"Dying of Money"

[Wonk]

is the book referenced by Ambrose Evans-Pritchard in his recent article:

http://www.telegraph.co.uk/finance/comm ... Money.html

Apparently it was fetching $699 on ebay.  I found a link to a public domain version here:

http://www.delanion.com/Dying%20of%20Money.htm#chap17

Although we are fans of Harry Browne, I read several chapters and found a lot of useful information.  Particularly Ch 17 (which AEP referenced) regarding velocity of money.  It bears striking resemblance to what we are witnessing today.  We, of course, cannot predict the future with certainty. 

That said, we are witnessing an enormous collision of credit deflation and monetary inflation simultaneously.  Currently there seems to be mild deflation, but a miscalculation in either direction would mean a massive shift in economic activity.  The best case scenario I see is a repeat of that 70s show for another 5-8 years.  That is assuming the Fed gets it right and is able to devalue the USD another 30-50% in that time frame. 

The proverbial "monkey in the wrench" is velocity.  As Parsson referenced, money printing is innocuous so long as velocity is low.  The moment it picks up, however, is like a lit match around gas-soaked firewood.  The Fed is notoriously ineffective at removing liquidity at the right time since it is politically unacceptable to do so at the right time  (the oft quoted "removing the punch bowl" at the party). 

The moral of the story?  Stay the course, we just don't know how or when this will all play out.  Just about any asset class can be a savior or a dog over the next year.  Be well diversified in all 4 asset classes and if you are going to speculate, be sure you guess properly.

I recommend reading Parsson's book--at least a few chapters.  It's somewhat dry, but for economic wonks it makes for lively reading.  Also interesting to note it was written in 1974 before Volker had a chance to stamp out inflation.  As a side note, my take on history is that velocity was picking up in the late 70s and there was a very real chance it would turn into hyperinflation had Volker not stepped in when he did.   

[Pres]

What an interesting book. Thank you Wonk!

[craigr]

I will check out the book. I agree with the overall premise though that if the Fed is successful we are going to have very bad inflation. That is the only weapon the Fed has in their arsenal. They know how to print money and cause inflation. That's why they exist.

I have been reading Figgie International's Hyperinflation Survival Guide. While I don't anticipate 1000% inflation of Brazil, it is interesting to see how governments and businesses respond to strong inflation in countries around the world. The plus side is this book is significantly cheaper than the one listed in this article and details actual real-world responses to high inflation in Latin America. As you'd suspect, it's similar to the response in European countries where it has occurred.

Inflation is the most insidious of the economic climates. It's the only economic condition that can turn a prudent saver or someone well-off into a pauper almost overnight. The Fed and US Govt. continue to play a dangerous game and we don't know how it will play out. They may get the inflation they desire, but the consequences could be quite bad.

[mhenders]

If anyone's interested in an indexed, nicely formatted PDF version of this book, that makes for great reading in the iBooks application on an iPad or iPhone, I've created one that you can download here:

http://dl.dropbox.com/u/91582/books/Dying-of-Money.pdf

[craigr]

If anyone's interested in an indexed, nicely formatted PDF version of this book, that makes for great reading in the iBooks application on an iPad or iPhone, I've created one that you can download here:

http://dl.dropbox.com/u/91582/books/Dying-of-Money.pdf

Excellent! I have it loaded and it looks great.

[mhenders]

Apple updated iWork today, including the ability for Pages.app to export to the ePub format (native to iBooks). You may prefer this over PDF, though it requires importing to iBooks through iTunes.

http://dl.dropbox.com/u/91582/books/DyingofMoney.zip