Saturday, February 27, 2010

Where We Are Today

Over the past few years I have said our country would be moving through a series of crisis.  During 2007 and 2008 my focus was on the coming financial crisis that would occur due to the real estate bubble exploding.

When the financial crisis finally came in the fall of 2008 it was clear it would bring on the next crisis which was the economy.

Our economy was heavily reliant both on home prices increasing and the side benefits that came with the bubble; housing related jobs, home equity spending, and bank profits.

As a political leader, the correct action to take when a financial bubble bursts is......nothing.  A contraction in the economy and financial sector is a healthy part of the business cycle.  A strong leader will tell the public that banks will fail, people will lose their jobs, and their home prices will fall considerably, along with their stocks.

Once the system was cleansed of the toxic assets and mal-investment, we could start fresh and rebuild with a strong foundation.  It is the equivalent of a forest fire, which is nature's way of making the earth stronger for new growth.

If you look back through history these recessions normally last a year or two, they are incredibly painful, and then the country continues on with its growth.  It has happened to countries all over the world through the last century.

Of course, as you know, that is not what happened.

The government in the fall of 2008 decided to nationalize the banking system, nationalize Fannie and Freddie, nationalize AIG's insurance business, and all the toxic assets inside these insolvent institutions.

The reason for this is not a big secret or shocking; these companies provided the lion's share of campaign contributions to both politcal parties over the past ten years. 

Due to this decision, it is now a clear certainty that we are on the path to the third and final crisis:

The Currency Crisis

Just as the first two were not difficult to see coming, the final crisis is crystal clear ahead of us. 

You can already seeing it taking place in other smaller situations around the world.  The bell that woke up the world to the government debt crisis began in Dubai last fall.  Nothing has been resolved in Dubai and the cost to insure their debt hit a new all time high this week.

It quickly spread to Greece, and has now moved to Portugal, Ireland, and Spain.  The vultures are even flying around Japan as they keep a close eye on the debt situation there.

These countries have increased their government spending to the point where it is impossible to service the debt.  They all tried to step in and increase spending when we entered the global recession.

The same exact thing is occuring in the majority of our US states.  Illinois is nearing bankruptcy and California is right behind.  These two states have the largest populations in the country.

When you take a step back and look at it, it could be viewed as a set of dominoes, with Dubai's debt crisis as the first push.

People ask why we are not having problems servicing our Federal debt burden?

We are!! 

The Federal Reserve is currently printing money and buying our debt to keep us from defaulting.

Greece, Spain, Portugal, Dubai, California, and Illinois do not have a printing press.  That is the only difference.  In fact our Federal debt burden is far, far, worse than any of these locations when you factor in the debt of Fannie Mae and Freddie Mac to the government balance sheet.

The currency crisis has already begun.  It is only visible to the observant eye. 

As well as entering the first stages of the currency crisis, we are already full steam into the economic crisis.  We received a lot more information this week to confirm this unfortunate truth.......

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