Tuesday, January 18, 2011

Bill Fleckenstein: US Dollar Will Win the Race ... to the Bottom!

Winning is good, isn't it?

Bill Fleckenstein's interview with Chris Martenson. Worth a listen.

From the podcast transcript at ChrisMartenson.com:

About bubbles:

You can’t know how high they’re going to go or how long they’re going to go. You just know they’re going to end in disaster. And then consequently they bailed out that bubble with the housing bubble and now we’re trying to print our way to prosperity.

The thing that Greenspan, Bernanke and all the proponents and fans of the Feds continually miss is – it’s the bubble that creates the nasty bust. The busts don’t happen in isolation. Much the same if you drink a quart of water and you get up in the morning, you’re not going to be hung over. But if you drink a quart of Vodka you will. And the Fed does not understand that and they continue to pursue the wrong policies to this day.

About the Fed-think:

First of all, they believe in the infallibility of the Fed. I think it’s probably what draws you to the place and gets inculcated in your viewpoint. Bernanke has been very, very clear that – I’m not going to get his quote exactly right - but he said a few years back that Anna Schwartz and Milton Friedman were right and the Fed caused the Depression and he wasn’t going to let it happen again. Except that they all think the Fed caused the Depression by not pushing the right buttons after all hell broke loose. They do not understand that the reason we had the Depression was partly because of the easy money policies.

And the other thing people don’t understand is when you have a bubble it changes people’s attitudes and the way they behave. In the ‘20s they got leveraged up in bucket shops and we had lots of leverage. In both of our bubbles people abandoned good paying jobs to do something kooky and took on debt. So it’s not just the price action of the bubble that does the damage. It’s the way it modifies people’s behavior when you get misallocation of capital. And that’s part of why bubbles have such long clean up periods. So these guys don’t understand that.

About US dollar:

[The US fights the phantom of deflation by printing like a maniac, while Germany fights to combat inflation.] And the perversity of it all is we get rewarded for using a printing press rather quickly and we believe we don’t have to make many changes. Europe is struggling to fix things and raise retirement ages and all that sort of stuff and yet they get penalized. So I totally agree with you. It’s that German mentality versus our mentality. And in the end if the Euro doesn’t facture, which I don’t think that it will, then the race to the bottom is going to won by the dollar, which at some point is going to cause a huge problem.

I think his comment on how a bubble changes people's attitude and behavior is right on.

Here's the link to the podcast.


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