American Economy Backed into a Corner: What Obama is not Interested In

Friday, May 8, 2009

I contend that our country’s economy is in dire circumstances. Two news stories that have recently come out highlight the dichotomy and complexity of the situation we are in. One was today’s release of the unemployment figures and the second is that China is still buying gold, lots of gold. I strongly contend that we will either be thrown into a devastating long term recession or inflation that will have us begging to be back in the days of Carter.

I understand that there is a lot of press talking about how we are coming out of this recession. They may be true, though I do not believe it. Regardless of whether I am correct or not, we will not be out of the woods until the unemployment rate tapers off. It is not. According to a WSJ article, the rate dropped another .4% bringing us to 8.9%, the same level as 1983. At this rate we would be up at 12% by the end of the year. Forecasters predict it around 10%, but trending shows it could go as low as 18% by next year. This is huge in significance, because so far we haven’t seen a dramatic number of companies going out of business. However, with every job lost we are one more step closer to consumer spending jumping off a cliff. Once that happens we will be in an economic free fall where unemployment breeds a drop in consumer spending, leading to companies closing their doors, which leads to more unemployment. I believe the positive economic news lately has created confidence in consumers and is encouraging people to not reduce their spending behavior. This confidence cannot be sustained if people are continuing to be laid off or continue to be unemployed.

If that isn’t the worst of our problems, China is buying gold, lots and lots of gold. Thanks to the Canadian media, I have this quote from the Montreal Gazette:

“It is a chilling statement from an expert on both gold and China. But he is just speaking truth to power: In a G2 world (the United States and China), the piper calls the tune and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others who lend money to the United States such as Saudi Arabia, will determine the value of the U.S. dollar and gold. And they have spoken. They are not buying more U.S. treasuries and are buying gold as a new as set class. China announced that it was doing so quietly and recent reports are that the Saudis and others have been buying bullion and hocked gold jewelry from around the world to be melted down in Middle Eastern refineries.”

I actually applaud China and think they are brilliant. China is looking to emerge from this crisis as the strongest economy in the world. As the US government destabilizes our currency with rampant government spending and money printing, China is looking to stabilize their currency with large holdings in gold. This will make China’s currency extremely attractive. This is especially true after US banks dropped the ball with the mortgage crisis. Our currency is far and away the biggest reason why our country is so prosperous. China's investment in the dollar may be the biggest factor to our country's economic successes over the last 10 years. China holds about $2 trillion in US debt, which has funded the money expansion of our monetary policy since 2001.

The problem is that China is ditching the dollar for gold. With the US printing money at the same time, high levels of inflation are on the way. However, dollar devaluation is not the only thing that will mean inflation for the US. What if China succeeds in replacing the US as the world’s strongest economy? It means that China's goods will be more expensive in the US. Now where was it again that we buy all our goods?

If you think my prognostication is dire, read the conclusion to the Canadian article:

“It is an irreversible trend that China and others will continue to dis-invest and diversify out of U.S. dollars and that inflation will further impair the U.S. dollar's value.

That's because the U.S. monetary/economic rescue hasn't fooled anyone and is simply Washington's version of the excesses and overleveraging that led to the need for a rescue in the first place.”


I'm proud to say that Obama didn't fool me. His stimulus plan was a complete farce.

It is times like these that I dislike being right (I predicted this in March). Obama needs to get on the train fast and start putting the machinery together that will make our economy competitive again. Invest his time and political capital in fiscal responsibility, bringing us closer to a gold backed dollar, and supply-sided economics. Unfortunately, he is not interested in the economy. He never has been. No, it’s time to loot the economy and give to those he and the progs feel have been kicked around. That’s the mission, no matter what the cost.

9 comments

CG - you said "Obama needs to get on the train fast and start putting the machinery together that will make our economy competitive again."

This is an impossibility. He is pursuing a radical transformative agenda first and foremost. It will never happen. The only hope that we have is that we have a revolt next year in Congress similiar to the '94 class. Great post BTW.

May 8, 2009 at 11:48 PM
The Law said...

Fiscal responsibility, fiscal responsibility, fiscal responsibility... the republican movement these days could be a DJ, because they sound like a broken record.

How do you think China got its power in the first place? It is the very American economy you constantly lambast. And now they are the rebellious know-it-all teenager who gives their parents the bird and sneaks out to the rave on a Friday night.

The republican vision is so short sighted, it is rather disturbing. How to you beat out other countries in the long term? You INVEST and INNOVATE. China has been doing this for a decade now. Their communication technology is going to eclipse ours very soon. They know whoever controls information, controls politics and the world. They do this quietly as we sit here arguing about John Edwards, and holding off cabinet positions, and arguing about gay rights.

I ask you to try and once give the other perspective an honest look for a whole day. We NEED!!!!! to invest in green tech and information. That is the new untapped energy source that is worth trillions. Whoever makes it first licenses the technology to the rest of the world and gets out of debt. There is no way to short side this at all. Did you know that in Japan, they charge $60/month for 160MB broadband? To put it in perspective, you can download a DVD (8GBs) in about 45 seconds. In America, the average amount of bandwidth at $60/month is 10MBs! Again, whoever controls information, controls politics and the world. We NEED to spend a lot of money to put this infrastructure together. The longer it takes, the more time we waste, the better our chances of not being the #1 world power in a generation (or less) becomes.

