Wednesday, January 7, 2009
American Twilight?
In a way, this is possibly the most negative article I have read so far... it's not a far flung doomsday article, more like... stating the obvious... IMHO. Still, his conclusions may or may not come true...
Ladies and gentlemen, I present an excerpt from Christopher Grey's article: Opinion: Is It Twilight in America? http://www.thestreet.com/story/10456268/1/opinion-is-it-twilight-in-america.html
"The most fundamental economic problem we face is not a credit crunch, or unemployment, or falling home prices, or a stock market crash. All of those things will naturally correct themselves over time. The most serious economic problem we face is a severe lack of private savings and sustainable income generation to support the expenses of our government and the private standard of living for our citizens.
Even with historically low interest rates, the ratio of our consumer debt payments relative to income is at an all-time high. The Bureau of Economic Analysis reported in December that savings from current income for most Americans may be zero or negative when financial outlays are financed by borrowing.How bad would things get if interest rates were to rise? This will eventually happen since rates can't go below zero.
We have been avoiding the consequences of too much debt, too much spending, too little income and too much speculation for many years due to increasing leverage and appreciating assets such as homes and stocks.
Now that these and other financial assets have been falling for the past year because of deleveraging, we are only beginning to realize how weak and fragile our economy is without constant asset inflation. This is a very scary thought for most people to comprehend, and politicians don't want people to think about it. But the problem is not going away, and it is getting worse every day that we ignore it.
The Fed is basically printing so much money that it is staying ahead of what would naturally be a short-term deflationary period as the economy tries to adjust from years of rampant asset and commodity inflation.
After this downturn runs its course -- probably over the next few quarters -- all of this excess liquidity created by the Fed is going to cause a tremendous surge in inflationary pressure. At that point, the Fed will either need to dramatically raise interest rates to fight inflation or allow a collapse in the purchasing power of the dollar and a stampede out of U.S. assets by foreign investors.
The current government policy of free money combined with encouraging Americans, who largely have no savings and spend more than they earn already, to borrow and spend even more seems too bizarre not to be intentional.
The Fed's real objective here is to promote a combination of fear mongering about deflation to justify keeping interest rates at zero, while at the same time promoting as much inflation as possible in an attempt to orchestrate a massive stealth devaluation of the U.S. dollar and short-changing of all foreign investors in U.S. assets.
It is a con game of epic proportions, and it could work if foreign investors are dumb enough to allow themselves to get pennies on the dollar for their dollar denominated investments. However, if it doesn't work and foreign investors wise up to this game, the U.S. will face an economic Armageddon that will make the past year look mild.
Why would that happen? The U.S. economy needs to import several billion dollars a day from abroad just to keep the light on. If foreigners turn off that spigot of cash, even if they don't dump their existing U.S. assets, our economy will collapse. An even more extreme possibility is that there is an international revolt from the dollar as the world's reserve currency.
If that happens, we could no longer just print as many dollars as we want with minimal consequences. We could ultimately have to default on our debt like Argentina, Russia, or Ecuador. I do not predict that happening because the U.S. is too big for the world to allow it to default, but my point is that we are entering a world that will no longer allow us to make believe that printing dollars is free. There will be a cost to all of this money printing, and that cost is going to increase.
As President-elect Barack Obama tries to channel Franklin Delano Roosevelt with his recent statements, he should remember that this is not 1933. At that time, America was the world's largest creditor nation. We are now the world's largest debtor. Also at that time, Europe and Asia were both in the process of disintegrating as a result of revolutions, fascism, socialism, and ultimately World War II. This situation left America as the strongest country in the world.
If you look at when the stock market actually ended its bear market that began in 1929, it was actually within a month after Pearl Harbor. Of course the market bottomed back in 1933. But if you look at when the new bull market began, it wasn't until January 1942 and coincided directly with the entry of the U.S. into the wars in Europe and Asia. I do not see any similar circumstances globally that will benefit America, nor do I see the benefit of being the world's largest debtor instead of the world's largest creditor.
