Indonesia, 1998 and Egypt, 2011

What really happened in Indonesia before the overthrow of Suharto?
What really happened in Egypt before 2011 before the overthrow of Mubarak?

There was a stock market boom driven by loose monetary policy rather than fundamentals.
When the bust came, food prices were high and currency was in crisis. In the new business cycle, money was no longer going into stocks but rather into daily food items.

Did you know that Egypt was the best performing stock market in the world in 2005 and it did well in years previous to the financial crisis?

Egypt stock market returns in 2005

Pakistan to enter hyperinflation in next few years

After Zimbabwe, it appears that it is Pakistan's turn to enter hyperinflation.
The budget is double the revenue. It is unsustainable. Army gets bulk of the budget and
is a state within a state. Spending cuts cannot happen. The economy is in a downward spiral. The fall of Pakistani Rupee will only accelerate and hyperinflation will be obvious in the next few years.

Investment Strategy

I am sharing my investment strategy. Please share yours.

My investment strategy -
A business cycle lasts 4-7 years. Go long on certain assets at beginning of the business cycle. After 3 years into the cycle, start selling those assets slowly and raise cash. As the fed raises interest rates, slowly buy government bonds. By buying bonds, you are just front-running the fed because fed will be buying it when the recession hits. Keep selling the assets and raising cash as the cycle matures.
Watch for credit contraction. Once you are sure that we are in credit contraction, go short with some money for extra points. But cover your shorts every 1-2 days.

When fed has done lowering rates, sell the bonds. Slowly, start buying certain assets.

Every business cycle is different. So, you may have to buy different assets in different business cycles. Also, you don't have to be exact in your timing. Just approximate.

Goldman Sachs Has First Quarter With No Trading Loss

Goldman Sachs Has First Quarter With No Trading Loss

"May 10 (Bloomberg) -- Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before. "

Every single day. That's right - every single day.
Can random walk theorist professors give tuition refund to the MBAs manufactured in the assembly line? This should be proof enough of market manipulation for the nay sayers. I won't hold my breadth.

Chinese Hyperinfaltion:1939-1950

Origins of the Chinese hyperinflation

To preserve confidence in the new currency, the Decree contained provisions to establish a “Currency Stabilization Fund.” The Fund was to buy and sell foreign exchange in order to keep the exchange rate of the Chinese currency approximately constant relative to certain foreign currencies. The Decree also contained provisions to alter the function of the Central Bank. Instead of merely being an arm of the Nationalist Treasury, the Central Bank was to become a “banker’s bank” distinct from the Nationalist Treasury.[17] Also, the Decree maintained that “plans of financial readjustment have been made whereby the National Budget will be balanced.”[18] And, according to Finance Minister Kung, “The government is determined to avoid inflation . . . .”[19]

The wording of the Decree was the government’s attempt to quell fears of inflation. Chinese newspapers ran editorials assuring the public that the Nationalists had nothing but the best intentions for the Chinese economy, and the move to a paper currency was heralded by economists around the world as a step toward a modern banking system. But, despite the provisions of the Decree, the Central Bank was never removed from the Treasury’s control. Even more fraudulent was the assurance that the budget would be balanced. Indeed, the government deficit increased in the years following the currency reform.

In retrospect, Kung’s statement seems like a cruel joke on the Chinese people. The currency reform destroyed the private banking system which had served the Chinese economy well, and placed control of the currency in the hands of a corrupt and inept government. Inflation began almost immediately. Eventually the inflation became so severe that it helped bring about the collapse of the Nationalist regime. Thus, monopoly power over the currency proved fatal to the Chinese economy, since the inflation that Kung was “determined to avoid” occurred with a severity and length unparalleled in history.

Bernankeism in Rome

Inflation and the Fall of the Roman Empire

Now, what were the consequences of inflation? One of the odd things about inflation is, in the Roman Empire, that while the state survived — the Roman state was not destroyed by inflation — what was destroyed by inflation was the freedom of the Roman people. Particularly, the first victim was their economic freedom.

Rome had basically a laissez-faire concept of state/economy relations. Except in emergencies, which were usually related to war, the Roman government generally followed a policy of free trade and minimal restriction on the economic activities of its population. But now under the pressure of this need to pay the troops and under the pressure of inflation, the liberty of the people began to be seriously eroded — and very rapidly.

Bernanke: The Fed’s Exit Strategy

The Fed’s Exit Strategy by Ben S. Bernanke

Each of these policies would help to raise short-term interest rates and limit the growth of broad measures of money and credit, thereby tightening monetary policy.

Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.


In other words, the only way fed can control inflation is by raising interest rates.
But it will not raise rates because that will further weaken the weak banks and the weak economy. It will let inflation run most of its course.