America: The Best Government Money Can Buy

These gas prices are kicking all of us in the rear end. Many blame the President, others commodity market speculators and still others OPEC. But they all are off from the way I see the issue. The real issue and the culprit is the US dollar. Specifically, its reduced value and purchasing power.

It seems almost intentional, avoiding the declining value of the dollar for the pricing increases we are seeing in everything from oil to food to gas. Politicians seem to just want to exploit the issue by appealing to popular sentiment. The fact is that the US dollar continues to hit record lows against all major foreign currencies especially the yuan, Euro and the Yen. Add to that the recent IMF findings that China’s economy will surpass that of America in 2016, it is more that meets the eye when speaking about the rising cost of gas. Why? Because we are not going through a recovery as the government suggest but rather a debt spending boom based on the home buying explosion of years past.

Truth is US household debt reached a high in June of $8.7 trillion, and with rising unemployment and no economic growth, it is reflected in the reduced value of the dollar. Such impacts negatively US Treasuries especially since now the Japanese government will need to sell its US Treasuries to deal with and pay for cleaning up and rebuilding after the Earthquake. Add to this gumbo China, which has the largest dollar surplus in the world, saw it foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Now back to oil and gas. In simple terms, the weakness in the US dollar is causing everything to go up. This in an environment in which the rate of new debt growth among families is growing and the overall US manufacturing economy declines. This inherently impacts the dollar since what politicians ignore in their budget and deficit battles is the fact that US trade deficits and the Dollar System are connected.

Historically, in 1944 the Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, defining the dollar in value to be 1/35th of an ounce of gold. In 1971, when President Nixon refused to pay out any of our remaining 280 million ounces of gold, he made the dollar what is today.

Oil is a critical economic and strategic resource and since it is traded in US$, when the US$ weakens, in terms of any other major foreign currency, the countries exporting oil get less. Thus when the dollar goes down in buying power they ask for more US$ for a barrel of oil. This gets even trickier since there is no shortage of oil via production currently. But what they see is our economy, let us say compared to a China which by estimates will expand from $11.2 trillion this year to $19 trillion in 2016, while the U.S. economy will rise from $15.2 trillion to $18.8 trillion. Strange, since it was just a decade ago when the U.S. economy was three times the size of China’s.

All I am trying to say is that the America we once knew with the all powerful dollar bill isn’t the same. The fact is that we have a surplus of oil and that we are not refining gasoline/ In addition, what we are seeing is the impact of a weaker dollar on oil demand in non-dollar economies. Oil producers sell their products in dollars. The dollars they get are used to buy other stuff around the globe. If it cost them more dollars to do so then they have to sell their oil for more dollars.

And as long as the U.S. Dollar is continuously devalued (inflated) by Federal Reserve and U.S. government monetary policies, oil producing nations will lose money if they don’t raise the price.

Yep the problem is our government and our monetary policies. The dollar may never be the same. Yet all the time wall street, big oil companies and politicians are getting richer as the sell all that made America great away to corporations and other nations through our monetary policy. Yep, that’s America; the greatest and best government money can buy.

Constipated Now Nows

While many of us continue our habitual over zealous consumption of stuff and things of no real economic value, two events have occurred since the November mid-term election that may be of critical economic importance regarding the future of America, three if one includes the proposal presented this week by President Obama’s National Commission on Fiscal Responsibility and Reform.

The first was the announcement by the U.S. Federal Reserve this week of $600 billion of extra money being put in the economy. Specifically they will use the loot created out of thin air and computer virtual reality to buy $600 billion of long-term Treasury bonds (about $75 billion a month) through March 2011. They call this “quantitative easing.” In theory, this can be defined as a willy nilly, hocus pocus way to promote a stronger pace of economic growth and recovery. By my math, in addition to the pronouncement made by the New York Federal Reserve Bank to reinvest maturing mortgage securities owned by the Fed in Treasury bonds, that projects to approximately $900 billion of Federal bond purchases in the next six months or almost half the loot issued to finance this year's federal deficit.

The second is the meeting of the G-20 in South Korea. We know that most of the attention during this meeting will be directed towards the global economy. Particularly, monetary and currency policy and international trade. This will be an up hill battle for the US, since most of what we see that is jacked-up economically is our fault. I mean since the time of Nixon, we as a nation encouraged all of this, when we decided to get cheap stuff abroad via Chinese, Vietnamese and Latin American labor and taking the dollar off the gold standard.

Yes, once upon a time there was a gold standard in which the monetary unit is a fixed weight of gold. This came about via the Bretton Woods agreement put in place after World War II, allowing several countries to base their exchange rates to the U.S. dollar. But like I said previously, this ended in 1971 when President Richard Nixon ended the dollar-gold peg, leading to what we have now - floating exchange rates. Even stranger is that at this time, Alan Greenspan, who arrived in Washington in 1967, as a campaign advisor to Richard Nixon, wanted to reshape the economic landscape of America via deregulate, But I digress.


The China/US relationship is a clear example of what I am trying to say. They have pegged their currency to the dollar, which keeps the value of the Yuan artificially low, thus giving them the ability to flood the US market with cheap products. The consequence was that it gave China the ability to use the dollars they earned to buy US debt, which let us live way above our incomes. Unfortunate for us, this created a trade imbalance between the two nations, growing dollar reserves in China and creating a trade surplus (just as what we see with Germany).

Chinese dollar reserves currently are estimated at about $2 trillion. If the Feds puts too much money into circulation, these reserves may be devalued. And if China isn’t happy, and their value is decreased because the dollar is reduced in strength by the Feds actions, a trade war and a worldwide recession would not be far fetched as a probably outcome. Funny thing is we complain about china keeping the value of the Yuan fixed, but the actions the US central bank is doing by flooding billions in the world market, is the same thing, only via monetary policy.

What the federal Reserve has done is to take more risk with respect to our economy, an untested risk, which could not have come at a more dangerous time globally for the US. Banks already have about $3 trillion in cash, they just are hoarding as opposed to lending or spending. Thus such actions seems to increase the risks of higher inflation sooner than latter, especially now since the places we used to get cheap labor from is outcompeting us and holding our economic growth stagnant.

Now, other wealthy nations are super critical of the US economic policy as were of theirs 30 years ago, with the clout being on their side now. Especially the German and Chinese with respect to the Feds actions and overall macroeconomic policies. I just don’t get it, what will buying bonds do to encourage job creation? We still spend too much. On December 31, 2010, the Obama stimulus package, will end and thing will really be up in the air.

I do not know what the end game will be but I can say from our actions at home and our buddies around the world. And on the real the U.S. needs to generate at least a million plus jobs annually to keep up with new workers entering the job market alone. From the actions of the G20 summit there are several things we see. First is obvious, that no one wants to be in any paper currency. This may be why a former banker at Goldman Sachs and deputy secretary of state under George H. W. Bush, suggested a return to a modified gold standard. Second, that we are not in a position to tell other nations how large of a surplus or deficit they can run. And last, Unfortunately neither individual folk or our government have learned anything from the last 6 to 10 years of economic disarray. It is very obvious that folks still think and behave the same and still have not taken responsibility and just spend as much loot as they brought in – Governments included. Foir even with this second round of “quantitative easing," Amercia sure feels constipated to me. And may require Funkadelic - Promentalshitbackwashpsychosis Enema Squad.