Monday, July 20, 2009

Debt and Consumer Savings to Tank the Dollar and Stocks:

Consumers stimulated to save as reality of “recovery act” leaves pockets empty and Wallstreet laughs all the way to the bank.

By Joshua E. Stone

All the railing on the stimulus might be unfair; in fact people talking about it may not have really looked into it very deeply. The funds are directed to very worthy causes in some cases and will certainly spur growth in the economy later in some sectors; however it neglected to take care of the two most important things to spur confidence: a clear and reassuring energy policy as I have repeated many times on this blog already and disposable money in the pockets of consumers right away; so the banks wipeout the 401ks` and the tax payer with one stone. Double wammy!

Simply put the stimulus spends too far in the future to help an economy that all experts said needed an infusion of disposable income immediately. This is the typical kind of oversight of typically overreaching politicians who want power and are not concerned with the plight on the street. The pain and fallout from these policies are not fully realized yet by the masses. But as unemployment reaches double digits and the Congressional Budget Office releases come out in August point to incomprehensibly soaring debt, just as I and many others said these things would happen; it will all become undeniable. Even by adored politicians who face re-election soon. The pain will even be mathematically clear to those not affected directly. With 85-90% employment, its hard to ignore over 10%, after all it was only 10% of the people that supported the revolutionary war of the United States from Britain... On the flip side, most people are working still so it’s not the end of the world. It just sounds like it, and feels like it for 9-10% of us.

Now as for the spending at some point trillions upon trillions of dollars in debt will be undeniable as well. It will be a 9/11 style wake up call is my feeling, a 9/11, but a 9/11 on the dollar. Last year we had 9/18 and that hit stocks. This year it will be the debt that wakes everyone up from their drunken pre 9/11 zombie mode. But again on the flip side...the American pockets are deep and all the sources of money out there are not fully understood, if the policy can change in time, we can save ourselves from the debt too.

Thanks to the tremendous wisdom of the politicians who passed the stimulus, no one has any extra disposable money to spend. In short they sent the children out in the blizzard to get the sleds with no coats. This will have a very negative impact on two thirds of the US economy and shrinking: consumer spending. This in turn will prolong a recession that has already lasted 19 months and shredded 7million + jobs, causing the economy to shrink even further. This is already the longest and most painful recession on record for the US.

The good news is I think the politicians already planned it this way. If they had granted a stimulus that helped the peoples` pockets, there would be no way they would have enough political capital left to convince the constituency another stimulus was required. A stimulus that added to the debt and would be crucial for a strong and healthy foundation for the future of the American economy to insure it competes in the global theatre. In short they had to keep the tax payer hungry to get everything they (the politicians) wanted and perhaps need to keep this country great and competitive in their judgment.

The reason a second stimulus will be passed is because it is required to keep the recovery on track; a recovery that is already threatened by the meteoric rise of looming deficits and fluctuating employment numbers that are not losing momentum. To top it off, the government has borrowed all the money, so the only prospect for growth in the economy will be in the government sphere. The second and most potent reason: the 2010 elections. So where does this leave us? That leaves us in debt; the estimates for the healthcare by the Congressional Budget Office are chilling. The outcry against Cap and Trade is even scarier. So the consumer will retreat and save.

This means we have conflicting signals for the dollar and stocks: the debt scare should send the dollar down and the consumer saving should send the dollar up. I think we will see both scenarios play out by the end of the year. Stocks go up in recessions, by the time the recession is over it is too late to get into them historically. So don’t let this rally lull you into complacency or take it as something indicative of an early recovery. In short 2009 will be a year of revaluation for commodities, stocks, the dollar and real estate. In my opinion the strength in this rally is indicative of the possible strength in the ultimate recovery if policy is executed properly, not an indication the recession is over. If they pass a stimulus before the end of the year for the people in time for Christmas we will see an amazing bounce in the fourth quarter. Already the organic recovery in the economy is doing very good considering all the problems that have been heaped on it and compounded by the bad policy in the last year. Some proper management from the politicians’ could really get things on the fast track to recovering. If the bad policy continues, we`re going to see an even longer recession and my guess is a global depression that will come here to the USA eventually.

Ask yourself a couple of questions going forward: why will congress not join the people in the public program for healthcare? Why it is there is so much big money interest in passing Cap and Trade? Who really benefits from these bills?

Below is my list of items that have my attention:

• 11 trill $ debt /20 trill over next ten yrs.
• Unfunded liability
• 2nd Stimulus
• Consumers’ savings 7%
• Congressional Budget Release in August
• Employment Numbers
• So much bad data
• Game Changer (pre 911 atmosphere)

Below are links to some of the stories I have read and one that I wrote myself:
(medvedev world currency) threadid=3159732&pagenumber=1
(goldman sachs is everywhere) care-takeover/
(cost of healthcare)

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