Foreign versions of our coming crisis

Bill Fleckenstein

Greece and the United Kingdom are suffering a dire funding problem that is headed for US shores.

Regrettably, these days it seems that ferreting out the right investment decisions is sort of all macro, all the time. The top-down economic overview is far more important, I think, than the bottom-up fundamental view of any company or stock.

Important pieces to that macro jigsaw puzzle are Greece and the United Kingdom, as the U.S. is headed for a variation of the funding crisis, though how severe ours will be remains to be seen. Without a money-printing press -- because it uses the euro, not a currency of its own -- Greece is forced to consider austerity measures to deal with its debt woes. The U.K., on the other hand, is not as bad off as Greece, and it does have a press.

For America: A Greco-Anglo scenario?

A crisis of confidence has invaded Greek and U.K. shores, and we can all learn a bit about what our future might look like as we watch developments there. (The U.K. may be the most useful example for us, since we also have a printing press.)

We will soon find out whether Bank of England Gov. Mervyn King will extend quantitative easing and, if he does, how the bond market will respond to a renewed effort to pump money directly into that economy. (The pound is already under a good deal of downward pressure.)

I would say that the U.K.'s funding crisis -- to use my ballgame analogy -- is probably in the third inning or so, even if we are still taking batting practice over here. (Read "Economy sinks as we save bankers" and "The next crisis has already begun" to brush up on that analogy.)

Back to Greece for a second: The sort of straitjacket that it's being placed in by its inability to print money is what's forcing the country to consider making tough decisions.

Only in a funding crisis where you have no other options are the Western world's "soft" social democracies willing to -- or rather, are forced to -- make hard decisions. So, the upside of the crisis is potentially coming out the other side in a more sane, sustainable fashion. That's what we all have to hope for.

Inflation ahoy?

But before facing our own debt and currency crisis, the U.S. is liable to experience a period of stagflation and inflation. Regular readers know my view about the strong connectivity between money printing and inflation. (Read "Why all roads lead to inflation" for more on this.)

What's difficult is trying to describe in advance the exact path whose destination is inflation. That's because government money printing infects certain markets or niches sooner, with some affected more than others. But one thing is knowable: Money printing always ends up raising prices.

Thus far here in America, we've witnessed a lot of taxes and user fees raised by the government, and businesses that have seen competitors fall away have increased prices. That's a variation of inflation, which will be exacerbated by more money printing.

But a really fine example -- and one that's liable to shock most people, as it actually did me -- is what's happening in China. For that, we can look to a recent New York Times story headlined "Defying global slump, China has labor shortage" (registration required):

"Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage. (Meanwhile), as American workers struggle with near double-digit unemployment, unskilled factory workers here in China's industrial heartland are being offered signing bonuses. Factory wages have risen as much as 20% in recent months. . . .

"Some manufacturers, already weeks behind schedule because they can't find enough workers, are closing down production lines and considering raising prices. Such increases would most likely drive up the prices American consumers pay for all sorts of Chinese-made goods. . . .

"The immediate cause of the shortage is that millions of migrant workers who traveled home for the long Lunar New Year earlier this month are not returning to the coast. Thanks to a half-trillion-dollar government stimulus program, jobs are being created in the interior."

So there you have it: Massive amounts of monetary and fiscal stimuli are leading, as they always do, to inflation.