The human brain fascinates me on so many levels. For example, how amazing is a physical structure that allows for future awareness, or, better yet, predicting the future. Another example of my fascination with the human brain is how intelligent beings can combine rational and irrational thought in the same extrapolative process. We seem to be missing some type of “alert” system that goes off when we combine rational and irrational thought to arrive at some conclusion. The writer of the Bloomberg article below could use an alert system for just such a problem.
The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency …. The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.
Again, we have a seemingly intelligent thinker resorting to hyperbolic and irrational thinking as part of his process for arriving at the simple conclusion that more QE-2 is bad. Does he really believe for one second that “We have entered the endgame for the dollar as the dominant reserve currency…?” If so, please tell me what will replace that currency? Will it be gold as he suggests? Picture this – you pay for the car you just bought with pure gold coins, or would it be gold-backed, large denomination bills? You see where I am going with this. Perhaps he thinks that the yuan will replace the dollar as the world’s reserve currency. Imagine that, a communist regime heading up the world economic system. Hmmm … That would go over well with the financial right of the world. He does leave himself an out when he proclaims the only question is when. Now take the above and compare it to what the author says later in his article.
Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as Treasuries and corporate-debt instruments with paltry yields, as well as the reluctance to lend by commercial banks. We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.
Now, putting aside the hyperbolic language, it is hard to disagree that the potential for massive loss resides in the current bond bubble. Then again, we might be seeing the orderly exit from the bubble as money slowly returns to higher risk investments, such as equities and commodities. No, I give credit where credit is due – the author rationally identified a potentially big problem.
One more thing that fascinates me about the human brain is how primitive it can be when it is trying to make a point. For example, a bear will stand up on its hind legs and roar as loudly as it can when it wants you to go away. Dogs bark noisily to make their point. Birds squawk and cows bellow. These “primitive” creatures are doing the only thing they can do to make their point. Why is it then if the human brain is so powerful and so advanced that we cannot do better when it comes to discourse about the real and very serious problems we face in the world today?
Trade in the day; invest in your life …
