Thursday 9th June 2005

"MAL-INVESTMENT WITH TERMINAL ILLNESS" 

We said yesterday "history has shown us that, when good money is replaced by bad money, there are far reaching ramifications from which very few (other than those that are forewarned and correctly positioned) can escape." 

One hundred years ago we lived in the protection, discipline and stability of the International Gold Standard". By contrast, in 2005 we live in a world where all currency in circulation in the world has been issued into existence through debt. It has been said that "the fruits of this present monetary system are rotten", a statement that the Daily Dig would agree. The current global monetary system resembles a terminally ill patient in Emergency. The symptoms include instability, massive price volatility, unsustainable debt, and monetary inflation. Globally, the "Fiat Money" doctors are running from crisis to crisis in an effort to keep the dying system alive.

One of the scary aspects of today's debt-issued monetary system, and one that is often overlooked, is that of MAL-INVESTMENT. In an economy that is being over-driven through monetary inflation, true economic realities are masked. Systemic problems lie UNRECOGNIZED and UNSEEN. These economic realities include false market perceptions, supply / demand gaps, over-investment in unachievable ventures and markets, and a bunch of other unsustainable elements. 

Enron was one of the more notable corporate collapses of recent years. In the wake of the Enron fiasco, new securities laws were passed, and naturally we were told that these new laws would prevent further collapses in the future. As someone wrote recently, "the notion Enron could sink, like The Titanic, was unthinkable in 2000. Year after year they 
were named the best and most admired corporation by Fortune and Forbes Magazines. To think of Enron as a fraud, much less a corporation whose profits should be questioned, was unfathomable. Those who did so were fired or ignored. It wasn't until Enron collapsed that the truth came out." 

We noted recently, the world's largest carmaker, GM is worth at market $15 billion while it holds $300 billion in debt. This is typical of the corporate environment resulting from mal-investment in a terminally ill economy. New securities laws cannot nor will not prevent future corporate collapses like Enron. 

Nearly 2000 years ago the Apostle Paul wrote that the "love of money is the root of all evil." Paul lived at a time when the monetary system of the Ancient Roman empire was in tatters due to debasement, manipulation and inflation in money. Within 200 years of Paul's writing, the Roman world had completely collapsed under the weight of its terminally ill monetary system.

Best Regards

Philip Judge
pjudge@anglofareast.com