The money game or the money equation or whatever you want to call it is tied to some very basic rules regardless of where the money game is played. Whether we are talking about the United States or another country, the rules come first and the political rhetoric and all the other BS comes second. Certain principles will apply and all the pronouncements by presidents, politicians, central bankers, and even economists will not change the rules of the game, regardless of what, in the long run, their bad policies may have wrought.
In the United States, the chairman of our central bank, the Fed, has been talking a lot lately. His job as Pope for all the commercial and investment banks in the US, and vicar of the growth rate of our money supply, requires that he calm the waters, spread the faith in the almighty US dollar, and not frighten the flock that the devil, spelled inflation, is about to pull us all into hell. Could I paint a better commemorative stamp detailing that whole story? Or has Hieronymus Bosch already beat me to it.
What are you betting on? Even as in horse racing, the sure thing is not always a sure thing. As they say, “that’s why they play the game.” There are no sure things except perhaps death and taxes.
Everyone who has not left the planet during the last year knows the story of the price of oil. As I wrote in an earlier posting, the huge gas signs that appear in front of almost every gas station across our nation are a constant reminder of the failure of our country to have a comprehensive energy policy, and the years that have been wasted since the first oil embargo in 1973. While this is a very important piece of the puzzle, it is not the whole story.
The price of a barrel of oil, while quoted around the world in US dollars, has not risen as greatly for foreign buyers as it has for those of us in the United States. Our money has lost value in the international currency markets, and as a result of this lost purchasing power, the price of a barrel of oil has risen to near $140.
In previous postings, I have talked about how our budget and trade deficits have put pressure on the US dollar, and that along with problems in our credit markets as they relate to the sub-prime mortgage mess, the weak housing market and now the rise in unemployment and loss of jobs since the beginning of the year 2008, that those investors holding dollars or dollar denominated securities may have decided that the US dollar is not where they want to be now.
Our chairman may talk the talk, but everyone else around the world is watching to see whether he is walking the walk. Yes, the United States is a most resilient economy with vast resources of both capital and labor, but can saying the economic rosary, that inflation will not be a problem, be enough to calm the fears around the world about the state of our almighty US dollar? Our money Pope must stay with the faith and through his gentle words try to reassure everyone that a bad recession will not occur, while at the same time assuring us that the devil, known here as inflation, will not drag us under. Do you have faith in the dollar and our domestic economy to hang in there with your feet to the fire? If you live in the United States, you really do not have a choice.
Unfortunately, the cold hearted international investor or money manager is not a person of faith, but a person of facts and cold economic truths. When the chairman talks about the recession not being so bad, the words get translated into, that the end of low interest rates may be at hand. Because, the fact is, that inflation is the real devil or dragon that must be slain. And with those few words, the stock market sees the dragon of inflation slowly raising its head. With the cost of raw materials (commodities) going up and the consumer being squeezed by the sudden and steep increase in the price of gas, the outlook for corporate earnings is not so sunny anymore. And, like any good game, after touching all the bases, we are back to where we started, but now knowing the score. This economic game is connected throughout. Every facet is related to every other piece of the puzzle and no matter how much faith we have in the US dollar, the central bank or the government in Washington, the international money players will act upon the challenges the investing game presents. They will play the ball, or they will take their ball to a different location and game. The rules of money and building wealth are the same in any language. International borders mean nothing as funds are wired around the world and converted into the currency of choice. Today, the US dollar is no longer king, other economies are growing at a faster pace and with that said, the value of our dollar goes down.
Hopefully, after 35 years years of missed opportunities to develop a comprehensive energy policy, and billions of our dollars wasted pursuing just plain bad policies, that all will not be lost and that America will be able to get control of its future and not be held hostage to economic forces dictated from outside our country. Stay tuned.
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3 comments:
From your mouth to 'The Fed's' ear. I'm afraid that this is all happening at the same time as the Chinese economy is awakening - and that we will no longer enjoy the position at the top of the hill. We are going to have to learn how to be a 'secondary' economic power. And, everybody, say it all together now, "Thank you, George." "Oh, and you, too, Dick." "Goodbye and good riddance to you both."
Well here’s the big question from us as your readers? What can we do? Obviously being up to snuff on what’s really going on is the first step and you’re providing that education. But what can we do as individuals to make changes in our present situation?
Vikki
Vote.
Talk to people that are interested in discussing these things like the dollar and inflation, oil prices and budget and trade deficits.
Write to your representatives and let them know what you know about the present economic condition and how it got the way it is. Many representatives do not know very much about economics. They understand that it takes money to get reelected. Let them know you know what and why these things are happening.
I try not to get too political because both parties have failed the American people, just each party does it in their own way.
Just as more people are taking an interest in their retirement accounts, people will, if encouraged, take an interest in fiscal and monetary policy, budget and trade deficits, the dollar and inflation.
As we the people raise the level of discourse, the politicians will either adjust and learn more, or new more educated people will take their place.
The Glorious and Bloodless Revolution that I would like to see in the United States will take time, but the words are getting out there. The Internet and blogs reduce this vast country to a village.
We all are making a difference, and I mean a positive one.
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