A politico-economic interpretation of the United States on March 14, 2008 is too long a title for a blog, but it is what I am thinking.
Gold, the commodity, is selling for $1,000 an ounce. Oil has now traded at over $110 a barrel. There is a huge credit crisis and a crisis of confidence in the bond markets. Gas is now selling at $4 a gallon in a couple of states and the price continues to move higher across the country. The Federal Reserve Bank has come to the rescue of the credit markets with new initiatives to bring liquidity to the major banks and investment houses. The US Government continues to borrow large sums from lenders around the world. The US dollar is falling in value against the Euro and other major world currencies. And, the core CPI, Consumer Price Index, for February and announced today, is unchanged, but that does not include food and energy prices which continue to go up. So what do we have?
All of the above adds up to one thing. The United States has mismanaged its resources and made poor decisions and investors around the world know it. The bottom line is we are going to have to change our priorities or watch as our economic future continues to go down hill. This November the people of the United States will have an opportunity to vote on what they think those priorities should be.
Given what we have come through and the direction we are going, I think, we have to change the things we can change. The first thing, in my opinion, that needs to be changed is the spending in Iraq. Given all the economic factors that are working against the U.S., the United States needs to disengage itself financially from Iraq. In my opinion, the United States can not afford to be spending $12 billion a month to do whatever it says it is doing in Iraq. That spending decision can be changed and should be changed. As a economic decision, it is not big, but it says something about the direction the United States is taking to address the problems of its economy. It may well be time for the United States to address other spending issues overseas and reexamine the cost/benefit of such expenditures.
The United States is being graded every day by investors and countries around the world. Gold is selling at $1,000 an ounce for a reason and the reason is not that people are wearing more gold jewelry. The price of gold is a barometer of the confidence or lack of confidence in the future value of the US dollar. Investors have bought gold as a hedge against the declining purchasing power of the dollar.
At some point, when enough people are feeling the pinch of higher energy and food prices, at that point survival takes the front seat, and other issues that I will not mention, but we all know are not associated with economic survival, will move to the back of our list of priorities. The position of the United States as a world leader is not written in stone anywhere in the world. As a nation we must earn that rank everyday. Unless the United States responds to the economic challenges facing it today, with a new direction in leadership, the United States will not be a world leader by the middle of this century.
Thank goodness Saturday is for art, we can all use a rest. Stay tuned.
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7 comments:
Hi Moneythoughts!
The CPI is tossed aorund a lot. Unless energy and food are included-it is meaningless. IMHO, it does not include these things because big business does not want them included. Why? Because CPI is used to calculate expected pay raises, and used in union negotations. Keep it artificially low, and you can pay your workers less than "real" inflation. The poor get poorer.
And to hedge my bets, if I had money to invest, I would not buy gold- I would buy mountainous watershed property, with easement rights (means no one can stop up the water before it reaches you). Clean water is more and more precious, and certainly will increase in value as time goes by. I'd have not one, but several wells.
Am I a pessimist?
Why not let Iraq pay us for our presence there with the money they make from selling oil?
Hi Lceel,
You seem like such a nice guy, but you really pushed my button...
Why not?
Because it's not like we were invited. And very little is being pumped there these days anyway. They'd be about 7 bill short a month. (figures info courtesy of my resident world affairs expert :)
wetpaint: The complaint was the money we're spending there - it wasn't a question of right or wrong. And if they're not pumping enough? - they COULD.
Guys,
I'm not taking sides in this one. I was trying to present the economic "facts" of our situation.
Personally, it was a bad idea to go in as we did. The administration should have listened to the smarter people in the military. Iraq was not behind the 911 attacks. Remember 15 of the men were from our "friends" Saudi Arabia. We had other fish to fry, we should have stayed out of Iraq. After 911, we had lots of support around the world. We pissed that goodwill away.
We need to look with fresh eyes at all of our spending overseas. We need to shore up the dollar. Oil is traded in dollars, and as the dollar falls in value the price of oil goes up. If we don't take some action to slow this down, we will see $200 a barrel oil before too long. For the survival of our own domestic economy changes in policy need to be made NOW!
Cool blog, don't want to get to political at this late hour...like your work! The Precious metal prices are killing jewelry artist like myself! I can make more cutting some of my work up and sending it off to be refined than I can selling it as art---sad, but true.
Moneythoughts,
I am an author on Sharp Sticks and Politics and have now traveled onto your blog to see what you are thinking about our world. Some interesting stuff.
I also just got out of a full day of classes, so if what I am saying is unclear, just let me know and I will try to elaborate. That aside, lets get down to some ideas.
"The United States has mismanaged its resources and made poor decisions and investors around the world know it." I have had a conversation similar to this among my college friends in the mess halls of University of Houston, except I attempt to word the root cause differently. Ultimately, I feel everything we see on the marco level rests on micro level principles. Therefore, I find that it is large scale misallocation of resources by individuals to be one of the root causes for the current "recession."
The thing is the investors and entrepreneurs do not consistently misallocate their resources unless something is distorting the signals they use to make decisions. Hayek refers to these price system. These signals get distorted when some outside force has the power to effect markets. In the status quo, this would be the federal government. So ultimately, it comes down to the government staying out of the market as much as possible. There are large implications of this idea though: no medicare, social security, Iraq, etc.
Lceel, you said, "Why not let Iraq pay us for our presence there with the money they make from selling oil?" Well ultimately I think that this does not work for two reason. First, Iraqis need their money if they dream of ending terrorism (if I remember correctly, with higher standards of living comes a significantly decreased incentive to terrorist action. This is caused by many principles, one of which is the specialization and trade, which improving and higher standards of living requires). Secondly, there was no great contract signed by Iraqis with the United States to free them. In fact, the original premise of America being in Iraq was a preemptive strike against weapons of mass destruction. All things being said, I think you could say that we invaded them.
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