Friday, October 2, 2009

The Falling Dollar and the Slumping Economy

It's clear to me that with the ever growing spending, borrowing, and printing of money by the federal government and the Federal Reserve's monetary nymphomania, dark times seem inevitable in the economy as well as the value of the dollar. We as a country have zero savings domestically and are basically have been running a phony economy built on out of control spending for quite sometime. There is no way that we can keep this up for very much longer even though it seems we've done it for eternity. I'm going to say it now that I believe we will have to go through some type of a very tough, deep, and long recession to put our country back towards a path to prosperity.

Citizens are now starting to wake up to the fact (while others refuse to realize) that we half to accept a retraction in our standard of living and liquidate all of the malinvestment we have in our economy. It saddens me deeply to say this because the eggheads in Washington are the few minority of folks that will never come to accept the coming collapse of the dollar and the possibility of the "double dip".

Here are the reasons why I feel this will happen:

1) The Chinese, Japanese, and Saudi's ARE slowing down the amount of long term debt (U.S. T-Bill Notes) they buy from us. And, while they do own a good chunk of our debt (close to $2T dollars), they are looking at ways to slowly divest those holdings and convert them to gold or other more stable investments.

2) The Federal Reserve policy being set by Bernanke makes no sense to me. He has continued to keep rates way too low for too long and seems to be doing exactly what Greenspan did during the early 2000s except Bernanke is doing it on a MUCH larger and deeper scale. The problem with the low interest rates being basically "price fixed" by the Fed is the whole genesis to creating a false "boom". When rates are set artificially low, they induce investments toward capital that may or may not be what the short and long term market would have you think. Austrian economists are chief experts on the "Austrian Business Cycle Theory". This is caused by the Fed setting interest rates instead of the free market of consumer and commercial lending facilities setting where they need to be. In addition to the low interest rates, Bernanke is using the money supply to buy up bad assets from an assortment of primary dealers (like Fannie Mae, Freddie Mac, JPMorgan Chase, Goldman Sachs, Bank of America, etc). The Fed's balance sheet now holds at least $2T worth of assets. The quality and amount of collateral for these assets cannot be determined since the Fed cannot disclose the assets that it holds since it likes it's secrecy....oops... I meant it's "independence".

3) The tax policy set by Barack Obama does not seem to be a beacon of hope for businesses to increase capital or look to expand it's businesses in a time when we need it to most. Instead of gutting government to free up money that can be redirected back into the private sector, we have the exact opposite. Now, we hear all about this wonderful "Stimulus" plan and how it is going to be so great. However, all of the money that funded the stimulus plan had to come from somewhere and it surely did. I mean, what could be better than having a helicopter dump money from the sky? Why doesn't every country just do that? What could be the downside to this? Well, maybe it relates to our Treasury Department issuing more debt this year than probably another other period in history. So, we have funded the stimulus with money and wealth that has not yet been created. We are borrowing from TOMORROW's future to fund TODAY's government. Obviously, any of this is deeply lacking in common sense.

In an nutshell, I've laid out just a small set of items here that do not manifest a rosey outlook. While, I'm not an economist, financial analyst, or political science hack of any kind, I do know when I can smell "bs" as they say. We are essentially being sold some snake oil and told it will all be okay. It will not. We're told that the government knows best and we can trust them. They don't and we should not. We're told that the stock market is up and it's all sunshine and lollipops going forward! The stock market is up and it's nice that we all think it will last. I hope it does, but it's hard to argue the facts that I've discussed. I don't see any lollipops.... do you?

No comments:

Post a Comment