Saturday, June 20, 2009

Tectonic Plates Are Shifting

So much is happening around the world right now that it is hard to keep up. While on the surface things appear to be calm and settling, there are major changes taking place behind the scenes that are reshaping the global financial environment for decades to come.

This first, of course, is the continuous, relentless, destructive barrage of horrifying mistakes coming from the American leaders.

Obama announced all week his focus on pushing forward legislation that will give our Federal Reserve far greater powers than they currently have to intervene/destroy our markets.

No one has mentioned to Obama that the Federal Reserve is without a doubt, the number one reason we are in a financial crisis today.

Remember back to the 1990's, Alan Greenspan injected liquidity and eased monetary policy every time there was a hiccup in the markets. He created a "can't miss" environment for stock speculators and new businesses.

Then when our country needed a recession in 2001 to cleanse the system of his mistakes during the 1990's, he hammered the nail into our coffin. He decided to take interest rates down to 1%, and inject a tremendous amount of money into the economy after 9/11.

This action not only inflated the housing bubble, but blew up a derivatives bubble that now stands in the hundreds of trillions.

This past fall, when a deep and cleansing recession was needed more than any time in our history, Bernanke took interest rates down to 0% and has held them there. He has backstopped every financial institution, the money markets, the commercial paper markets, and has been personally buying mortgages, credit card, auto, and student loan debt. The Fed's balance sheet has exploded in size, and he now stands behind what is estimated at $12.8 trillion in guarantees.

This man has now been appointed by Obama to become the dictator of our financial system.

However, Obama has also taken some time to personally pummell the country with his own magic touch.

Last week he intervened in a supreme court decision on the Chrysler bankruptcy.

Before we get to that, its important to understand that one of the most important factors, if not the most important, why investors around the world invest in our country is because we have a true free market and a court of laws that govern contracts.

Last year a teacher's pension fund down in Texas decided to invest some of their capital in Chrysler. Chrysler was already in trouble, but they were given certain guarantees should something go wrong with the car company. They knew that their rights would be upheld in a court of law, and this gave them the courage to invest in the company.

Well, something did go wrong. When Obama tried to cram down a bankruptcy a few weeks ago, they objected, stating that their rights as creditors were not being upheld. The decision last week was thrown out of court, and their case was not even heard.

The courts decided to give great favor to the United Auto Workers in the hearing, while other creditors were left out to dry.

The United Auto Workers, if you cannot remember, were at the top of the list for campaign contributions for our new car Czar, President Barack Obama.

This has now raised the red flag to the rest of the world that if you invest in our dying country, not only do you have investment risk, but your rights as creditors can be thrown out of court if Obama does not think it is fair to his campaign contributors.

This will not happen instantly, but it sets the stage for money to continue to move away from the United States at a time when we need it more than ever.

Meanwhile, overseas this past week, Brazil, Russia, India, and China (known as the BRIC countries) all met to discuss their thoughts on our future global economy. These four countries represent the future growth for the global economy, and their policy decisions will shape everything moving forward throughout this century.

After the meeting they announced to the press their continued love for the US dollar and the strength of our markets. This was an interesting turn of events because at the G8 meeting only two months ago these countries were voicing their interest in a global reserve currency and a move away from the dollar.

Imagine a small retail store in a shopping mall strip. On the front of the store there is an American Flag that says I love the US dollar and I love buying treasuries. In the back alley behind the store, the owner is unloading boxes of US treasuries in exchange for natural resources.

This is exactly what these countries are doing right now. The process is known as "flying kites." They show up to press conferences and announce their love for the dollar, but their actions show a sharp move away from the dollar based on their recent purchases.

Their hope is to continue to slowly exchange their worthless dollars for natural resources while the dollar still holds some value in the global marketplace.

Unfortunately, it appears that the last ones to understand what is happening is the American public. The rest of the world will continue to load their ships with valuable goods for as long as they can. When the dollar starts its final plunge into oblivion, they will release our anchor from their boat and wave to us as we sink into our ocean of freshly printed currency.

No comments:

Post a Comment