Bernanke, What You Gonna Do Now?

What you gonna do when she says goodbye? What you gonna do when she is gone? So Benny’s havin’ trouble with his printing press, cause things just aren’t working out the way they should. Well you better check it out before it goes. Cause you may not be seein' things just the way you should. And you don't recognize what everybody knows… Sorry Pablo for the pun on your song, but sometimes a little humor goes a long way.

Well, well, well! We have yet another popped economic bubble on our hands here, and ‘ol Benny is running out of options. Maybe he needs a stronger soap, or maybe there was an outside culprit. Those awful people at Standard and Poors should be shot, and Michael Moore is going to lead the charge. Everything was fine they took our triple-A status away! Well, Mr. Moore, how about you indulge in one or two of your favorite McDonald’s combo meals while contemplating another tripe filled documentary. Leave the analysis of the situation to those with real expertise.

Houston, we have a problem. Our debt now exceeds 100 percent of our nation’s gross domestic product, our dollar is currently on life support from world banks and misguided investors, the quantitative easing packages have failed; and another bubble is not available to inflate to fool the public into thinking the economy is on the right track. In addition, those meanies at the S&P have gone out on a mild limb with their current downgrade. Worse, the public many not buy into the fact that more spending is necessary to revive the economy. Bernake’s house of cards is about to collapse.

The meanies at S&P are weak bullies, so relax Mr. Moore. The downgrade is years too late and far too mild because it STILL does not reflect America’s current debt position. So all your leftist, Keynesian buddies got was a little slap on the hand with a message that goes something like “Hey guys, can you tone it down just a little bit here? This is getting serious now. We can’t cover for much longer.” Yet, Moore wants to shoot these people, but where were his feelings of rage when S&P, Moody’s and Fitch were giving triple-A stamps to JUNK bonds four years ago…you know the huge bubble that burst, which put the disaster ball in motion?

Returning to our good friend Bernanke, he has a very unique problem. QE1 and QE2 have successfully inflated the stock market, but now that bubble has burst. It’s difficult to believe that during the crash of 2008, people still sought shelter in the U.S. dollar, and it’s even more difficult to believe that DOWNGRADED long-term U.S. treasury bonds were the safe haven this time around. Some investors are always behind the eight ball, but soon there won’t be any place to go. Bernanke will not be able to engage in this pump-priming much longer. How much farther can we go…until debt exceeds 130 percent of GDP? How about 140? Do I hear 150? How many times are we going to go in the same circle? Prime the pump, raise the stock market, market crashes, prime the pump, raise the stock market, market crashes… He’s been trying to re-inflate the housing bubble, but there is a hole in the other side.

Bernake’s decision to keep rates still until 2013 is an admission of complete failure. It also exposes the fact that the “recovery” was bogus and sends a message of further uncertainty to businesses that will continue to mitigate risk and sit on capital. In addition, Bernake’s decision to keep rates low will guarantee the dollar’s demise against foreign currencies. Sadly, this won’t change how Washington will react. Spending will continue, the Fed will engage in more pump priming once the T-bond rally dies, and it’s possible that the debt ceiling might have be raised before 2013.

The end of the line is near. My question is who is going to bail out the U.S. when the dollar loses its world reserve status? The only reason why we have been able to get away with reckless monetary policy is because the U.S. dollar is the world reserve currency. Greece, Spain and Italy didn’t have that luxury, and soon we won’t either.

It’s been time to pull out of the U.S. dollar, but as more and more investors slowly wake up, world banks won’t be able to prop it up. G-7 had an awful time this spring when Japan had to divert away from treasury bonds to address its own natural disasters. When enough people see that it is completely senseless to flock to downgraded debt, the fiat charade will come to an end.

America as the World Superpower 1945-2011

By Mike Porter

The eighth month of the year 2011 will be remembered for years to come. August of this year will forever be a stain on America’s history much like September of 2001 for the terrorist attacks as well as September of 2008 for the financial collapse. August of 2011 delivered two significant and permanent financial setbacks to the American economy. The first being America’s debt beginning to eclipse the country’s GDP for the first time since 1947 and the second being the first ever downgrade of United States Treasury bonds. I find it ironic that the same month America dropped the atomic bombs which lead to the beginning of America as a world superpower, sixty-six years later our government essentially drops a bomb on the US economy ending our reign as the lone superpower in the world. Our fall from Super Power status has been a long time coming and many wonder where do we go from here.