Obama today faces a much more serious challenge than FDR ever did. Hopefully, his administration will rise to that challenge, and maybe America will somehow get lucky. I don't know. What I do know is that it is not helping for our nation's political and financial leaders to keep writing checks that they can't cash and lying to the American people about the financial solvency of our nation and how we're going to turn things around.
We aren't going to save ourselves economically with more borrowing and spending and speculating. That much should be clear to everyone at this point. History will judge our current leaders very harshly if it turns out that they presided over the twilight and ultimate decline of our great country because they were either too afraid or too ignorant to face up to our real problems and take action to start correcting them."
Summary, and to stress which points are pretty much well-known FACTS:
Too much borrowing, lending, and printing money got us all into this mess. Fact of the matter is, it just went on and on and on... but no one noticed, because the autos, property, and stock market were on the UP cycle. But, as we all know, all these are cyclical.
As soon as the downturn went on for any length of time, the shit hit the fan.
I view the problem as a bunch of doctors who are in fact drug abusers. They're all off in happy happy land every day. One day a few top doctors find that they are all getting unhealthier. So, one of them decides to they have to quit... the other doctors agree this is the right thing to do, so they all vow, no more drugs. (No more bank rescues! Let Lehman go!)
The next day, they are all wracked with withdrawal pangs and collapse on the floor, unable to function!
And then declare that they are going to prescribe drugs to themselves. Some doctors admittedly attempty prescribic alternate drugs. Some doctors swap drugs with each other. In a horrible moment of clarity, some doctors realize that their "normal" amount of drugs is NOT SUFFICIENT, so they need rather ridiculous dosages to keep themselves in happy happy land! (Bailouts and stimulus packages of rather unprecedented size)
At the end of the day, none of them can face the hard decision: sooner or later, they are going to have to face this horror that they have brought upon themselves.
Seriously... living on drugs/debt... and enjoying yourself for a few years... and at the end of it, you expect to somehow manage to avoid any negative consequences???
... I don't think so.
Idiots.
Ladies and gentlemen, I present an excerpt from Christopher Grey's article: Opinion: Is It Twilight in America? http://www.thestreet.com/story/10456268/1/opinion-is-it-twilight-in-america.html
"The most fundamental economic problem we face is not a credit crunch, or unemployment, or falling home prices, or a stock market crash. All of those things will naturally correct themselves over time. The most serious economic problem we face is a severe lack of private savings and sustainable income generation to support the expenses of our government and the private standard of living for our citizens.
Even with historically low interest rates, the ratio of our consumer debt payments relative to income is at an all-time high. The Bureau of Economic Analysis reported in December that savings from current income for most Americans may be zero or negative when financial outlays are financed by borrowing.How bad would things get if interest rates were to rise? This will eventually happen since rates can't go below zero.
We have been avoiding the consequences of too much debt, too much spending, too little income and too much speculation for many years due to increasing leverage and appreciating assets such as homes and stocks.
Now that these and other financial assets have been falling for the past year because of deleveraging, we are only beginning to realize how weak and fragile our economy is without constant asset inflation. This is a very scary thought for most people to comprehend, and politicians don't want people to think about it. But the problem is not going away, and it is getting worse every day that we ignore it.
The Fed is basically printing so much money that it is staying ahead of what would naturally be a short-term deflationary period as the economy tries to adjust from years of rampant asset and commodity inflation.
After this downturn runs its course -- probably over the next few quarters -- all of this excess liquidity created by the Fed is going to cause a tremendous surge in inflationary pressure. At that point, the Fed will either need to dramatically raise interest rates to fight inflation or allow a collapse in the purchasing power of the dollar and a stampede out of U.S. assets by foreign investors.
The current government policy of free money combined with encouraging Americans, who largely have no savings and spend more than they earn already, to borrow and spend even more seems too bizarre not to be intentional.
