U.S. Economy: Spending and Phantom Financing Will Only Lead to Ruin 23 comments
-
Font Size:
-
Print
- TweetThis
How is the U.S. going to pay for the financial bailout, the stimulus package, and the new proposed housing bill? Well, we know that the new administration will not increase taxes to fund these “last-resort” projects. So, the U.S will do what we do best: create money out of thin air. Every time I turn on the TV, I see a once great capitalistic nation turn even closer to a socialist nation.
Obama’s stimulus plan of creating jobs by building infrastructure cannot work because he is being poorly advised. The solutions proposed by his economic team are going to make this problem worse in the future. All of these bailouts and stimulus packages are just to perceive a cushion for the fall, when in reality the financing of these so-called lucrative projects are non-existent. The Fed is destroying the U.S. dollar by printing money to fund the ‘cushion’ for our economy. We are not going to be able to spend ourselves into prosperity like this administration thinks. They are trying to keep housing and stock prices high in order to retain the paper wealth of these assets, which has vanished from excessive credit, and poor allocation of investments from past administrations.
Now we are trying to get this credit going again, and the administration thinks that by bailing out the financials, fixing the mortgages, and providing stimulus to the nation with money and credit created from thin air that they are going to produce long-term growth for our nation. In reality, it is adding to our national debt in alarming amounts.
We see now that the Fed is trying to fix prices. In a recession, prices should go lower because obviously prices were inconsistent with the laws of supply and demand. When a nation manipulates prices, they become socialistic; socialism hasn’t done well as a way of government all throughout history. Bernanke’s argument based off the Federal Reserve Act is irrelevant in the fact that he is trying to find price stability.
Price stability is far different than price fixing; in actuality, price fixing doesn’t lead to price stability. Bernanke misunderstands this key difference. He is trying to keep the worth of illiquid assets perceivably higher, but for the most part an asset is illiquid because it isn’t worth much of anything anymore. Congressman Ron Paul has said that the reason why the Great Depression was prolonged was because of price fixing, and this is what we are now seeing. So, the government could be prolonging this economic catastrophe with the thought that they are actually fixing it.
Throwing money at the problem with no thought of how it will be funded could lead the U.S. down a road of debt that they may never dig themselves out of. With the current deficient and spending problems, our dollar will slowly become worthless unless major changes in economic policy occur. The whole reason that we are in this mess is from the government creating credit out of thin air. More of the same of this phantom-financing at exponential amounts will not create the growth needed by the United States in order to survive.
If the problem was all the debt accumulated from financing past and present projects, why is everyone blaming the housing market? As we have seen in the past, every economic bubble has eventually burst. We have seen it time and time again in foreign bonds, technology stocks, oil, and in the value of houses. The downturn in housing means that they were overpriced. This has led the government to fix prices, but the prices should come down because that is how a free market works. The market is saying that prices were too high, and to correct those high prices, a fall in prices is needed. By price fixing, the government is interfering with the laws of supply and demand. Fixing prices at a higher level then what they should be just ends up compounding the problem in the near future.
The problem has occurred because we borrowed too much, we spent too much, and we printed too much. This will eventually lead to inflation; inflation isn’t just an increase in prices from a fallen worth in real dollars. When money is created from thin air, when it is loaned out from the central bank, it increases the money supply without any corresponding increase in the goods and services of the economy. More paper chasing the same amount of goods means that each dollar is worth less. This is inflation and this is what will eventually destroy our economy.
It would be the same as if the Federal Reserve went into your bank account and took a percentage of your savings, say 2-3%. So in reality, inflation is a tax powered by the Fed, increasing it by increasing the money supply, which is what they are doing right now. Even though there hasn’t been a raise in taxes, inflation is the tax money taken from consumers to finance these projects. People need to get off their high horse and look at what is really happening in our economy and not just listening to what the neo-liberal media is telling us.
If people aren’t worried from the hidden Federal Reserve inflation tax, or the continued spending and increase in our national debt, then they should be worried of the one quadrillion held world wide in derivatives. Derivatives are basically a financial fantasy, phony wealth created by leveraging out real assets hundreds of times. This means that a small amount of assets can represent exponential amounts of money in a combined effort from major investment banks.
