George Soros, in the Huffington Post, discusses an outline that he believes can help turn the global economic crisis around and get the world on track for recovery. While I may not support some of Mr. Soros’ proposed ideas, at least he is presenting a plan, something our Treasury Secretary, Congress and the President’s office can’t seem to do. (Personally, I’d prefer if they put together a plan based on the theories of Marc Faber and Peter Schiff). for those who are unfamiliar with George Soros, he is the behind-the-scense financier of MoveOn.org (a Left Wing, Grass Roots organization) and rumored to be the catalyst behind the Obama presidential run, therefore, we can assume that his input comes into consideration in future legislation that will come out of the White House. If you’re interested in profiting from the collapse of our financial system, pay attention, because Soros may give us some insights into what may be coming down the pipe.
It [a viable recovery plan] can be done by creating money to offset the contraction of credit, recapitalizing the banking system, and writing off or down the accumulated debt in an orderly manner. For best results, the three processes should be combined.
There is no way to escape from a far-from-equilibrium situation–global deflation and depression–except by first inducing its opposite and then reducing it.
It seems like the federal government is trying to do something like this, but their plan is in no way as clear as what Soros is laying out.
To prevent the economy from sliding into a depression, President Obama must embark on a radical and comprehensive policy package that has five major components:
1. A fiscal stimulus package
2. A thorough overhaul of the mortgage system
3. Recapitalization of the banking system
4. An innovative energy policy
5. Reform of the international financial system
Again, all of these are seemingly being discussed in Washington, and the administration and Congress wants us to believe this is what they are doing. However, the RARP (Recovery and Reinvestment Plan), falls short on all points. Soros discusses each of these items in detail in his article.
As I am very bullish on commodities during this downturn, I paid particular attention to point number 4, an innovative energy policy.
Energy policy could play a much more innovative role in counteracting both recession and deflation. The American consumer can no longer act as the motor of the global economy. A new motor is needed. Alternative energies and energy savings could serve as that motor, but only if the price of conventional fuels is kept high enough to justify investing in them. That might also help to moderate price deflation. A high price on conventional fuels would be beneficial on both counts, but it would be hard to sell to the public. Until now, no politician dared to do so.
President Obama would need great courage and great skill to do the right thing. This would involve putting a floor under the price of fossil fuels…
I made reference to this in an earlier article A New World Order for Financial Markets. Mr. Soros seems to really like the idea of price controls on energy. This is not going to make the American public happy, but the fact is, if we want to have a new technological revolution, the likes of which Gerald Celente described, it is going to have to be in alternative energies. While I believe the free market can take care of both, the price of energy and the growth of alternative energy development, it seems that Mr. Soros and probably the controlling party in Washington, will force alternative energy development over the next decade. To expedite the development of new alt energy technologies, they will more than likely impose price controls, to the detriment of the publics’ pocket books, on traditional energies like oil and natural gas.
This will highly favor a rising price in oil, natural gas and heating oil. As a result, we will see other commodities, especially agriculture respond with increased prices.Â Alternative Energy companies in the US and abroad will also be a great long-term investment. We are going to see solar, wind and hydro power expand over the coming years.
Back to the crisis as a whole, Mr. Soros believes we should use the cumulative power of governments around the globe to aid recovery.
What is to be done? The simplest solution is to create more money. The mechanism for issuing Special Drawing Rights (SDRs) already exists. All it takes to activate it is the approval of 85 percent of the membership. In the past the United States has been the holdout opposing it. Creating additional money supply is the right response to the collapse of credit. That is what the United States is doing domestically. Why not do it internationally?
This will ultimately lead to increased money supply, or inflation, resulting in rising prices across the globe. All paper money, be it US dollars, Euro, Yen or Rubles, is going to be devalued over time. It is going to be important to look at inflation hedging investments to preserve wealth over the next decade, as cash, while king in a deflation, will be but a jester during times of inflation.
As George Soros mentioned earlier, to recover from a deflation we must first induce its oppostive and the reduce it. Expect to see the value of your dollar decline over the coming years.