The State of the American Economy II

This article is from the financial site Seeking Alpha.

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On The Fed, Funny Money, Fascism And Gold

Posted on Apr 30th, 2007 with stocks: GDX, GGN, GLD, IAU, SLV

Jason Hamlin submits: The fed continues to print massive amounts of dollars out of thin air. The U.S. dollar is fundamentally and technically very weak and headed for even lower levels. Once the psychologically important support at 80 is broken, we expect a dramatic sell-off of dollars around the globe.

We are in the early stages of a massive global currency debasement which will see tangibles, and most particularly gold, rise significantly in price.

Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world’s reserve currency - the primary medium for international transactions, the principal store of value for savings, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world’s central banks. However, since it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper.

Money supplies all over the world are increasing - 10% per annum in the United States, 10% in Europe, 14% in Asia. The printing presses are working overtime and eventually the chicken must come home to roost…

... The shock has started to wear off as the reported levels of government spending and debt keep rising to ridiculous amounts. I have borrowed the following text from The Mogambo Guru who not only summarized the key statistics succinctly, but always manages to bring a dose of humor to subject matter that can otherwise be on the dry side.

The U.S. federal government spent more money in March than in any other month ever. Ever!

In actual numbers, “The federal budget deficit widened to $96.3 billion in March, compared with $85.3 billion last March.” In total, “Excluding the Social Security and other trust funds, the deficit totaled $108.2 billion in March and $347.8 billion for the fiscal year so far.” That’s about $700 billion!

I assume that inflation helped make government receipts rise, “about 1% year over year in March to $166.5 billion, while outlays rose about 5% to a record $262.7 billion,” as “Defense spending totaled $67.8 billion in March and $268.3 billion so far for the year,” which is up 7%.

Continuing, “Spending on Medicare and Medicaid totaled $83.4 billion in March and $418.4 billion for the year,” up a huge 15.6%. “Spending on the Medicare drug benefit” is up a staggering 144%. “Social Security tallied $55.5 billion in March spending and $306.8 billion for the year,” up about a whopping 6%. “Spending on interest on the public debt totaled $21.3 billion in March and $202.1 billion for the year,” up a terrifying 4%!

And all of this excessive spending, made possible by the excessive creation of money and credit by the Federal Reserve, means that prices will go up excessively. And sure enough, from Bloomberg.com we read that the Labor Department released the nightmarish news that U.S. consumer prices, as measured by the Consumer Price Index, rose 0.6% (including food and energy prices) in March, which is even higher than February’s 0.4% increase...

In English...

The Federal Reserve is printing massive amounts of fiat money that has no intrinsic value, and consequently, we depend on the good graces of our foreign bankers in China, Japan and other countries to finance our debts, and to keep our interest rates low, which creates ideal conditions for business investment and all sorts of other economic activity.

However, as I mentioned in the post before this one, our ability as a nation to repay what we have borrowed is deteriorating rapidly.

And as creditor nations and other investors lose their confidence in the United States, they will flee to other locales in search of higher rates of return, such as the Eurozone.

That will be very bad for our economy, and our way of life. High interest rates, high taxes, recessions... all of the unpleasant realities of economic life that our country has almost forgotten about, will return with a vengeance!!

As a result of the economic upheaval, I predict that the feminist Welfare State will be dead on arrival; as the government will have to slash spending and raise taxes just to get itself out of the multi trillion dollar deficit it has gotten itself into.

If we don't get things to rights, expect life to suck majorly dude!!

More to come!