First, let’s address the downgrade of the S&P and why this is so significant. S&P is a credit rating agency who for the first time ever believes there may be some doubt about whether or not the US may be able to pay the people who invest in US backed securities. This is no different than a bank lowering the credit rating of a faulty business or a family who is living beyond their means. Why shouldn’t S&P believe this with over 14 trillion in outstanding debt? Many naysayers will make the false argument that S&P is only one credit agency who has dropped our status and a credit rating of AA+ is still a very good rating. I do not share this blind optimism and strongly believe the other credit agencies will soon follow suit. Suppose they are right, there is still no way a country can continue to make the claim they are a super power when as many as one single credit agency do not think we are the best in the world. I believe many of these same people would still say everything was fine if our rating was even lower. Others wonder what took S&P so long to come to this conclusion with so much outstanding debt. It is obvious S&P took notice to the recent raising of the debt ceiling which contained further additional spending providing more proof nobody in Washington will get serious about lowering the size of government. While the market was hemorrhaging to the tune of more than 600 points today, Obama addressed the nation by simply regurgitating the same old tired rhetoric claiming more wealthy people need to pay their fair share as if they don’t already. Meanwhile for the first time in history, America’s credit rating has fallen on his watch and his policies are much to blame for this downgrade.

Debt exceeding GDP should not be a surprise to anyone. America has been on an unsustainable spending path for many years now. We can start with GW Bush and the Republican controlled Congress. Expansion of Medicare drug benefits, No Child Left Behind, TARP, Sarbanes-Oxley, and Office of Homeland security being only a few of the many government expansions coming from the so called “right wing” party. While I personally do not have a problem with Bush’s decision to take us to war in Afghanistan or Iraq, I do blame him for not fighting the financial side of these wars. Then along came Obama, who along with the Democratic controlled Congress, expanded on Bush’s policies and spent even more money like nothing ever seen before. One doesn’t have to look past Washington to find out how we got ourselves in this mess.

Where do we go from here? Well for starters we have to accept the fact we are no longer a superpower. Although we still do have a lot of influence in the world, we have to cease behaving like a Superpower. First, it is time to get serious about entitlements, and that has to come from you the people. You need to call your representative and tell them you are tired of paying for entitlement programs and you are willing to take less in benefits later if it means keeping more money in your paycheck today. Second, I am sorry to say we have to re-evaluate everywhere where we have troops stationed today. We have to identify the locations where it still makes sense in areas that pose a risk and draw down in areas that are less important. In these less important areas remaining military bases should be closed. I have had many disagreements in the past with both my Liberal and Libertarian friends on “policing the world” and while I feel some of our foreign policy entanglements helped us preserve our status in the world, it is just as clear today we can no longer maintain this activity when we are no longer a Superpower. Next, we have to review all foreign aid including how much is given to the United Nations every year. Last, but not least, we need to revamp our tax code as well as remove hindering business regulations which causes the private sector tons of money and always come at the expense of American jobs and wages.

Only after we address these things can we even begin to get things under control. Failure to do so will mean more credit downgrades and eventually the collapse of the US dollar. Many believe this collapse has already begun with gold and commodity prices going higher and higher as the dollar loses more purchasing power. Many in ancient Rome refused to believe Rome was falling, even though the evidence was overwhelming. The United States has been falling for some time now and I am afraid things are only going to get worse. Without a serious turnaround get used to high unemployment and a weak devalued currency which hopefully for our sake never gets as bad as the Pre WWII German Mark. However, with interest rates at practically zero and high unemployment, the only thing left for the Fed to do is to continue printing money until it is worthless. My best guess is the Fed is hoping things turn around before they are forced to raise interest rates. Unfortunately, someone needs to tell the Fed that too much printing of our own money is what caused us to lose our Superpower status in the first place.

