by Nelson Hultberg
In Homer's famous epic, the Odyssey, its hero Ulysses must endure a long series of dangerous adventures in his journey home from the Trojan Wars. He and his men come under fire at every turn, as some new, death-threatening predicament is thrust upon them in their efforts to find their way back to their wives and families. The one-eyed monster Cyclops imprisons them in his cave, while the beautiful seductress Circe turns Ulysses' men into swine. The Sirens force Ulysses to tie himself to the ship's mast so as not to be lured to his death by their irresistible songs.
Only the blind cannot see Scylla and Charybdis looming up ahead -- waiting to consume us. As Richard Russell so sagely puts it, "What the Fed and the US government have done is to build the greatest edifice of debt ever seen by one country in history. And this debt continues to build. For the US government, the debt build-up is continuing at the rate of over $13 billion a WEEK. The current rising trend in interest rates will bear down on this ocean of debt. This pits the forces of deflation directly against the forces of inflation.
"This impending battle of inflation vs. deflation is going to be one of the most critical economic confrontations seen in decades. Frankly, I don't know how it's going to turn out -- and neither does anyone else. In fact, I'd say 99 percent of the US population is unaware that it's even happening." [Dow Theory Letters, April 13, 2004]
Obviously to those of us who are aware of the impending battle, knowing which of these two scenarios awaits us would be most advantageous. Will America explode into hyperinflation, or will she collapse into all-consuming deflation? If that could be known, then one could direct his investments accordingly and reap considerable profit in the markets. If only he knew for sure.
In the long run, collapse of some kind is coming. That is the unavoidable nature of a boom-bust Keynesian economy. But which will come first, Scylla or Charybdis?
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