The bedlam in the mortgage-backed securities market is threatening an unfortunate series of events that could melt its way through this derivatives’ bubble and create a financial calamity with irreversible consequences. To put one quadrillion in perspective, the amount of assets combined in the entire world is worth around 100 trillion. So this derivative black-hole is ten-times greater than the entire wealth of assets on Earth.
The United States needs to go through a major change in economic policy in order to fix this mess. We can start by letting things fail and letting the market work itself out. If millions of jobs are lost, let it be; let them fail. The cost of propping up failing, poorly run companies is worth more than the ramifications of just letting the company fail with the corresponding job loss. We will eventually lead to create more efficient and technologically advanced products that are in demand, which will allow us to turn into a producing nation with other nations importing our products.
This will lead to an increase in our currency and start to level off the budget deficit. We also could sell off some of our public land reserves. Whatever it is, major changes are needed. If we keep going on this spending and phantom-financing course, it will surely lead to an even more fierce catastrophic collapse in our financial and economic system.
Disclosure: no positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
Study how the real world works, it's quite different from an economics101 textbook or a finance course..
if you tax me less i will work harder.
Stop spending. Pay down your national debt. Increase taxes.
In Canada thats what we did for the last 20 years. It was painful. Everybody hated it. It means cutting government jobs. Cutting social programs. Cutting spending, and increasing taxes.
In the USA you still seem to think that decreasing taxes will spur your economy, but you seem to forget that you already pulled that lever a few years ago, and then you spent all the money it did create. Its not going to work twice.
Until I start reading articles from the USA that discuss how they are going to pay down their massive debt, I expect there will be no recovery.
Kirk
There is no recognition of the real cause of this problem. Even Debt itself is only a major symptom. The real underlying problem is a tectonic change in pecking order.
Because the US public cannot handle the truth, and won't vote for politicians that tell them as it is, everything for the last 20 years has been sugar coated. And that sugar coating has resulted in humongous debts, at all levels from personal to Government. Yes, the cure has to involve elimination of that debt, and Obama tacitly acknowledges that. He even says he is going to resolve the problem. Trust me, when I tell you that he hasn't a clue how to achieve it. I am not sure that I know either.
What I do know is that you cannot keep trying to jump start the consumer with free cash and expect that to work. However, massive cuts in Government spending can be counter productive. If you close down industries and put millions out of work, you have fewer people to tax and more demand on the federal purse, but clearly you have to make economies somewhere.
Tax cuts don't work because essentially it just more money down the toilet.
Infrastructure projects, however, can help to sustain economic activity and provide something tangible for the future.
Nothing is a panacea. To get out of this mess, you need to work harder, work smarter and be more frugal than your competitors on a World stage. The first step towards achieving this is to admit that you are not achieving this right now. America's single biggest problem is Denial. Most American's think their country is some kind of invincible industrial powerhouse. Whilst that view persists, when the reality is that you have one of the most unfit, poorly motivated, under-educated and downright expensive workforces in the Developed World, the economy can only continue it decline into oblivion.
Expanding more of a budget deficit while an diminishing economics shrink more than a bankrupt treasury. Hyper-inflating an deficit death zombie the money supply. Not only they stimulate their price tag. You pay up double.
Spot on. Don't listen to the ridiculers, the baby boomers that are unraveling faster than ever thought possible. They laughed publicly at Ron Paul last year but he's dead right. STATISM loves the Republican vs Democrat smokescreen that paralyzes the population that would otherwise wake up and destroy the state. Don't be part of the disease.
GET LIBERTY.
Get rid of the federal government, the system of entitlement and compassion that's turning 40% of the population into indentured servants. The rest are being bought with so called improvements to infrastructure. HEALTHCARE RATIONING IS NEXT.
Banks are to be nationalized next. Gold is at a ten year high. Asians are refusing to buy gov't backed securities. WHAT DOES THIS MEAN? AMERICA IS BANKRUPT! The states on the seaboards are bankrupt. What are people doing beside sticking out their hands and saying whats in it for me oh mighty savior manipulator of the political and monetary system?
