Monday, April 04, 2011

Obama's Fake Economic Recovery, Where it is Leading

US President Obama's vaunted economic recovery is based upon massive monetary stimulus by the US Federal Reserve, on top of a fiscal policy of deficit spending by the US Congress. It is like a cocaine addicts high -- either stop the drug and crash, or keep increasing the dose and eventually die from the hollow over-stimulus. The QE2 is due to expire in June 2011, and the Fed will have a choice whether to keep hitting the coke, or go cold turkey. Neither option will be pleasant for US citizens, but at least one option allows for survival and a gradual rebuilding.
The trouble with this latest US recovery is that it amounts to little more than an economic “sugar-rush”. The recent growth-burst is built on monetary and fiscal policies which are wildly expansionary, wholly unsustainable and will surely soon come to an end. When the sugar-rush is over, and it won’t be long, the US will end up with a serious economic headache. Investors should keep that in mind.

...America is being blamed, rightly, for artificially depressing the dollar, so unfairly boosting US exports at the expense of those from elsewhere. At the same time, a lower greenback cuts the real value of the huge debts that America owes overseas creditors - not least the Chinese. _Telegraph
The author of the article above suggests that the Chinese and other US securities and bond holders will force the US to stop its serial QE attacks on the value of the US dollar and US treasuries. But can Obama's government afford to get off the twin railed (deficits and QE) train to perdition? Does Obama have the guts to take the bitter pill, when it is almost certain to mean defeat at the polls in 2012? Not likely.

One side of the inevitable disaster -- stopping QE. You know it will be a disaster either way, but one choice leads to an earlier painful disaster from which it will be possible to recover, eventually. The other choice leads to even more serious inflation than the US is already on the brink of.

The US is no longer a land of opportunity, but has become the land of government affiliated leeches and rent-seekers. That means that although government entitlements are rising exponentially, government revenues are becoming stuck, unable to compensate. Deficit spending at all levels of government is thus likely, until a final catastrophe brings the building train wreck to a screeching halt.

Lest you start to think that China or Europe will be safe economic havens and drivers of a global recovery -- better think again. Europe's demographic collapse on top of its welfare nanny state mentality, is a disaster building before our eyes. China's corrupt central economy is wrapping itself into hopeless knots.

The US economic debacle -- which no one in the US government or Fed is willing to face -- will compound the ongoing problems overseas.

How long before Obama's house of cards falls down? You gotta ask yourself one question: Do you feel lucky?

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