Naked In Davos

It took a host of topless women from Ukraine to spice up the Davos gathering but what lies behind the signs claiming Gangsters Party in Davos?  This quote provides a strong hint:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Henry Ford

Few people really understand what really happens their wealth when monetary policy seizes control of currency issuance.  In fact, no living person under 80 has lived in an era without the Federal Reserve so let's step back for a moment and consider the impact of the bond purchases that is colloquially described as money printing.

When you purchased cereal five years ago, do you recall the price was lower?  If it was and the price has risen, you've just been punk'd by something called inflation.  Now you think that inflation is normal because you've seen it all your life.  But why should your cereal go up in price?  It didn't go up in value, did it?  I mean, each morning the same cereal nourishes you to the same extent.  So, why did you have to pay more for it?

The reason for the higher prices was that more dollars were supplied and when the supply of anything increases the price drops to reflect the increase.  So, the dollar in your pocket dropped in value.  What perplexes the public is that the dollar looks the same, it feels the same and nobody changed the prices so dramatically overnight that you felt any differently about it when you woke up in the morning.  But each day, every day a small amount of your dollar is effectively being taken from you.  And to be more accurate, not your dollar so much as the amount it can purchase.

The key is that your purchasing power erodes little by little, day by day, year by year.  To really understand the impact, all you need observe is the compounded effect of all those little amounts over the course of a century and you will see that a dollar 90 years ago has declined in purchasing power by over 90%, in fact way more!

Ok, so what's the answer?  One possibility is to borrow heavily because the debt you owe is fixed at a certain amount and you can pay it off with dollars that continually decrease in value.  The system is by construction set up to reward the debtor, which explains why people are indebted and the nation as a whole has a strong incentive to remain heavily indebted.

If you can purchase resources for a fixed price today and pay for them more inexpensively tomorrow why not do that!  In fact, if you think about foreign governments purchasing Treasuries or bonds, you will see they end up with a nominal return of a few percent but those extra dollars generated in return are offset to an extent by erosion of purchasing power.

Smart investors take advantage of this phenomenon not by taking on credit card debt that sticks them with 20%+ interest rates but by taking on debt at fixed rates and paying back the amounts in later years as inflation takes off.  There's just one problem.  What happens when there is not inflation but deflation?  That's when the game's up for the borrowers as we saw in 2008.

To find out how to use the phenomenon to your advantage in a smart way regardless of an inflationary or deflationary market trend, join us at where we discuss smart ways to succeed.



Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.