From the Contrarian Chronicles: First off, let me take a step back. For my entire career, I always have believed that monetary stimulus “works.” Throughout the Greenspan reign, I have believed that the Fed would print as much money as was required to try to make things better. Consistent with those two points, I always have believed that in a social democracy with a fiat currency, all roads lead to inflation. But since the bursting of the biggest bubble in the history of the world, I have been dubious about the ability of stimulus to work its magic in any sustainable way, because of the excess capacity and the misallocation of capital produced by the mania.
Key word being “sustainable”. One reason I have written very little about the markets of late is that I was completely wrong about the Saddam rally and the ability of the Fed to sustain it. But I have not changed my opinion about the state of the economy at all, and despite my options debacle, I am still net ahead in that same time frame.
The dollar will go to zero, though it could be another 50 years. The interesting question revolves around what will replace it. Perhaps the Union of the Americas will kick itself off with a gold-backed currency, assuming China, the EU or the Arab nations don’t beat it to the punch.