You Created the Deficit! Yes, YOU…

If citizens of this country are deep in debt, then why do they expect the Federal Government to be any different?

It’s really a crazy thing. The biggest consumer economy in the world is the United States of America. We consume for lifestyle, reward, fun and entertainment, excitement, and a whole slew of reasons. The fact that we are consumers is also the basis for why the Dollar has value. Our ability to consume allows us to be competitive internationally. If we did not consume as much the dollar would be worth less, just like the Japanese Yen. Instead, we create a very high dollar “velocity”. The faster the dollar travels from one person to another or one entity to another, the faster our economy expands. This brings us to the crux of the current problem.

Just like the economy before the Great Depression, there has been a wild increase in credit and credit-based spending. When credit expands too rapidly then we end up in a situation in which there is not enough cash or velocity of cash to keep up with the debt load. In order to re-set the economy back to a normal credit balance, some loans must be called in.

Example: It’s ironic that some Hollywood movie stars will complain about spending and excess, what they believe to be a high debt load in the deficit numbers, and all along it is the consumer who makes them wealthy in the first place. It is the military fighting for freedom which allows our ability to live our lifestyle in which we can afford such entertainment. But movie stars then seem to be mad at us for it. It’s crazy! lol

Copyright 2008 Michael P Arnold, MPArnold

Political Econocide

How much of the Brokerage Failure has to do with politics? Seems like quite a bit! Just like the easy money of the Roaring Twenties, the easy money of the recent times can easily lead to a new Depression. Much of this had to do with Congress allowing Freddie and Fannie to run wild with low quality loans which the lenders all believed would be guaranteed by the full faith and credit of the US Government. Which they are, but now at a direct cost to the taxpayer. All this bail-out business has everything to do with politicians, bankers, brokers, and other financial institutions trying to save each other’s necks rather than do what they have fiduciary responsibility to do, protect the investors.

Now we are past the beginnings of this and well into the final demise of some of the institutions. Then the price tag rolls into the share holders and the taxpayers. But don’t think it stops here… next we see the loss of small business and many, many jobs. I don’t think they can turn the real estate market around fast enough to save Wall Street. Do you?

Political Econocide. The culprits/perpetrators are: Congress, Wall Street, Big Banks, Hedge Funds, Bond Brokers, and Mortgage Companies to name a few. They killed our economy.  They found easy money in loans to citizens of this country, then leveraged it into more borrowed money for bonds, then more borrowed money for investment in commodities which they all expected to bid up in the exchanges. Now we can see they borrowed to borrow, and then to borrow again. They even ignored good quality business while they wasted their time with “fools gold”.  On top of all of this, it is beginning to look like many congressmen, on both sides of the aisle, received large donations from Freddie and Fannie!  They thought your mortgage, paid for by your hard earned payments, was easy money for them to line their pockets with!

What will happen next? We don’t know for sure but expect a possible 30% reduction in stock prices, expect more bank failures, expect loan money to dry up, expect cash to become constrained, expect lots of job losses, and expect to become very, very thrifty… just like your grandparents who are old enough to have been born near the last Great Depression. Expect to vote for someone who can represent us better in Congress. If the past is a predictor, then about 1 out of 5 people will not have a job in the near future. We may not have wild inflation but if you don’t have cash in your pocket or in your bank account, then what do prices mean?

But this is what happens to us when we bid each other up on homes, and by not being thrifty at home, we cannot expect anyone in Congress to be thrifty either.

BTW… the major earmarks of the last depression were Excessive Credit, Constrained Cash, Real Estate Bubble, Stock Bubble, Natural Disasters, Corporations Hoarding Cash, and 20% Jobless Rate. Pretty much all of this is in place except for the Jobless Rate. Right now, many people are employed by the Government and that alone could be the one thing that keeps us from a total Depression.

(Copyright 2008 Michael P Arnold, MPArnold)

Making Sense of the Dollar

After 9/11 George Bush determined to take care of business.  Without getting into too much detail you should recall that France, Germany and a few other countries were not supportive in Iraq and thus irked enough people in the U.S. to cause them to boycott imports from those countries.  In response to poor support from our good allies who we usually stand up for very well, financially and in defense, George Bush chose not to prevent the dollar from falling in value on the foreign markets.  This in turn allowed American goods to become cheaper and goods and services of those allies to become more expensive in the U.S.

Why would George Bush’s administration do that?  It gave us economic strength and strained the other countries.  It was a way of raising tariffs in a sense without creating new tariffs in fact.  There are other advantages such as the weaker international dollar reduced our adjusted cost of paying off international deficits.  It increased our ability to export goods and created a positive environment for U.S. business abroad and definitely gave us a better competitive stance regarding China.

Now, because the dollar was allowed to fall in the international markets, and because we are exporting more, and our services are more in demand, we are in a much better position than we would have been in during this economic debacle which our bankers, hedge funds, brokers, and commodity traders have leveraged us into.

As you read news headlines, and if your only source of information is the news media, then you are not likely to know or understand these things.  You are missing a huge part of the picture and are bound to be trapped by the same frustrations as the rest of the crowd who believe that George Bush has done terrible things to this country.  If you will do your homework by reading, really reading, and then try to understand the meaning of things and why they are done (follow the money trail) you will understand things much more clearly and will be better off in deciding what to do with your own wealth.  If you can’t find the information or don’t understand it, then talk to your Financial Advisor.  If your advisor does not understand either, then find a new one!