Two news items of note that have recently caught my attention. The first, that China has been taking advantage of the global firesale of stuff, along with its massive cash reserves, to buy up various overseas commodities. Second, that the Fed today committed to buying $300 billion of long-term Treasury bonds in order to drive down interest rates and, it is hoped, stoke demand for houses. The Chinese are buying goods with cold hard cash which we have been shoveling their direction every time we shop in Wal-Mart or run a federal budget deficit; we are buying loans from ourselves with money we do not have. The first is called real estate; the second is called fantasy-land.
In response, the price of gold shot up nearly 5%, or about $50, settling at about $930 an ounce, while the dollar fell to 1.34 against the Euro, moving higher from lows set when the dollar briefly was perceived as a safe haven. Oil jumped a percent and a half to nearly $49 a barrel. While the Fed is surely right that the economy has not yet “bottomed,” those with a view beyond today’s market gyrations can see that when growth is “restored,” that the U.S. will be using inflated dollars to chase after dwindling resources. Stuff will be getting a lot more expensive in the not-distant future, and you can bet that the Chinese are not going to be selling it cheaply to us in return for our increasingly worthless greenbacks. Perhaps the only thing more grim than our current economic moment is the economy that is awaiting us. We will either learn thrift by a new commitment to old virtues, or we will learn it the hard way. We will be able to afford fewer things, move around less and we will find ourselves facing a world that is not subject to our notional control. For most, this will be an occasion for lamentation. To my mind, it would generally constitute a better way, but a hard way when it comes by force and not by choice. Hard especially because – like our response to the current “crisis” (a word that reflects our belief that this is something extraordinary, unexpected, exceptional, a departure from the norm rather than the new norm), we will not believe in the reality of the reality that we face. We will deny its truth and its causes, looking instead for another cause other than ourselves. We will deny until the bitter end, avoiding the bankruptcy that awaits us in the belief that past returns are the guarantee of future results, most of all for no better reason than we wish it to be so.
The #1 imperative of all living things is self-preservation – governments are no different.
Reuters reports . . .
LUXEMBOURG – A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar….
Sounds like good news to me. I do hope they ditch the dollar as THE trade currency; being the reserve currency lets our govmint get away with fiscal and monetary murder. And I do hope the Chinese stop selling us stuff for our “worthless” greenbacks; it’s all stuff we could make for ourselves or do without. And I do hope the dollar declines (even though I will be in England this summer). A currency should decline as long as there is a trade deficit. A cheaper dollar has the same effect as an import tariff and an export subsidy, all rolled into one. It enourages both local production, import substitution, and gives our exports a boast. Further, countries are less willing to lend to us, forcing us to find and use our own resources.
And all of this is a lot cheaper than a bailout.
Well, it might be cheaper than a bail out if we actually made anything to export in large amounts beyond corn syrup or that thing we call entertainment as produced in the Shtetl called Hollywood.
As soon as that romantic notion called reality hits this public, one supposes that the Combat Brigade stationed down there to Fort Stewart will become quite busy.
Be careful of what is wished for because sometimes the wishes fail to follow schedule or script.
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