Unless you live under a rock you know there are many things going on right now in the economy and markets and frankly many of them are not positive for investments or investing.
The Federal Reserve is basically done with Quantitative Easing or the relentless printing of money that propped up the economy over the last year or so. What remains is how quickly Bernanke not only decides to recycle the vast amounts of dollars out there and when will he feel the need to begin pulling some of that cash back into his pot. Inflation has been rearing it's ugly head in increased prices of energy and food. It is just a matter of time before we see it in other consumer prices. The only thing that is saving us from big time inflation is that the economy is actually slowing, not expanding. If we actually start growing the economy and adding real jobs we will see significant increases in demand and inflation. Little known fact is since January 2008 not a single FULL TIME net job has been added, only temporary positions. Timing is critical for Bernanke, but he also has no control over the political decisions in Washington that will effect which way the economy moves. I frankly also remain quite concerned about who is going to buy the federal government debt being pushed out in $100 billion dollars plus each month, now that the Federal Reserve will no longer by buying $75 billion or so each month. How interest rates can not move upward soon is just a foregone conclusion in my opinion.
Into this end of money printing comes continued debt by Obama and the federal government. We also will see very soon if Congress, specifically the House of Representative will bend under the media and administration pressure of wanting to just keep on keeping on with building up mountains of debt. Obama is frankly worried that the economy is slowing and that re-election odds are getting long with Americans growing increasingly tired of rhetoric and no action on the economy and jobs. Obama's approach is to keep adding debt, regulation, and taxes and hope he can run out the clock to re-election. It is a serious and frightful game he is playing. Something must give soon and whoever wins in November 2012 has a heck of a mess on their hands. Personally I believe the game over increasing the debt limit is likely the last finger in the dike before it breaks. Be careful, be VERY careful if you own US government bonds if debt keeps on growing and the dollar finally gets killed in world markets. The dollar as world currency is the last inheritance we have from the WorlWar Two generation and we are blowing it rather quickly now.
If you want to see what happens when debt becomes unsustainable take a look at the situation in Greece. They owe about $56 billion in INTEREST each year and have tax revenue of around $40 billion each year, even the dumbest person can see that default is not if, but when. Germany has been loaning good money after bad to Greece to avoid the pain of Greek bonds held by German's going into default. French bankers are on the hook here too. Everyone knows if Greece defaults, Portugal follows, Ireland follows, and likely Spain as well. Again, if you own bonds be very careful, even US government bonds. Now Obama has stepped into this mess offering to loan money to Greece to help them out. Money the US does not have, and will borrow from China. The reason is simple if this house of cards collapses the world economy tumbles with it and Obama begins planning his new library in Chicago. Angela Merkel, German Prime Minister, is likely gone in the next election, as Germans are mad as hell that their hard work and savings are going to save Greeks who have been less than diligent with finances. I think it is interesting that China has also made inquiries into this monetary mess offering to buy Greek bonds, but of course with shall we say much more strings attached that Merkel or Obama is offering.
How does all this relate to you. Putting it simply if you have savings and investments, or if you have nothing, you are likely going to get screwed. Inflation will eat at savings and bond values, inflation will eat at your monthly expenses, Obama and Greece is looking after themselves and not you, and both will trade away anything to keep afloat. I do mean afloat as neither Obama or Greece is going to make anything better in this monetary environment.
I suppose the question here is are there any grownups left, who know how to take control of things and make things work again. The Greatest Generation is over the hill and heading away, so no help there. In times past someone stepped forward and did the adult things and made everyone take their medicine and pain and turned things around. Currently that person is not anywhere to be seen. Of course you could do the real smart thing and go find your bed and hide underneath it. That seems to be what many of the American public has done since no one seems to care about this mess. Soon they will have no choice. For me I enjoy moments like this, trouble breeds opportunities and if things really go to hell I can just wait for the young folks to be taxed to death to pay my medicare and social security.
No comments:
Post a Comment