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                                         Source: CantonRep.com      They stand mute, shell-shocked and ashen-faced.  Finally, the central banker speaks up. I can't believe what's happened!! Who could have known that lowering real interest rates to below zero  for a decade following the sub-prime mortgage crisis - that we caused with low rates, excess liquidity and no regulatory oversight - could lead to high inflation? And who

"There is no art which a government learns sooner than that of draining money from the pockets of the people."  - Adam Smith 1723-1790     And there are those eager to facilitate that draining. Martin Wolf writes a column for the Financial Times newspaper. He is highly regarded - by those in government and academia. Larry Summers calls him "the world's preeminent financial journalist."  Mohamed A. El-Erian says he is "by far the most influential economist out there." Kenneth Rogoff calls him the "premier financial and economics writer in the world." Wolf recently penned an FT editorial, " The case for a land value tax is overwhelming ."  He wrote,

   So said Antonio in Shakespeare's  The Tempest,  to his co-conspirator Sebastian, to justify the murderous act they were about to commit. Today the phrase is used less ominously to mean that history sets the stage for what happens next. About that there can be little doubt. The present is necessarily built on the foundations of what has come before. This leads us to believe that our future will be an extension of the present. In the world of psychology, this is known as "recency bias." However, the future often plays out very differently than expected because we have misinterpreted what has actually happened and ignored obvious risks.  

                        Source: Shutterstock      Ray Dalio, CEO and former co-chief investment officer at hedge fund Bridgewater Associates, has  spent decades researching and writing about the political and financial cycles that have recurred throughout history. His book " The Changing World Order: Why Nations Succeed and Fail " is not just for historians. It is essential reading for investors. He finds that the rise and fall of major powers follow a predictable template. Armed with this knowledge, we can plot where we are in the current cycle.

                                                 "Time" is a hard word to define.  Does Merriam Webster's "a non-spatial continuum that is measured in terms of events that succeed one another from the past into the future" help you wrap your arms around the concept?  If this definition is correct, it would suggest that tripping and falling or touching a hot stove and getting burned is "time." A curious thing about time is its apparent elastic quality. As a child it felt like an  eternity between birthdays or while having to sit quietly at grandma's dinner table while the adults droned on about topics we did not understand. But when we are immersed in a good book, it seems to fly by. Often time appears to stretch forever into the future like the rail tracks above.  But as we get older, we begin to appreciate the insight of singer/songwriter Townes Van Zandt who wrote:       Time, she's a fast moving train.  She's here and she's gone and

       If you watched the popular series "Game of Thrones" you will recognize the warning. It cautioned that when winter comes to Westeros, it is unspeakably brutal and denizens must be prepared if they have any hope of surviving.  This is periodically true in the investment world.  Markets move in both short and long-term cycles. An investment strategy that is successful during the bull (summer) phase of a long term cycle is unlikely to be suitable for the bear (winter) phase of the cycle.  While all winters (down cycles) are tough, some are horrific. 

     Fed chairman Jerome Powell assures the world and nervous Americans that after flooding the US economy with $8 trillion of freshly minted money (causing the highest price inflation in forty years) the Federal Reserve Bank is fully capable of remedying the crisis without triggering further inflation, a stock market crash, recession or high unemployment. Believing that requires one to disregard its sorry history of trying to micro-manage the world's biggest, globally interconnected, infinitely complex economy. It also requires one to ignore the fact that it has never managed to avoid precipitating a recession once price inflation exceeds 5%. Today's government-calculated inflation rate is 8.5% (it exceeds 16% if calculated as historically done). 

President Biden, Jay Powell, Christine Lagarde (head of the European Central Bank), Boris Johnson and Andrew Bailey (head of the Bank of England) all vow to fight surging inflation. None will succeed over the long term. If investors understand why this is the case they will be far better positioned for what comes next. As is often the case, the best indicator of the future is the past. When we fail to take note of history we continue to be surprised by recurring events. History tells us what we need to know about government finance and its impact on prices and markets. Every financial crisis differs in some respects from others, but most have a common denominator. That is excessive individual, corporate and governmental debt resulting from maniacal central bank money printing.