War is the culprit, but Washington won’t own up to it. For years now, policymakers have been funding overseas military incursions with monies borrowed outside the tax-based budget, recklessly floating debt hand over fist to pay for them.
Defense spending has been sizeable since World War II, and appropriately so, but in this millennium Federal books were balanced until Offense spending got tossed into the mix too.
The cost of maintaining that debt has been artificially suppressed by rigged interest rates. Rates clamped down so tight that sovereign bankers, including those inside our own Federal Reserve, have been making markets like Wall Street proprietary traders to prop U.S. bond prices up, creating the all-too-familiar bubble, whose impending pop must be terrifying them about now.
You see, looming on the horizon, skyrocketing inflation threatens to jack dollar interest expense on the aforementioned debt up to flood levels that will swamp the Federal budget in red ink, sinking Treasury’s efforts to continue issuing their paper.
Should business activity keep improving through the rest of 2011, at some point bond vigilantes, as Crime Family goons are known in that market, will finally muscle in, spiking interest rates up to their version of rigged free-market levels, hiking the cost of maintaining our outsized Government debt to the point where the pricing required to refinance it will ignite hyperinflation, that nonsensical state of affairs where so much money is printed so fast it becomes more and more worthless the longer you hang on to it. Paychecks get turned into groceries the moment workers receive them, and no one carries any money around because prices can rise sharply in the middle of the day.
We see where the Fed’s Ben Bernanke is now being compared to Arthur Burns, former Federal Reserve honcho powering runaway inflation in the 70’s. Printing too much money can do that to an economy too, and those of you who survived those years know how price hikes devastated fixed-income investors back then.
Exacerbating our problem now, so many good-paying jobs have been lost offshore, Bernanke doesn’t have the ability to grow tax revenues like Burns once did after employment trends perk up.
People will be working, but the question is, at what? And the answer is not going to be pretty, we’re afraid.
This, in a nutshell, is a doomsday scenario. Unfortunately, the numbers coming out of Congress right now aren’t encouraging. Much as it pains us to conclude, current Republicans, our only hope for fiscal responsibility in years, have already positioned themselves as the Party of Too Little Too Late.
This is no time for pussyfooting around. We have to address the black hole: war spending, and we won‘t.
For investors, it’s beyond goofy. If the economy starts rolling, Washington’s financials are crushed by spiking interest rates, the stock market tumbles, and bonds can’t protect you. They’re the enemy here. However, at current diminished levels of business activity, the new G-men can manage their problem debt with a little old-fashioned price manipulation, and things remain hunky-dory, kind of.
Whatever, with Congress taking themselves out of the game, Bernanke is in the crosshairs now. Keep a sharp eye on whatever he does.
If the Post staff had any idea what that could possibly be, we’d tell you. Our hope is, he’ll throw some kind of monkey wrench into things financial. Given his history, that isn’t too much to expect.
A little wrench though. And sooner rather than later. Keep this great nation of ours underachieving for just a while longer.
That would give Congress a chance to dampen America’s prospects even more, dampen them enough to stretch this bull market out some. We’re guessing this bunch will excel at dampen, particularly enthusiasm.
They’ve got us there already. And we’re not the only ones thinking maybe its time to allocate all you’ve got overseas. Large cap multinationals and direct foreign investments are all the rage in guruland these days. Dumping financials invested in bonds and buying the industrials who issue that paper ought to work out as well. Maybe take a shot with a utility or two. Paying back their enormous debtloads with hyper-inflated future dollars sounds like a winner here at The MacDougal Post.
Not that we’re happy about it though.
