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August 3, 2011
The debt vortex
We are approaching the periphery of that debt vortex. No one can say when we will get caught up into it, but we may not know until it is just too late. Once you are in it, you cannot get out of it.
A new round of Obamabankcare (QE3) is almost a certainty, and it will not end well.
Our moth eaten policy of extending and pretending will continue to work.
Until it doesn't.
From this layman's perspective, I think we are almost there, ladies and gentlemen. Our debt to GDP ratio is going to hit 100% very soon.
Our phony debt deal does nothing to cut spending. All it does is reduce the rate of increase and cuts no real items from the federal budget. Taxes are sure to go up. In fact, both Harry Reid and Mr. Obama have both not ruled out any increase in tax rates or revenue enhancements.
This deal pleased no one. The public is mad. They understand the lies and realize they've been played. Real disposable income and consumer spending are sliding.
Expect another weak jobs picture next month. Further, not only have unemployment and the labor participation rates taken turns for the worse, but for those working, the hours worked continues to plummet off a cliff per the Federal Reserve's own data.
The markets are not convinced about this agreement -- they expressed their displeasure yesterday. Everything was down.
If the market starts continues to slip, the Fed is going to print. They are beholden to Wall Street, so the Fed will print big time. Best guess is to expect to see something happen around October.
Yes, perhaps the DJIA can get pumped up to 18,000, but the dollar might also tank. It has already dropped 8% YTD against an index of other currencies (at right), and when the next round of printing starts, it may drop further paralleled by a corresponding ramp in commodity prices, a weak dollar bringing higher commodities, all leading to more real inflation. About the only thing that may stop this is a flight from government bonds into cash. In fact, in Europe we see it already as investors slam sovereign debt instruments and convert bonds into currency.
Forget the talking heads on CNN or CNBS. The president's political capital is diminished. Circumstances are overtaking not only Mr. Obama, but much of DC. The debt ceiling increase, erosion in employment, wages, consumer spending, real estate, a terrible ISM, all of these ingredients are combing into one very toxic cocktail which will be used to justify another round of QE3. Events will increasingly isolate our president, and to this writer, I cannot say that his behavior will be rational or constructive. When you are a socialist and a Keynesian, every problem looks like cause for further deficits, more spending, and further government expansion.
Such behavior will, at some point, place us into a vortex of a financial implosion.
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