C Gen, you said China was brilliant, and may possibly emerge the strongest country coming out of the crisis. You’re right. Because they are communist, there is no debate about spending whatever is necessary, abusing the human rights of workers when necessary, and polluting the earth to oblivion when necessary to put the infrastructure in place to beat America. AND in addition to beating America, we also owe them a couple of TRILLION dollars! I mean come on, they spend 50 BILLION dollars on the Olympics alone. And we’re sitting here arguing about stupid stuff like whether being the living shite out of a bad guy 183 times until we get the answer we want (need) is torture… Democrats are not killing America. Republicans are not killing America. Americans are killing Americans. We’re pulling a bicker and argue with ourselves stunt that knocked the Mets from first place to last place to out of the playoffs in two consecutive seasons.

May 9, 2009 at 2:56 AM
Devrim said...

tL, around 2000 there was a project to extend a railway some 20 miles down to the town I live in. It had been debated for about a decade since '90. In 2000 the funds were allocated and the work for it started, and shut down as some enviro-nazi had concerns about some obscure lizard. 2009, still a mile of this track hasn't been built, the machinery bought to build it is rotting away, while I am sure some crony of a politician in charge of this "project/fuck up" is collecting a fat check compliments of taxpayer money.

Maybe Obama can allocate couple billions for leashes on these enviro-nazis so some infrastructure can be built? You think he has the balls for that ?

May 10, 2009 at 12:42 AM
Devrim said...

CG, China's plan maybe brilliant but it will also be their demise, to keep its position, China needs a economic growth around 6%, when they don't have any Americans to buy their products as inflation has made them overly expensive, that growth is going to come to a grinding halt.

They can try "stimulate" their economy, but when the $2 trillion they are holding is just able to buy couple ounces of gold instead of 2 tonnes, they will run out of money rather quickly.

Of course we can always pull an Argentina on them ;) I recommend you read about the Argentine economic crisis. This part is very noteworthy :

"... During the National Reorganization Process (1976-1983) huge debt was acquired for money that was later lost in different unfinished projects, the Falklands War, and the state's takeover of private debts; in this period...

....During the last week of 2001, the interim government led by Rodríguez Saá, facing the impossibility of meeting debt payments, defaulted on the larger part of the public debt, totalling no less than 93 billion"

1. huge debt was acquired for money that was later lost in different unfinished projects. CHECK !

2.the Falklands War. Different place, same spending. CHECK !

3.and the state's takeover of private debts. Bailouts anyone ? CHECK !

4. When Argentina declared banktrupcy, the debt/GDP ratio was 65%. We are well over that right now.

Time to pull an Argentina, and stiff the Chinese and Saudis.

May 10, 2009 at 1:51 AM
Devrim said...

HIJACK THREAD.

CG again feel free to do whatever you please with this one

A little light hearted discussion for a slow Sunday. BTW HAPPY MOTHER'S DAY to all mothers out there and do me a favor and please get a mamogram and pepsmere test will you ? (http://www.standup2cancer.org/ and http://www.menforwomennow.com/)


Sex-starved Kenyan sues over boycott:

http://www.cnn.com/2009/WORLD/africa/05/09/kenya.sex.lawsuit/index.html?iref=mpstoryview

Now, I don't remember when "sex" became a right, but my rights are being severely violated. According to Mr. Koh's transnationalist views, what ever is good for a Kenyan is good for me, so if this guy has a case, I have a case.

I am looking for a legal counsel who would help me out with this case. For starters I am planning to sue Angelina Jolie, Catherina Zeta-Jones, Heidi Klum, Lucy Lu, Salma Hayek, and Mrs. Berlusconi for denying me sex and causing mental anguish, stress, backaches, lack of concentration . Watch out world, I'll either get very rich or become the next Romeo !

May 10, 2009 at 3:02 AM
The Law said...

How about the solar panels that are currently being installed in SoCal to make energy more efficent and cut down on electric bills? How about the massive amounts of new growth in retail and dining in upstate NY to encourage construction and tourism? As many bad examples you can recite, I can recite examples of growth. The point is we need to invest in these things. Sure we can leave it to big business, but when have they ever said "hey let's invest in infrasturcure for the good of the country?" Never.

May 10, 2009 at 8:18 AM
Devrim said...

tL, check the history of ALCOA especially till 1940. Business knows how to take care of things, till the government comes in and mucks it up for everyone.

And please please please, don't give CA as an example to anything good. Highest income/retail taxes and they are still in the red ? Do we want the whole USA to become CA ?

May 10, 2009 at 9:45 PM
The Law said...

ALCOA? That is EXACTLY the problem. Alcoa didn't do anything for the benfit for the country. It built housing communities and research stations to attract workers. Short of being damned good at making aluminum, their impact on the nation was non existant. No one in Maine was benefitting from any house ALCOA built.

What ALCOA *did* was become one of the most heaviest polluting factories in the country. We make fun of China's air quality... it'd be exactly the same situation here without the EPA. And exactly as I told you before, they had no intention of doing anything about it until they were forced to spend $333 million to build a coal firing plant with state of the art emmissions reduction system.

Cali may be in the red, but many of the most important inventions came from this state, with funding from private and yes, government money. California is moving to do the right thing with energy... it'll pay off in bundles in due time.

May 12, 2009 at 1:31 AM

I'm with Dev on the Cali outlook. You guys had a 32 billion dollar short fall. Please keep your ideas in your state.

How bad does Cali's economic situation need to get before you'd admit a problem? Your state is number 2 behind Michigan for unemployment.

The problem with progressivism is that progressives never admit that what is being done is wrong based on poor outcomes. They believe the problem is they haven't enacted enough progressive ideas to make it all work. When it all fails, they point out that their intentions were good.

May 12, 2009 at 8:11 AM

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