Sooner or later the dam will burst. Right? The government prints more money (M3 is back on the rise), the price of stocks goes up to bubble-level P/E's, gold is up, bonds are up sort of, art and antiques prices go up as do collectibles (watch the Antiques RoadShow any give Monday to see appraisals of $75,000 for the works of relatively unknown 19th century painters) and yet....
Wages remain flat to depressed and Americans face rising healthcare, education and property tax costs. Are we on the verge of a big rush up of prices as the Fed is forced to push interest rates up (after the election, of course) to stem the collapse of the dollar and incentivize foreign investors to pick up US debt through the T-Bill market. If all this sounds out of whack or just plain whacky, we think it is because we are, indeed, in a truly whacky moment. In other words, there's just so much borrowing against the future that can be done unless that future is sure to be mighty bright. And is there anyone out there who truly believes we have a ghost of a chance that the 90's will somehow re-emerge out of the primordial soup described up above?
Well, if you're hoping, here's a sobering bit of information, in case you thought there weren't many more new ones out there. It's one we got off of the Reuters feed Sunday evening: http://biz.yahoo.com/rf/040208/economy_tools_1.html with the following headline: "US 2003 Machine Tool Demand Lowest on Record". Now in this dismal world of rates and percentages, the figures reporting on something as pedestrian as machine tool demand aren't going to get a lot of notice.... unless, of course, you are a glutton for punishment.
There is, we are quite sure, no subject as diametrically opposed to a certain spangled breast in terms of getting public attention than machine tools. If interest rates are boring at least some of us trying to pay down our own excesses or making an effort to earn a relatively risk-free buck against this crazy backdrop can relate to them. But machine tools? What the hell are they?
Having done the set up, I'll step right up: machine tools are the machines that companies use to make machines and other more consumable items. They are the backbone, the thing that people who work in manufacturing work on. In other words, if you expected to see manufacturing jobs coming back in this country in 2004 you would most likely have seen the pace of machine tool purchases start to rise in 2003. And as a whole, manufacturing jobs pay better than service jobs.
What we're getting at is this: The government says we have no inflation yet the price of valuables and financial assets keeps going up. If we lived in a rational world --and let's put that to immediate rest, we don't-- then you could argue that the smart money is betting on future price inflation and therefore they are tying up their money in things that are bound to gain in value to keep pace with inflation. In other words, there is no real estate (or Faberge' egg) bubble, just an anticipation that rates and prices will start to rise at some point and there may be no holding them back. In this scenario in the tug of war for US consumer dollars, even the Chinese and Japanese will be forced to loosen their grips and let their currencies rise against the dollar to protect their relative margins.
But hold on a second. Rising interest rates, rising tchotcke prices, rising mortgages against a backdrop of an anemic if not phony recovery (phony because you can't have a recovery based on borrowing and no job creation) are more likely to be the prelude for a much deeper non-recovery where even the heroic American consumer family, mired in debt (read "The Two Income Trap" by Elizabeth Warren for a little background) hard-pressed to find two decent paying jobs, runs out of cajones.
Yes, we may once again see inflation but it might just be the really ugly kind we saw back in Jimmy Carter's oil crisis days, the kind they call Stagflation. That's the kind where prices go up but the economy staggers along. It's also the kind that doesn't push up the price of houses, luxury goods and obscure 19th century oils. Something to bear in mind: the last great gold rush (prices that is) occurred during the reign of none other than brother Carter.
rmb
Special note: For those of you receiving this through email notification, please also see: http://radio.weblogs.com/0130824/2004/02/06.html#a45 :RFID's: Get Ready for Your Own Personal Jammer
Copyright 2003 Richard Mendel-Black All Rights Reserved
If you would like to receive the Dymaxion Web musings directly to your email box, please fill in your email information in the "subscribe" box below.
If you would like to reproduce any DW postings you
must include the source of your quote and an email address:
dymaxionweb@verizon.net