The fix to this problem is simple, stop redefining everything from science to the economy to our personal liberties. FOLLOW THE US CONSTITUTION.
It's fourth quarter now and the game is almost over. Chavez has bought full control of his country and it is soon to happen here. Our Chavez has to get it before the bad hardship starts though. We have to stop him now. Putin of all people is accusing us of being market and currency manipulators.
GET ON THE PHONE WITH YOUR STATE LEGISLATOR MONDAY.
We can't have taxation without representation and the representation is gone at the federal level. 70% of the population was against the bailout. Stop the madness at the state level which our next bastion of defense.
GET LIBERTY!
YOU HIT IT ON THE HEAD THAT PRES. OBAMA IS BEING ADVISED POORLY.
WHEN YOU SEE THE MOTLEY CREW THAT HE HAS ADVISING HIM, HE SEEMS TO BE OBLIVIOUS OF THE FACT THAT A LOT OF THOSE PEOPLE WERE INVOLVED IN THE FIASCO IN SOME WAY OR ANOTHER, INCLUDING THE INFAMOUS PAUL VOLCKER.
HE ALSO SHOULD FIRE BERNANKE OUTRIGHT AND GET SOMEONE ELSE IN BEFORE IT IS TOO LATE FOR OUR ECONOMY.
A THOUGHT FOR THE MORTGAGE MARKET, HE SHOULD OFFER A MORATORIUM FOR ALL MORTGAGES FOR 3-6 MONTHS INSTEAD OF THROWING THE MONEY DOWN THE DROWN FOR THE CURRENT SYSTEM IN PLACE. THE MONEY THAT MORTAGEES SAVE WOULD BE USEFUL FOR PUM,PING UP OUR ECONOMY.
WE NEED A NEW POLITICAL PARTY TO COMBAT THE IDIOTS IN CHARGE OF GOVERNMENT.
- you accurately described many of our problems
- however, you are looking for a "controlled" solution
I think that the time for a "controlled" or government managed solution is gone. It is too late for it.
The majority of American people (including Bush, Obama and the Congress) are living in a fantasy world. They
- do not understand the situation
- have no clue of how to deal with it
- have no desire to take appropriate painful but necessary medicine
Well,
- the USA empire, as many other before it, follows its life-cycle (birth, growth, reaching its peak, and decline)
- presently, the USA is in a decline moving to a 2nd-world country status with a substantial reduction in American standards of living and civil unrest
This process is happening in front of our eyes, and nobody can interfere with it. The only important and viable question we may ask ourselves is: How to survive and take an advantage of this historical event.
Debate Is The Distillation Of Reality.
The Circus Is Almost Over; The Bread Is In Short Supply.
Be Kind To Your Fellow Human; We will All Need Help Before The Catastrophe Ends.
Regardless, though, we should let these banks fail—but a caveat. Contagion might be feared TOO much by the government right now, but it certainly is NOT out of the realm of possibility.
We need orderly, controlled demolition, basically, instead of just letting these banks just collapse like disaster zones on themselves. Just look at what happened with Lehman. Right idea. Wrong implementation.
A few priorities:
1) Protect the DEPOSITORS, because these are the people who will run away from even safe banks and stuff their money under a bed if you don't (which is going to help no one).
2) Keep important functions operating. You don't want another prime brokerage debacle or something similar to it where billions are trapped in bankruptcy proceedings since it'll freeze up even more capital.
Besides that, it'll also train institutions to flee even the sound institutions which show the slightest sign of weakness. That belief WILL actually kill the sound banks.
Overall, I think that bankruptcy for these zombie banks IS the right answer. But make sure to do it in the right way.
Sorry, a possibility for a "controlled descent" is gone. We are heading for a "crush landing" with many victims...
Consumerism is finished. As a result, the planet may be saved by default. But the American Dream built on the short-sighted mongering after 90-day "profits" is dead. RIP. Time to imagine something new, something better for all, including Scrooge's "excess population" -- the millions of us at the bottom of this total collapse.
The standard of living that we all enjoy depends upon having a functioning financial service industry. I'm still hoping that we can reform it without blowing it up...?