Bing Crosby dreamt of a White Christmas. Elvis Presley lamented about his Blue Christmas. This year, most Americans faced a Red Christmas, plagued by massive credit card, household and government debt.
It has been a year of unprecedented public spending based on levels of debt that, only one year ago, had been considered unprecedented, impossible and ruinous.
Certain observers view 2010 as a trial that will test the political and financial foundations of the economy. It might prove to be a year of reality, payback and suffering. This Christmas should be used as a golden opportunity to re-balance current portfolios to cope better with uncertain and troubling times.
To weigh alternatives, prudent investors should consider first how the county got into such a shocking mess.
President George Bush, in cahoots with former Federal Reserve Chairman Alan Greenspan, assisted in turn by Ben Bernanke, the current Fed chairman, overrode the crucial independence of the Fed, arrogantly, in order to provide the administration with a blank check on its virtual account at the Fed. Together they created the largest asset boom in history. It was a balloon based on the Fed creating vast amounts of cheap, synthetic dollars.
When the balloon burst, it threatened to demolish the international financial system and plunge the world economy into a depression more severe even than the Great Depression.
As the bulk of the asset boom was based on debt, it appears illogical that a healthy cure could be achieved by yet more massive debt. It is obvious that you cannot extinguish a gasoline fire by pouring on more gasoline — unless, that is, your aim is to destroy or "change" the whole structure.
Yet, the government has decided to incur vast amounts of new debt to avoid the political costs of the recent government-induced asset crash.
Additionally, taxes and stealth taxes must be raised. These tax revenues will not be provided merely by taxpayers. Assisted by the Fed and while talking a strong dollar, the government cynically has debased the U.S. dollar by 280 percent against gold over the past 10 years alone. This vast, hidden tax was paid by every holder of U.S. dollars, rich and poor alike.
Meanwhile, the government calls for ever larger public spending. Only two weeks ago, Fannie Mae and Freddie Mac called for a further $800 billion. The FDIC also asked for more money to salvage the reorganization of an increasing number of failed banks. Instead of withdrawing from an ill-judged and likely unwinnable war in Afghanistan, the government has called for more expenditure. While Americans are denied the benefits of modern infrastructure at home, they are being forced to pay for infrastructure abroad.
This month in Copenhagen, the administration called on the American people to lead a massive transfer of $100 billion a year to the developing world on the grounds of global warming. This in spite of increasing and scandalous evidence, barely reported in the mainstream media, that global warming, involving carbon emissions, now subtly camouflaged as "climate change," might be a massive fraud, potentially involving trillions of dollars. Apparently, over the past decade, the world's temperature has been falling gradually. Finally, facing the evidence that the stimulus package has failed, the government is now considering a second, more massive package. Short of revolution, there seems no end to this rake's progress.
At more than $100 trillion, including unfunded liabilities, guarantees and IOUs, government debt is now so vast as to draw into question, for the first time, the long-term value of Treasury paper. Naturally, this proposition is denied fervently and even ridiculed.
However, some observers maintain that the administration plans deliberately to "change America" by discrediting capitalism and replacing it with a socialist control economy. If proving true, prudent funds should flee to economies that are friendly to capital.
In addition, America and many of the old West economies face dangerously low consumer demand with potential hyper-inflation or hyper-stagflation.
Those investors who think and plan to adapt their investment allocations to counteract any such possibilities might look back at Christmas 2009 as positively golden.
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