[Originally posted on iTulip.com]

Some more thoughts on the present situation, after reading the article:

http://www.safehaven.com/article-11601.htm

October 18, 2008
The Mechanism Of Capital Destruction
by Antal E. Fekete

Address at the Annual Dinner of the
Committee for Monetary Research and Education, CMRE
on October 16, 2008
New York City

The above article explains how the falling interest rates over the last 28 years have been generally destructive of capital based businesses, including industry and banking, and the banking cartel known as the Federal Reserve.

Borrowing money to capitalize your business at rates that turn out to be higher than the subsequent prevailing rates is a money losing proposition.

A key element of the $700 Billion bailout, notes this article, is that the Treasury passed the new Treasury notes directly to the Fed, bypassing the Open Market, which is a direct act of monetizing debt not seen since World War II. Not only were GM, GE, AIG, JPMorgan, and a host of other major banks and businesses worldwide bankrupt. The Fed was bankrupt as well. We bailed out the Fed.

As this article further explains, in different terms, this is the curse and the blessing of using a convertible currency that depends on interest rates, rather than on precious metal.

The blessing is that the base for the worlds reserve currency the last half century or so, essentially monetizing the tax income stream from the American worker, has been able to grow faster than the worlds mined gold reserves, while remaining "as good as gold." A world prosperity unlike any ever seen before in civilization has been funded on the back of this currency.

One (not the only) curse is what the above article terms the "wrecking ball" of interest rates. Unlike the quantity of mined gold available to Western Civilization, which is "rock solid" (ignoring such times as the Spanish conquest of the New World), interest rates can swing back and forth. Declining rates hurt those who have already borrowed, while they help those who have already lent. Rising rates do the reverse.

A near three decade decline in rates has wrecked great damage on, and embedded great distortions within, the capital base of America's economy. This will be reversed when the secular trend in rates reverses. This should be fun to watch.

Those capital businesses that can:

1. Survive the depression,
2. Adapt to a lower, world competitive, wage base,
3. Survive serious inflation and dollar damage, and
4. Avoid the burdens of excessive socialist regulation,

will make great investments over the next decades.

Hmmm ... I wonder what those businesses might be.