Sources:
(1) http://news.yahoo.com/us-aaa-rating-still-under-threat-204040123.html
(2) http://news.yahoo.com/p-downgrades-us-credit-rating-080422314.html
(3) http://finance.yahoo.com/news/Wall-St-takes-a-dive-on-first-apf-1960115615.html?x=0

America Sold Down the River Again With the Debt Ceiling Vote

Do you find yourself humming that tune? “I don’t know why, I don’t understand how you sold me down the river...” If so, I hope that you learned your political lesson. If anyone is shocked by the results of the debt ceiling vote, then they have much to learn.

After weeks of the dog and pony show coupled by horrendous acting, America ends up with a bill that increases spending and adds to the debt. Surprise, surprise! I only wish that the dreadful drama would cease. Now, we have Democrats saying this bill is far too extreme because it “cuts” too much, Republicans are good little stooges for “compromising;” and the tea party is destroying America by putting too much pressure on “moderate” Republicans. Shall we translate this nonsense? All right then…

Let’s begin with the tea party because they play the largest role in this charade. I’ve said time and time again that those who TRULY want to see government’s stranglehold on the economy diminish, it will NOT be accomplished through the Republican Party. It’s no surprise that “establishment” Republicans such as Eric Cantor and Mitch McConnell voted for this turkey, but a good number of so called tea party members also voted in favor. Shall we examine presidential hopeful Michele Bachmann’s caucus for a sample? Of the 60, a whopping 32 of them (including the beloved Allen West) voted in favor; and these are just members of Bachmann’s caucus! Other tea party favorites such as Paul Ryan voted in favor as well. I’m not sure what Democrats fear because the majority of the tea party is on their side; however, it’s important to dupe the voting masses into believing they are on opposite ends of the spectrum. Calling them terrorists fits the bill!

Now, we’ll sift through the pure nonsense from leftists like Paul Krugman and Democrats who voted against this bill because the spending cuts are too deep. First of all, this bill doesn’t cut spending. What it does do is cut money that HASN’T been spent yet. For example, if the U.S. plans to add $10 trillion to the debt over the next decade, the “spending cuts” in place will only allow $7.5 trillion dollars to be added to the debt. This does not even come close to satisfying credit agencies, which is what all of the fuss was over in the first place. In order for the U.S. to maintain its triple-A rating, $4 trillion must be trimmed from the deficit according to Standard & Poors.

Welcome to leftist math! Harsh spending cuts come from cutting a silver lining off of spending INCREASES! Put simply; imagine if your spouse tells you that he/she has saved the household $250,000. When you ask how so, he/she tells you that buying a Ferrari next year won’t happen, so can we borrow more money now for that vacation in Aspen? Yes, it’s just that simple folks.

The new bill only addresses cuts in discretionary spending, and worse, the bulk of these cuts are pushed back towards the latter part of the decade. In other words, no cuts will take place until after the 2012 election. How convenient! Also, this “committee” could change hands over the years, which means that any of the proposed spending cuts can be rendered null and void by a different Congress. Therefore, when the American people throw the Republicans out and re-elect Democrats for more “hope and change,” they can revise this bill. If that’s not enough, there have been SEVENTEEN bipartisan committees since 1982 assigned to reduce spending. All seventeen have failed, obviously. What makes anyone think the 18th will succeed?

In addition, discretionary spending is NOT the problem. Entitlements, defense spending and spending for all of these “emergencies” that arise ARE the problem! There are no provisions in this bill that even try to establish limits in these areas.

After all the smoke is cleared; and after all of the “tough talk” by the GOP that fooled so many, this is what we wind up with – barely a 20 percent cut to INCREASES in spending! I love bipartisanship; don’t you? The sad thing is that time is running out for lawmakers to kick the can down the road. How much longer are you going to watch lawmakers contribute to the demise of the U.S. economy? Arguing over whether or not this explosion will hit in 5 or 20 years is completely irrelevant. Who cares how far down the road the end of the cliff is?! Are we going to keep on driving towards it?