THE COMING ECONOMIC CRISIS... WHY 1980 IS NOT 2006!

THE COMING ECONOMIC CRISIS...WHY 1980 IS NOT 2006!
By: CliffMickelson
cmicke1065@aol.com
Date: Friday, 12 May 2006, 8:34 p.m.
"Hi Cliff
If the Fed continues to pump up interest rates to choke off inflation, isn't that going to strengthen the dollar? "
-D
***
Greetings, "D"
Yes, it will....to a point. The question then needs to be...How sound are the fundamentals that underpin the values being assigned to the dollar via higher interest rates?
It then becomes a matter of sustainability. Can higher interest rates that are attractive enough to mollify foreign investors be maintained at a level that won't break the back of the American public?
And...Will the foreign money market maintain its confidence in the future viability of the fiat dollar's domestic production based underpinnings?
It is important to remember that despite what is chanted on all channels as the fiat mantra, debt is NOT wealth.
Twenty five years ago, the answer to both of the above questions was an unqualified yes. Interest rates reached 21% in some cases, and still America's domestic chestnuts were pulled from the international fire with little real problem.
However, the chestnut in the fire this time may well be the 500 pound variety.
A quarter of a century ago the fundamentals that underpinned the American economy were quite different from what they are today. For one thing, there was a great deal more wealth producing industry onshore than there is currently. Also, the Baby boomer generation was in the prime of their productive years and the equity inherent in the "working man's bank" (the home) was nearly untapped.
Currently, the baby boomer generation is in the process of retiring en masse and moving from wealth producing to wealth absorbing. Not only that, but the drunken mortgage refinance craze of 2001-2005 has finally run out of steam. Now, instead of inheriting the folk's house, today's young adults will inherit the folk's second mortgage. This translates into more foreclosures, fire sales, and in general, the banks appropriating more of the already shrinking pie.
As for the industrial base, well, I don't think I need to elucidate on that issue. Just use your Chinese-made phone to call your local Internet provider or phone company if you want to visit with someone in India.
Alan Greenspan bailed out for a good reason. One of the problems facing helicopter Ben Bernake, as current Fed Chief, is Greenspan's enduring legacy as the guy who never saw a bubble he didn't like!
That "across the board" dollar debasement is a bill that will have to be paid sooner rather than later. It's one thing to pay it when there is equity in the nation's homes, land, industry, or in savings. It's another thing to try and pay it when those sources of revenue are exhausted or are experiencing serious shrinkage.
So, what to do? The answer under a fiat currency system is:.... Print more money! And...We all know where that leads. Printing more money is fine and dandy when real growth is occurring. When real growth is NOT occurring, the result is uniformly unfortunate for all small holders of a stake in the national currency.
It is germane to note that real growth is not necessarily reflected in the statistics released by the Government. In fact, in recent years, there has been a curious debasement of Government statistics that has ironically correlated itself with the declining state of the dollar.
To pull this Mephistophelean sleight of hand, off, and to come out on top, the government (AKA the Fed) knows full well that it will have to be willing to downsize the middle class. This is doable but is also a very dangerous game to play. Too many mistakes and you have the perfect formula for social discontent, its attendant repression and the potential for escalation into revolutionary parameters. We shall see.
Again, the question of the day is: Is there still enough elastic left in the system to keep the wool pulled over Joe six-pack's eyes?
I've been increasing my the overseas allocation of my thrift savings plan over the last several months and have been riding a good trend there, but how much lower do you think the dollar will sink?
In my "conservative" opinion? We will likely see, out of necessity, a de facto composite devaluation of up to 15% or more in true value of the dollar over the next 2 years. (or sooner) And...That is looking at the bright side of the numbers.... In fact, the dollar devaluation is already well underway, despite all the cheerleading we are hearing in the US press.
This possibility, should it come to pass in such a short time, (2 yearsX15% or more) is serious business.
The harvest will be all kinds of economic discontent and social unrest. However, not to worry, the Gov, already has that end of things figured out. Levels of "containment" are already in place for such potentialities.
However, it is the barest minimum "domestic" devalutation that will be required to be inflicted upon the American people if the dollar is to maintain the inverse of a respectible value overseas.
The other possible option is one that is rarely talked about, but may in fact be on the boards with the Fed as a "contingency plan."
That option would be to "split" the domestic dollar away from the international reserve currency "dollar." In effect, the domestic dollar would then be unconvertible on the world market without exchanging it first for the official "overseas" dollar. This exchange would take place and a discounted rate and would naturally work to the severe disadvantage of the American citizen who is holding dollars. The advantage to this approach is that the internal US dollar can be inflated all to blazes and the overseas value of the "reserve" dollar would be unaffected. Of course, again, the downside is the pain of ruin for many Americans, especially the ones who are retired or are on fixed incomes.
Guess it depends upon Venezuela, Iran, Nigeria, amongst others?
Actually, that is not as much the case as the press might want us to believe. It depends more upon the future dynamics of the past caprice of the policy makers of the international banking cartel and their run-boys in Washington and London.
-CliffMickelson