In uncertain and scary times I like to use analogies so that a larger groups of people understand the gravity of the situation. Plus it also helps me distill down the essence of what is happening into relatable nuggets. Here is my latest and greatest.
George Washington, our founding president, of the United States died in 1799 from the common influenza virus or related symptoms of the flu. The doctors of the day used Calomel, a mercury based product that caused the body to forcefully regurgitate its contents, and bloodletting. Both of these methods, standard at the time, were used to treat the symptoms of the illness hoping the illness would be expunged and that the body would recover. Well, in this instance, according to modern doctors, the treatment actually caused the death of the patient, our first president. How could this analogy possibly relate to what is currently happening in the market? Here goes my attempt to pull it all together. Read and observe.
The current market situation is similar to a doctor treating the patient’s symptoms but not addressing the underlying cause or illness. It is truly the case of the treatment could eventually kill you. The question is; are we sacrificing our country’s long term viability with short term fixes to the immediate economic issues? I believe the answer is yes. Don’t get me wrong – I believe that we have to address the current issues somehow, but we are going down a path towards socialism, evidenced by the government’s quasi control of the banking system, a clear redistribution of wealth through the administration’s tax system, and implementing monetary policies that have historically destroyed the value of a country’s currency. Alarms should be going off in a rational person’s head; this has nothing to do with a person’s politics but moreover his sensibility and common sense. We are a debtor nation with an outstanding balance, including contingent liabilities, of approximately $10 trillion (not billion). If the US was an individual who went to the bank to get a loan the bank would literally laugh them right out into the street.
More specifically, the markets basically reduce the value of the currency of over-leveraged countries. This is not unlike a bank that charges a higher interest rate to a higher risk borrower. Ever ask yourself what happens to the economies of countries that the world feels it can’t trust to pay them back? I can tell you this is no joking matter. We clearly need to weigh the pros and cons of short term economic fixes to the long term viability of the patient, the United States of America.
Anything that the administration does today will not ultimately show effect until at least 9+ months from now and I am being very aggressive on that time frame as it is usually a much longer period of time. This economic conundrum is being made even worse ostensibly by the administration’s belief that government can cure the people’s ills - or wait - was that Stalin? Obama has had a hearty task set upon him and he is utilizing all necessary powers to quell a very turbulent market and economy, but we collectively must not lose site sight of the fact that we are a capitalist society. Governments are traditionally lousy at running businesses and typically exacerbate the problem. What needs to happen is more diligent oversight on the markets, starting with common sense, but also let traditional market forces run their respective course. You see – I believe that our system, albeit flawed, is fundamentally efficient, if you screw up, you go broke. Stronger players step in and take your market share. By letting the politicians step in front of the natural process, we run the risk of re-enacting Japan for the last 20 years, extending the malaise many years longer than if we just flushed the system. The underlying cause of this debacle, as stated in a previous post, is really the political process itself. The outright failure by elected officials to stand up and say “the emperor has no clothes” was absent during this derivative fueled run up in the markets, real estate and commodities. There is no accountability and that is what needs to fundamentally change so we can avert a disaster of this proportion in the future.
The cure being applied to fix the symptoms of the patient (US economy) today may end up killing the patient or at the very least put us on a firm path toward socialism.
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