Monday, February 22, 2010
Over the long term, it is hard to see how we are not baking massive inflation in to the future of the United States dollar. After all, we can pay those debts back only three ways: Growing the economy much faster than anybody expects and constraining public spending (current regulatory and legislative trends preclude both), imposing massive and probably uncollectable taxes, or debasing the currency. Door Number Three seems the most likely by a long shot.
That said, in the recent past and probably the near future the dominant trend is deflation (or no inflation), almost no matter how you measure it.
Reading press accounts of what the President is going to propose for Healthcare Reform, round six? seven?, the center of the proposal seems to be price controls as administered be a federal board. This is not serious. Is there no one in the central group of advisors who can explain economics to him?
The Kenyan favors (D). His sole objective as President, the only reason his owners had him elected, is to destroy the middle class in America.
He'll try to defund the military and use the cash for something useful, e.g., clean energy from unicorn urine, price control EVERYTHING to contain inflation and destroy the savings of most American with a hyper-inflation.
Or well, we just default on our debts and the whole world economy goes into the dumper. That's even MORE grandiose than just wrecking America's economy.
Seriously, the history of Argentina in the last 100 years is the future of the US in the next 50, writ small, now to be written large.
Economic innumerancy and just plain boneheaded stupidity will bring down the Republic.
"Don't dry for me, Argentina......"
This Cannon Ball Express left the station sometime ago. Its wreck is inevitable. But instead of Casey Jones as our engineer -- putting on the brakes instead of jumping to his own safety -- Obama is intent on speeding up.
I can't figure out inflation v deflation -- irresistable force meets unmovable object. So many things in our economy are way out of balance.
Private sector unemployment will be an even bigger driver politically. We haven't had sustained double digit unemployment in a long time. It was always going to be bad, but Obama-Pelosi have made it much worse. Obama has run from this, but it's going to catch him big time as he's put his own agenda first -- glaringly so. Obama now loses independents 2 to 1 -- tea parties are just the tip of this iceberg. If they don't screw it up, Republicans will retake the House. Maybe even the Senate. Boehner replaces Pelosi.
The next week should be interesting for us nerds.
Does Obama have the votes to jam through Healthcare? -- He's acting like he does ... but in the end I expect enough Democrats will run from it. Does forcing it and losing, break Pelosi and Reid as leaders? If the Democrats do ram Healthcare through -- given high unemployment -- they'll get killed in November 2010.
Can Boehner and Co strike the right tone of indignation at the Blair House Summit this Thursday? ... expect Scott Brown to be seated next to Boehner. A picture can be worth a thousand words.
Will some elements of MSM finally call Obama on his innumerate bullshit... my money is on Jake Tapper at ABC.
For decades, American industry has been like Gulliver lashed down by Lilliputians. The OBama administration certainly has no intentions of releasing those shackles, so we can expect at least another couple of years of malaise.
If the revulsion against the insane levels of government borrowing continues to grow, and it looks to me to have real legs, I'll have to go with B. I think we'll take our medicine. Never underestimate the Americans. Like Churchill said, sort of, "The Americans will always do the right thing after exhausting all other possibilities."
Not enough time for a detailed post, but:
1. Current CPI values are skewed by the credit bubble collapse. As we continue through the deleveraging process, leveraged assets (primarily housing) must drop in value. A 50% drop is not out of the question.
2. The impending collapse in Europe is buying the U.S. time by driving money into the dollar, which in turn drives up the value of the dollar. The Euro is dead as an alternate reserve currency. Dollar-based carry trade is all but dead, which should generate significant downward pressure on stocks. Commodities prices in dollars got some reprieve, which also helped CPI numbers.
3. U.S. public sector debt is unsustainable. We either default or devalue. There is no other option. Most likely we will devalue, resulting in massive inflation.
4. Before then, the Federal Government will effectively seize our 401k accounts by forcing them to invest a portion in treasury debt. Proposals are already in the works. Argentina redux.
5. SEC is proposing changes to money market funds and checking accounts to limit the owner's ability to withdraw funds. Americans may soon find themselves with lots of money in the bank that they simply cannot access.
The U.S. government is laying the legal and regulatory groundwork to cope with currency collapse and national insolvency. I'm not a survivalist, but IMHO anyone who is not developing a plan to deal with collapse is not thinking clearly.
Biggest frustration: Congressional Republicans are completely silent in the face of all this.
"5. SEC is proposing changes to money market funds and checking accounts to limit the owner's ability to withdraw funds. Americans may soon find themselves with lots of money in the bank that they simply cannot access."
Anonymous at 01:21:00 PM:
Could you please point me to information re these (horrifying) SEC-proposed withdrawal limits? Thanks!
>> Could you please point me to information re these (horrifying) SEC-proposed withdrawal limits? Thanks!
Anon here. This is getting great coverage on ZeroHedge and also by Karl Denninger.
Here's the post on ZeroHedge: http://www.zerohedge.com/article/government-your-legal-right-redeem-your-money-market-account-has-been-denied
Here's a link to a Seeking Alpha post on Demand Deposit withdrawal limitations: http://seekingalpha.com/article/189763-citigroup-can-limit-demand-deposit-withdrawals-money-funds-can-too
Per my comments above, the Federal Government is preparing for a currency and banking crisis. Are you?? A million dollars in the bank is worthless if you can't access it.
If your financial institution decides to start limiting withdrawals, are they going to charge you an NSF fee for the privilege? Could be lucrative for the bank, but a whole lot of customers will be very, very angry. Will they instead take a week or two to clear your checks, like they did in the days before electronic banking? Annoying, but not necessarily fatal.
most of the men on our currency saw this coming (see video) and what irony that the Fed pushes around dollars with the portraits of men on them who in so many ways stood for the opposite of what they do. unrestrained power - service to an elite class - ignorance of the foundations of our Republic..without huge, rapid, and sweeping change I can't see how there's not a lot of blood in our streets over the next 5 years. pathetic really that We the People are so busy watching TV we're letting the light go out on the torch...
I vaguely recall that during the height of our crisis period last year, or in late 2008, there was a very sudden, very massive and coordinated attempt by unknown foreign investors to withdraw funds from US money market funds.
The attempted electronic run nearly brought our banking system down. I believe at the time, the mysterious incident was described as the single most frightful time for the Fed. These new restrictions, assuming my memory is correct, would obviously be aimed at avoiding a repitition of that event. George Soros was always my candidate for evil mastermind, perhaps backed by the Russians, but since the government hasn't ever said exactly who or what happened during those awful hours, one cannot say for sure.
The date of the run was September, 2008 and here is Paul Kanjorski speaking about it, via BoingBoing. This is a video well worth watching, and it's a complete mystery (still) who was behind the attack.
The attempted run was electronic, so both the name of the investor and the name of the fund are both known. If the investors were all middle eastern, I'd bet one of the major terror groups coordinated it. That's a far cry from "still a mystery".