As the country is about to enter a period of extended debate on the virtue, or lack thereof, of raising the national debt ceiling, people don't really understand how precarious of a position the United State is in financially. Those in my age group are used to up and down swings in the economy. There is always a recovery. This time it’s different. Unless the country gets its fiscal house in order, we are in deep, deep trouble. Recovery is not possible if we keep going in the same direction. There will be some movement, but to get to where we were before…it ain’t gonna happen!
The amount of debt facing the country is staggering. It is beyond comprehension. I think maybe Barack Obama may be beginning to understand what we are facing as I am hearing at least some change in his rhetoric. Not enough. His policies are still questionable. His Secretary of Energy, Steven Chu, said in 2008 that the cost of gas in the United States has to be as high as the cost of gas in Europe. That would put our gas at $8.00/gallon. Can his advisers really be that stupid? Yes, they can. This is the global warming crowd. They could care less about you.
Here’s the deal. Whether we like it or not, inflation is here. It is all around us, and is just getting going. Right now oil trades in dollars. If our debt is not brought under control, there are movements afoot to change the currency in which oil is traded to either a new world currency, or a basket of other currencies. If that happens, folks, the cost of gas will double over night, if not triple. Erosion of the value of our currency is dangerous, and it is real. The world will move to protect the value of its hard assets, and the result will be to bankrupt our nation. This isn’t a phony danger. It is a real danger. I think Obama is getting scared, and quite frankly, so am I.
Gold has reached almost $1500.00/oz. THAT, my friends, is inflation. And it still has a ways to run. Gold and other commodities, including oil, are hedges against inflation. If people think inflation is coming…the price of commodities will continue to skyrocket. In the short run, there will be fluctuations, but the long term trend is up and up. When mainstream investment advisors are advising clients to invest in art, real estate, jewelry, you know we are in trouble. A jeweler friend of mine told me the cost of diamonds is going through the roof. He can sell his current stock with the requisite markup. The problem is he can’t afford to buy stock to replace it at the cost that he is selling his current stock. He has to raise his prices fast and furious.
That is how the government intends to pay the debt…devalue the currency. And imports into this country, like oil, will continue to skyrocket. The debt is then paid by the inflation, which is a tax of staggering proportions on every American. All the while, the Federal Reserve will continue to tell you there is no inflation…and it’s their intent to maintain a strong dollar.
Of course, to do that, they would have to raise interest rates…a lot!! Americans don’t understand how high interest rates may have to go over the next few years to curb the inflation. If you think you can’t get a loan now, just wait.
One way or the other, we as individuals and a nation are going to be facing a lot of pain as we try to clean up the mess our government has given us. There is no free lunch. Everybody will pay through decreased entitlements, increased taxes, and inflated prices. There is no simply taxing the rich. The cost of a gallon of milk or a loaf of bread or a gallon of gas hurts the poor the most. It is the ultimate regressive tax.
The good news is that there is hope. If we do Mark’s three things to recovery….we can survive what is coming with a growing economy that will help pay that nasty debt off.
1) Get tough with China on allowing its currency to float.
2) Drill here. Drill now. And build infrastructure for new energy in a planned manner. Nuclear, wind, solar, geothermal, natural gas, clean coal and hydrogen should cut to the head of the line.
3) Get the EPA off of our backs. It has cleaned up the air and our rivers. It’s now devising a way to charge for air!
I keep talking, but nobody is listening. Help me!!!!!!!!
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