The Fed's real objective here is to promote a combination of fear mongering about deflation to justify keeping interest rates at zero, while at the same time promoting as much inflation as possible in an attempt to orchestrate a massive stealth devaluation of the U.S. dollar and short-changing of all foreign investors in U.S. assets.
It is a con game of epic proportions, and it could work if foreign investors are dumb enough to allow themselves to get pennies on the dollar for their dollar denominated investments. However, if it doesn't work and foreign investors wise up to this game, the U.S. will face an economic Armageddon that will make the past year look mild.
Why would that happen? The U.S. economy needs to import several billion dollars a day from abroad just to keep the light on. If foreigners turn off that spigot of cash, even if they don't dump their existing U.S. assets, our economy will collapse. An even more extreme possibility is that there is an international revolt from the dollar as the world's reserve currency.
If that happens, we could no longer just print as many dollars as we want with minimal consequences. We could ultimately have to default on our debt like Argentina, Russia, or Ecuador. I do not predict that happening because the U.S. is too big for the world to allow it to default, but my point is that we are entering a world that will no longer allow us to make believe that printing dollars is free. There will be a cost to all of this money printing, and that cost is going to increase.
As President-elect Barack Obama tries to channel Franklin Delano Roosevelt with his recent statements, he should remember that this is not 1933. At that time, America was the world's largest creditor nation. We are now the world's largest debtor. Also at that time, Europe and Asia were both in the process of disintegrating as a result of revolutions, fascism, socialism, and ultimately World War II. This situation left America as the strongest country in the world.
If you look at when the stock market actually ended its bear market that began in 1929, it was actually within a month after Pearl Harbor. Of course the market bottomed back in 1933. But if you look at when the new bull market began, it wasn't until January 1942 and coincided directly with the entry of the U.S. into the wars in Europe and Asia. I do not see any similar circumstances globally that will benefit America, nor do I see the benefit of being the world's largest debtor instead of the world's largest creditor.
Obama today faces a much more serious challenge than FDR ever did. Hopefully, his administration will rise to that challenge, and maybe America will somehow get lucky. I don't know. What I do know is that it is not helping for our nation's political and financial leaders to keep writing checks that they can't cash and lying to the American people about the financial solvency of our nation and how we're going to turn things around.
We aren't going to save ourselves economically with more borrowing and spending and speculating. That much should be clear to everyone at this point. History will judge our current leaders very harshly if it turns out that they presided over the twilight and ultimate decline of our great country because they were either too afraid or too ignorant to face up to our real problems and take action to start correcting them."
Summary, and to stress which points are pretty much well-known FACTS:
Too much borrowing, lending, and printing money got us all into this mess. Fact of the matter is, it just went on and on and on... but no one noticed, because the autos, property, and stock market were on the UP cycle. But, as we all know, all these are cyclical.
As soon as the downturn went on for any length of time, the shit hit the fan.
I view the problem as a bunch of doctors who are in fact drug abusers. They're all off in happy happy land every day. One day a few top doctors find that they are all getting unhealthier. So, one of them decides to they have to quit... the other doctors agree this is the right thing to do, so they all vow, no more drugs. (No more bank rescues! Let Lehman go!)
The next day, they are all wracked with withdrawal pangs and collapse on the floor, unable to function!
And then declare that they are going to prescribe drugs to themselves. Some doctors admittedly attempty prescribic alternate drugs. Some doctors swap drugs with each other. In a horrible moment of clarity, some doctors realize that their "normal" amount of drugs is NOT SUFFICIENT, so they need rather ridiculous dosages to keep themselves in happy happy land! (Bailouts and stimulus packages of rather unprecedented size)
At the end of the day, none of them can face the hard decision: sooner or later, they are going to have to face this horror that they have brought upon themselves.
Seriously... living on drugs/debt... and enjoying yourself for a few years... and at the end of it, you expect to somehow manage to avoid any negative consequences???
... I don't think so.
Idiots.
Jasonred79 invested at
3:03 AM
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