Stormy March Approaching?

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I am often asked my opinion on when the economy is going to do its next swan dive.  Given persistent, wrong-headed monetary policy, and the extreme unlikelihood that the US will ever have the political will (or even basic intelligence) to perform the necessary emergency amputations of the warfare and welfare states, I believe that the next swan dive may be the last.

Nothing is certain, and our "Three Stooges" overlords may come up with yet one more temporary gimmick to prop up the economy with toothpicks and bubble gum, but it looks like a "perfect storm" may be brewing.  And it could come in the next 30-60 days.

First comes word that printing money endlessly may indeed lead to unbearable inflation.  Wholesale prices are taking off as unemployment continues to grow at faster than predicted rates, putting the squeeze on more and more lower and middle income families, sending more of us every day to Uncle Sam for food stamp, welfare and health care handouts.

As if spooked by the new inflation numbers, the Fed has begun to gradually increase some key interest rates.  In hopes that a gradual approach (which even the Fed governors can't honestly believe will work) will reign in inflation, they quickly approach the proberbial rock and hard place.  Or the devil and the deep blue sea (see below). 

Finally, it is becoming clear that the rest of the world, and particularly China, is no longer willing to buy our T-bills, which has allowed us to spend like drunken sailors, finance our wars and our welfare, and create an ever larger and larger federal deficit.

These three factors coming together at once are creating a "Perfect Storm," that will sooner or later sink the Andrea Gail... er, I mean the good ship USA.   How long they will be able to will keep at bay total collapse is based on 1) the longsuffering but increasingly tenuous public faith in Obama and the Fed, and 2) the ability of Obama and the Fed to apply yet one more band-aid to cancerous fiscal and monetary polices.

Good luck with both of these.

The Fed is finally reaching the self-created, predicted fork in the road, one branch marked "perdition" and the other marked "hell."

On one hand, they can keep the facade of "recovery" going by continuing to inflate the money supply, leading to greater and greater price inflation. This will guarantee the flight of other nations from our treasury bills, at last making Federal Reserve Notes nothing but "paper with ink on it." 

On the other hand, they can agressively raise interest rates, which will plunge the country further into the abyss, destroy any illusion of an economic recovery, increase unemployment and even ensure the Obama and Bernanke will start calling this a depression.

What I can almost guarantee the government will not do--heck, forget the almost--is to take its hands off the economy entirely and let it correct itself.  Yes, it would be painful.  But we would eventually recover, much sooner than if they keep tinkering.

It's what we should have done in 2008.  If we had let the market handle the crisis, the pain would have been deep but relatively short.  We would be well on the road to real recovery by now.  But because of bailouts and "stimulus" spending, the pain will be extended.  Every day we wait now, and every additional fiat dollar we spend, extends the pain further and further.

What we really should do now is put an end to the Fed and its "notes," allow the market to decide what money is (most likely gold and/or silver), immediately cut the warfare state to true defense only, and more gradually eliminate the welfare state.  This would bring true prosperity back to our land.

(And while we're at it, do away with central government altogether.  Oh, to dream...)

But you and I both know we won't do what we should do.  I believe the government will choose the road to perdition (priniting more money) because they don't have the political will to cut spending.  This will bring about hyperinflation, the collapse of the dollar, and chaos in the land. 

When that happens, all bets are off.  No one knows what will happen, but it won't be pretty.  Worst case is we jump over to the road to hell, with blood in the streets, totalitarian government and global, total war finally yielding an unknown (maybe not so nice) victor.*

Best case, and the one I'm hoping for, is the complete collapse of the United States and the breakup of the country into like-minded regions, at least one of which will be like-minded in the philosophy of true liberty and self-government.  I will be talking more about this in part 5 of "Please sir, may I have some more (freedom?)"

At any rate, the fork in the road is here.  There is no doubt in my mind the powers that be will be forced to make the no-win decision in the next three or four years.  And based on the criteria I outlined above, it could very well come as early as the next 30-60 days.


*The wild card is the Great Tribulation, the return of Christ and the judging of the nations, but no one knows the day nor the hour, nor the year nor the century that will happen, and dark times alone do not mean this is the end.  There have been many dark times in the past, and this could very well not be the last one.  "Even so, come Lord Jesus!"  Revelation 22:12-20
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