Till Debt Do Us Apart—Be Careful Mother of all Bubbles on Cards in US!!!

September 5, 2009

Economy recovering…. the bull phase will be on within a year from now….. is what is we are listening everyday in our news . 600 economists sample was taken and they believe that the stimulus packages are working by looking at the Goldman Sachs profit figures. Obama administration is also happy with the performance of the economy and what they are not embarking is that this stimuluses are working and insisting that the only worry is the federal debt shooting upward. This is just like an individual who borrowed $1 trillion and saying “I am happy but the only worry is the debts should come down”.
Yes, definitely recession is over but the depression has started …
Maybe Obama administration is also believing that the recession is over and they are also not saying that the prosperity in the economy has begun so hence they do not want to say it to the general populace.
Unfortunately, the federal debt which is raised by the US government is already 100% of the US GDP and the thing is already the US economy is in recession (negative growth) and if the growth is to be achieved then it should come from the export sector and internal savings (invested). Unless this happens the economy is not going to recover and the US economy will continue to be in negative growth territory . On top of that if we add social security, Medicare and Medicaid payments for baby boomers in the coming years along with the negative growth prevailing it will be a huge burden on the federal reserve and hence fed have no other option but to monetize the debt. Hence, there will be hyperinflation scenario persisting in the system. The government has no option to increase the supply of goods and services hence they opt for the monetary policy tuning. So, they have to raise the interest rates to double digits to attract the foreign investors otherwise there will not be any buyers for the American treasury bonds hence the monetization of debt will again take place and the fed workers have to run the press overtime to meet the obligations .
On the other hand, if monetization of debt and double digit inflation occurs then the existing bonds which are issued by the US government will collapse because when interest rates rises from (0.50% to 10%) then definitely the existing treasury bond prices in the market will collapse and most of the other countries foreign exchange reserves will be wiped out with ease (esp. China’s $2 trillion foreign exchange reserves). Also, if any country backs the weakening US dollar (Inflation eats away the currency’s purchasing power)they have to suffer by losing their sovereign assets as well. This will again put pressure on the world’s growth rate (even in emerging countries). This problem of hyperinflation and monetary tuning will seriously put pressure on the Bond prices and also people in the country will lose confidence on the bonds and will stop buying the bonds . After this loss of confidence in the bond market,the fed will be forced to print more money and thereby making the dollar lose its purchasing power (already 95% pp is lost i.e, now a person should pay 20 times extra amount when compared to 1930’s) even more. Whilst, creating an unprecedented bubble in the United States and this will be the mother of all bubbles and also called the bailout bubble which will persist over a long period of time.
So, hence this bond bubble will be a next bubble which will be on cards and don’t trust the soft spoken words from Obama’s administration and this time around it will be Greenspangeddon and Bernankegeddon. Nevertheless it is high time, to pull out your money from American Treasury bonds and other American paper money which will be of no real use to the American bourgeoisie and other lower classes of people.

Disclaimer: The views expressed here are of the author and the readers are advised to consult their own financial advisors before taking any financial decisions or whatsoever.


Is America Jumping or Slumping ????

August 9, 2009

I would like to start off thanking Alan Greenspan and Ben Bernanke for running the Federal Reserve tenaciously without even raising the interest rates from 1999 and keeping it as low as 0.25% per annum  and also printing money out of thin air (through open market operations) which is  tantamounting  to bubble after bubble and  completely ruining the entire economic system and thereby creating  a bigger  mother of the bubbles i.e., Bailout Bubble. (The upcoming mother of all the bubbles).

Firstly, the intention behind giving the bailout was to stimulate the economy thinking that the Americans spend again to restore the growth in the economy (as 70% of the GDP is through consumption) but the growth doesn’t happen because the most of the people in the country are exposed to foreclosures and at the same time unemployment skyrocketing (jobs not being cooled but disappearing) , money being blocked in the housing sector and pay cuts from the companies. And I don’t know how will people start spending their money after they receive it from the obama’s administration which is issued to public without any transparency and good governance. Henceforth , the growth in the country shrinks and thereby again leading to the same old cascading effect.

Seconldy , Americans doesn’t save much. The problem with the Americans is that they are living at others countries expense and their currency has lost its 95% of its purchasing power (1930) so everytime where there is a federal deficit they try and devalue their currency to tune the economy to a growth trajectory without concentrating on improving the competitiveness of the country’s exports. This is the major problem of American style of economy instead of concentrating on the enhancement of cost efficient techniques and real production they start spending too much on the imports (leads to ballooning trade deficit) and leading to big federal deficits in the longer run. When this deficits are coupled by our bailout spending money it turns out to be a red ocean of deficits.

Thirdly, the obama administration is very confident of getting the federal deficit  down  because of the china’s willingness to buy the treasury bonds issued by federal reserve which will inturn lead to  huge capital account surplus. But this doesn’t happen because china which has all its assets in dollars wanted to put it back in some kind of sovereign wealth funds due to loss of the purchasing power of the dollar(although knowing that it will get into turmoil and will be very confident to getting back to growth track again after few years with upper hand in EM pack because of its competitiveness). Even though the treasury bonds be collapsed (due to the upcoming rise in the interest rates to get in tandem with the devaluation of currency to attract foreign capital) the Chinese will withdraw its support  to buy more treasury bonds leading to American govt. Bond bubble. This bond bubble with penultimately ruin the system by making the American govt. Bankrupt and just lifting its hands at the time of severe downturn.( Because no surplus anywhere in the BOP but more deficits and erosion of foreign exchange reserves leads to more expenditure but less revenue and henceforth in longrun becoming bankrupt.)

Lastly, due to American currency losing value coupled with lack of real growth in the economy eventually lead to the increase in the real value of the commodities (which are left out in the system )thereby leading to hyperinflation i.e, long term secular bull market of commodities  and the long term bull market of commodities will dip the earnings of the companies(High Costs+ Higher Interest Rates +Low Margins = Low Earnings).

Obamageddon  or  Real Economic Growth ……!!!!

So now we may be flushed by the stupid policies of the American government  inorder  to stop the inevitable collapse but  just prolonging  the pain for more number of years.  My dear readers, this is not rhetoric but the hard reality which we are going to face in the upcoming days.

Disclaimer: The views expressed here are of the author and the readers are advised to consult their own financial advisors before taking any financial decisions or whatsoever.