"Be Ready For the Collapse"
Sept 23, 2009 10:43:54 GMT -5
Post by brocktownsend on Sept 23, 2009 10:43:54 GMT -5
(NC League of the South. BT)
"Be Ready For the Collapse----Michael Rozeff on the Foreseeable Future:
“As the Obama programs are enacted, U.S. government debt will continue to soar. This debt will come under a cloud. The default risk will rise, and this will cause the yields to rise and the prices to fall. The inflation component will rise too, with the same effects.
The government will have problems funding its programs. It will be under pressure to raise taxes and cut back on its programs. Since it will be reluctant to do either, the problems will fall upon the dollar and on the government debt. This will place the government in an untenable position because the higher interest costs of the debt will add to the deficit. A negative feedback cycle will occur in which deficits cause higher interest costs which cause more deficits which cause higher interest costs, and so on.
No amount of taxation can solve the government’s fiscal problem that lies ahead. Greater taxes will only make them worse by slowing the economy. That option is foreclosed.
How about spending? Will the government when faced with these problems control its spending? No, not in any orderly way. Political maneuvering is unlikely to produce a rational process of control and a reduction in spending. Instead, the political forces are likely to be involved in continual fighting in order to gore someone else’s ox.
The fact of the matter is that Obama plans to increase government spending by an order of magnitude, not take it down by an order of magnitude. The deficit is already approaching runaway status, even without this added spending. Perhaps Obama will be a one-term president. No matter. Past Republicans have worsened the government’s fiscal situation even more readily than Democrats. Little relief can be expected in that direction. If the government tries to save the debt market by having the FED support it as it is now doing, that affects the dollar adversely.
The central bank and the government are between a rock and a hard place. One or the other or both of the dollar and the debt are slated to have problems.
Enactment of Obama’s health care and energy measures, even in diluted form, will confirm the existing course. Their rejection will be more favorable for the dollar and for government debt. As the political winds shift, so will the fortunes of the dollar and the government debt markets. Investment is now a gamble on politics.
My bet is this. One fine day the bottom is going to drop out of the dollar. There will be a swift and sharp order of magnitude change. The recognition of the problems will reach a point at which it starts to go exponential, not just in terms of people being vaguely conscious that things are not right, but in terms of actually taking action to protect themselves. Foreign central banks may be reluctant to dump their dollar securities and think it better to liquidate them slowly so as not to drive prices down and break the market, but when they observe that others are running for the exits, they will run too. There will be a run on the FED and a run on the U.S. government.
Runs upon the dollar and U.S. government debt are where things are now headed, and that is a scenario that calls for action now. And the more of us that act upon it now, the more likely it is that we bring that reality into existence.
The FED and the government do not want to see runs upon them. They will soft soap everyone as long as they can because rhetoric is the cheapest form of action, but really to prevent these runs from occurring, they have to take concrete measures that suggest a fundamental shift in the fiscal and monetary courses they are now on."
Michael S. Rozeff is an author and retired Professor of Finance living in East Amherst, New York.
"Be Ready For the Collapse----Michael Rozeff on the Foreseeable Future:
“As the Obama programs are enacted, U.S. government debt will continue to soar. This debt will come under a cloud. The default risk will rise, and this will cause the yields to rise and the prices to fall. The inflation component will rise too, with the same effects.
The government will have problems funding its programs. It will be under pressure to raise taxes and cut back on its programs. Since it will be reluctant to do either, the problems will fall upon the dollar and on the government debt. This will place the government in an untenable position because the higher interest costs of the debt will add to the deficit. A negative feedback cycle will occur in which deficits cause higher interest costs which cause more deficits which cause higher interest costs, and so on.
No amount of taxation can solve the government’s fiscal problem that lies ahead. Greater taxes will only make them worse by slowing the economy. That option is foreclosed.
How about spending? Will the government when faced with these problems control its spending? No, not in any orderly way. Political maneuvering is unlikely to produce a rational process of control and a reduction in spending. Instead, the political forces are likely to be involved in continual fighting in order to gore someone else’s ox.
The fact of the matter is that Obama plans to increase government spending by an order of magnitude, not take it down by an order of magnitude. The deficit is already approaching runaway status, even without this added spending. Perhaps Obama will be a one-term president. No matter. Past Republicans have worsened the government’s fiscal situation even more readily than Democrats. Little relief can be expected in that direction. If the government tries to save the debt market by having the FED support it as it is now doing, that affects the dollar adversely.
The central bank and the government are between a rock and a hard place. One or the other or both of the dollar and the debt are slated to have problems.
Enactment of Obama’s health care and energy measures, even in diluted form, will confirm the existing course. Their rejection will be more favorable for the dollar and for government debt. As the political winds shift, so will the fortunes of the dollar and the government debt markets. Investment is now a gamble on politics.
My bet is this. One fine day the bottom is going to drop out of the dollar. There will be a swift and sharp order of magnitude change. The recognition of the problems will reach a point at which it starts to go exponential, not just in terms of people being vaguely conscious that things are not right, but in terms of actually taking action to protect themselves. Foreign central banks may be reluctant to dump their dollar securities and think it better to liquidate them slowly so as not to drive prices down and break the market, but when they observe that others are running for the exits, they will run too. There will be a run on the FED and a run on the U.S. government.
Runs upon the dollar and U.S. government debt are where things are now headed, and that is a scenario that calls for action now. And the more of us that act upon it now, the more likely it is that we bring that reality into existence.
The FED and the government do not want to see runs upon them. They will soft soap everyone as long as they can because rhetoric is the cheapest form of action, but really to prevent these runs from occurring, they have to take concrete measures that suggest a fundamental shift in the fiscal and monetary courses they are now on."
Michael S. Rozeff is an author and retired Professor of Finance living in East Amherst, New York.