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

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.