg.

But nothing is pure in this world especially when it comes to politics and money.  Much of what happens depends on many exogenous actions from counter parties overseas, as well as the rise of a third party or some political element that is less hospitable to the financial oligarchs.

My goal is not to predict what will happen, but to know enough to be able to see it coming, if the outcome deviates from stagflation. And so I am always grateful to hear a reasoned debate on the subject since there are always aspects of this I might have missed. I am also wondering what this potential for civil disorder will do to the economic landscape.  War trumps other policy inputs almost every time.

As an aside, I have been wondering if hyperinflation is even possible in the absence of some external standard, some peg to something, whether it be a metal or a currency. I think the major cause of a hyperinflation in a fiat currency could only be triggered by a bond default, or an utter rejection of the bonds by exterior parties.

I have also been rereading some books from the 1990's regarding Japan, and remembering things that I have not considered in some time. It is still remarkable how few Westerners really understand how things work in Japan, and the origins of their protracted economic malaise. The lack of other instances of a protracted deflation following a credit incident in a fiat regime should provide a clue that there was something particular going on. Japan is a very highly managed, hierarchical, oligarchical and conservative society dominated by its business interests.

There is no doubt in my mind that their deflation is the result of a policy decision by the keiretsu and their friends in the government, particularly in MITI. Most people do not even understand that Japan was essentially a one party system after the Liberal and Democratic parties merged in 1955. This is only recently changing.

With the Fed now owning more Treasuries than even China, it appears that Benny *could* have a go at it, although technically he can raise short rates overnight, if the government is prepared to live with the consequences.

Best to keep an open mind, because the holder of a reserve currency in a largely fiat regime has, to my knowledge, never failed before. I don't think even Rome qualifies for this, and certainly despite their wonderful system of roads the decline would have seemed as in slow motion compared to the information age we are in today.

So let's hear it for civil discourse and fact based discussions. What I find most disheartening is those few bloggers and analysts who, for the lack of a proper argument or a better alternative, quickly resort to throwing their feces in the manner of chimps, in what they seem to perceive to be some power struggle for the hearts and minds of followers and obedient devotees. What a presumption if you think about it, as if our opinions will affect in any way what is coming down the path, with the inevitability of history behind it.

I suspect that agility, flexibility, and the ability to learn and adapt are critical skills if not requirements for the next step in the evolution of this crisis.