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[Stock Lobster]

What I wrote 9/18/08: Posted by: Stock Lobster
In reply to: daiello who wrote msg# 165187 Date:9/18/2007 7:42:17 PM
Post #of 273224

Today my heart truly aches...and I wonder if most understand the economic precipice the US finds itself facing...

This week will probably see further declines in the value of the US dollar, and as it's death spiral steepens I expect we will see sharp increases in the price of oil and gold, as momentum traders jump on those trades, accelerating the trend. Oil at $100/barrel is already accepted by many analysts as a given in coming months, even without another war in the middle east. Although increases at the pump have been tame, at some point they will reflect this new higher price. Home foreclosures doubled in August, and there is little genuine hope for the housing recession ending any time soon, as current house prices still bear little relation to real wages, something most americans have known instinctively for years.

When the Iraq war began I guessed the impact on the US dollar, which no one had even mentioned, or bothered to consider. Perhaps because 90% of americans don't own a passport, most in the United States could not even begin to calculate the long term impact of a war like this on the US budget. However every currency trader was keenly aware of the implications, and the US dollar began to sink within weeks of the first display of 'shock and awe', as it became clear that the strike was anything but surgical, and the drain on US coffers would probably be considerable.

We in the United States have rarely had to live within our means. We've been blessed for so long, perhaps we took it for granted. Endless war was a hobby we could indulge in. But back in the 20th century we were a creditor, not a debtor nation, and we were insulated from many of the side effects of our larger mistakes due to the perks accorded our status as the world's reserve currency. Now we indulge our hobbies only with China's largesse, and it seems she is getting weary of our spendthrift habits. The Uk Telegraph reports that China is unloading US treasuries into every rally. The world central bankers are following suit, and continuing their diversification out of US dollars, a trend which began within months of the Iraq war's start, and goes into higher gear with today's cut by the Federal Reserve and the implication more cuts are on the way.

This matters because a Euro at $1.40 gives a clear signal to accelerate the shift to what is widely accepted to be a more stable and valuable currency. The United States is about to lose it's status as resreve currency as central banks choose instead to hold gold (which today established new highs at $735/ounce), Canadian dollars, Euros and even Brazilian reais. Many currencies, formerly pegged to the US Dollar, are exchanging that peg for Euros.

But you won't hear any of this on the news. Today the cartoonish US media outlets rejoiced in the US stock market's rally. Few commented on the accompanying spike in the price of oil, or the fact that oil would continue to rise, mirroring the dollar's collapse. Sadly, the impact of soaring oil prices will be felt much longer than any short lived stock market rally - a rally which cannot be maintained since liquidity cannot solve an insolvency problem. Cynically, I expect that this brief rally was engineered for, and will be used by Wall Street insiders to continue to unload their shares in anticipation of the inevitable continuation of the market's downward trend.

As analysts breathed a sigh of relief for the Nasdaq's rescue, gold futures set a new price record of $735 an ounce, which signals things are far more serious than they appear. In addition, almost no one mentioned the dollar set new record lows against the euro after the fed cut. I suppose like most in the US, they think exchange rates don't matter.

What americans, rejoicing in the Dow Jone's bounce, fail to realize is that a falling currency does matter, especially to the stock markets. A rapidly depreciating currency scares away much needed foreign money. Americans, who rarely consider the world outside their borders, fail to recognize that international investors now have many more attractive markets in which to invest. Few want to invest in a nation with a falling currency, as the drop in the value of the currency offsets any gains made in that market. Third world countries have known this for years as they struggled to attract foreign investors. The US is about to learn.

Did our Wall Street friendly Fed even consider this fact when they made today's currency killing move? Adjusted for exchange rates, the S&P and DJIA are down 50% or more against gold, euros, Canadian dollars, and many emerging currencies, so I hope all are enjoying today's rally. Your government has further forfeited your money's future for this bounce which is for domestic consumption only. Increasingly, international investors, looking at the prospects for the USD, will chose to go elsewhere.

Sadly, today's cut in the fed funds rate will offer little hope to ARM mortgage holders, as their rates are based on LIBOR rates, which have spiked as a result of the growing international credit crisis. However the impact of a dollar collapse/oil price surge - accelerated by today's Fed action - will indeed be felt by the middle class. The middle class will also be squeezed as property taxes continue to escalate, reflecting increases in the price of operations and fuel/import related inflation. Income taxes will also undoubtedly have to rise at some point in the near future, just to begin to make a slight dent in the 8.5-trillion dollar national debt, over 3 trillion of that incurred in the past 5 years. The cost of the US debt now averages $30,000 per person...and should the wars continue, that price per head will only rise.

But I forgot...deficits don't matter...especially to the voracious looting class who have already established their bank accounts and residencies in other countries.

However, I’m afraid the middle class US taxpayer is about to realize that deficits do indeed matter, and everything has a price. Much to their surprise, the bill for the Iraq war is about to come due by way of Vat taxes and other forms of use and consumption taxes which are already being discussed by Congress, in the neighborhood of 24-30%. Surprise surprise!

The Iraq war has helped bankrupt the United States, and as a result we are rapidly losing our power and influence overseas, as both our allies and enemies see the extent to which we are over-stretched and in need of funds which can only be obtained through weekly loans from emerging nations and China. It eludes me how people fail to see that this is not the way to ensure our safety, fight terrorism, or establish the respect which might inspire other nations to assist us in our goal of self-defense.

In the height of irony, the Iraq war debt, by demolishing the US currency, has accelerated the adoption of the euro by oil producing nations. There are those who say Washington felt justified in attacking Iraq because Saddam was selling oil in euros. In that case, they'd better be ready for a lifetime of invasions, because the economic fallout from this same war has inspired other nations to begin invoicing petroleum in euros as well. Of course, with each additional war and invasion, the US will only become poorer, finally collapsing under the weight of a bloated military budget, as Soviet Russia did in the early 1990s.

I tried to explain all of this to friends back in 2003, but no one cared to hear. I suspect they still would rather focus on other topics.The fact that military spending is the overwhelming cause of our yearly budget shortfalls is the inconvenient truth that few news outlets have the courage to report. Had this financial hemoraghing ocurred under a Democrat, the details would be spit from the mouth of every Fox newscaster calling for impeachment. However our military run government has made it clear that those who question the ongoing looting of what's left of America's wealth through the cover of overseas military expenditures, will feel the consequences. Only Bloomberg printed the truth that a 30% increase in military spending ($485 billion this year alone), was met with only an 8% increase in tax revenues. That's right, a war that was sold to us as costing no more than $200 BN total, last year cost $445 billion dollars and this year has cost $485 billion dollars to date. That's $3,000 a second being spent to accelerate a civil war in a country that was not a threat to us.

....and yet no one makes a sound. Google searches indicate Americans are still more preoccupied with Paris Hilton than the state of the US economy.

Please excuse me if I sound a little bitter and angry.

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