Debt, debt,
everywhere
Richard Russell (BIG snippet)
Dow Theory Letters
Apr 2, 2009
April 1, 2009 Debt, debt, everywhere, and nobody
knows how to fix it.
Check this out. The US national
debt is now 11.03 trillion. In case you forgot, a trillion is
a thousand billion. One year ago the national debt was 9.383
trillion. That means that during the last year we've added 1.652
trillion dollars to the US national debt. Interest must be paid
on the debt. We are now COMPOUNDING the national debt at a terrifying,
unsustainable rate. As I see it, we are compounding ourselves
into national bankruptcy. That or we are in the process of destroying
our beloved dollar.
On top of the above, it now
requires six dollars of debt to produce one dollar of Gross Domestic
Product. But despite our growing debt, our GDP is actually declining.
This is tantamount to running up the down escalator. In the end,
faith in the dollar must collapse. The dollar, the world's reserve
currency, is our "secret weapon." We need materials
and goods from overseas. Easy, we can print the dollars to pay
for those materials, and our kindly overseas creditors accept
our "home-made" dollars in payment. It's a great
racket. And it will continue to be -- as long as the dollar is
accepted as safe and fair payment. But I have to wonder, how
long can this go on? Not forever, in my thinking..
Today I read this in the Financial
Times, "China and Argentina in Currency Swap."
"China, which is pushing
to end the dominance of the dollar as a worldwide reserve, has
agreed to a renminbi 70 billion ($10.24bn) currency swap
with Argentina that will allow it to receive renminbi instead
of dollars for its exports to the Latin American country.
"Beijing has signed $95
billion of deals since December with Malaysia, South Korea, Hong
Kong, Belarus, Indonesia and, now, Argentina in
an attempt to unblock trade financing that has been severely
curtailed by the crisis."
Russell Comment -- China doesn't want a lot more of
the US dollars, and would prefer to deal with other currencies.
And I ask myself, could this
be the beginning of the battle to take away the reserve status
of the dollar?
***
March 31 (Bloomberg) -- The World Bank and OECD warned
surging unemployment may inflict another blow on the global economy
as they cut their economic outlooks for emerging and rich nations.
The Organization for Economic
Cooperation and Development said in Paris that the economy of
its 30 members will contract 4.3 percent this year and predicted
unemployment in the Group of Seven will reach 36 million late
next year. The World Bank lowered its growth forecast for developing
countries this year by more than half to 2.1 percent and President
Robert Zoellick expressed concern of a looming "unemployment
crisis."
Russell Comment -- I've been saying all along that
the biggest dangers will be massive unemployment and the need
for most people for INCOME. Stocks provide little income along
with risk, money markets and Treasuries provide skimpy incomes,
bonds are shaky and safe bonds provide little in the way of income.
Common sense -- the greater the unemployment, the
less the national income. The Obama organization has picked the
worst possible avenue to increase income to the government --
"Tax the Rich."
Question -- OK, Russell, you're such a wise-ass.
What would you do?
Answer -- I wouldn't do a damn thing. Let the bear
market do what it's supposed to do -- clean up the economy. Let
those who screwed up go bankrupt. Don't keep the sick corporations
in business while their CEOs roll in clover. If the CEO of a
bank was idiotic enough to load his bank up to the hilt with
toxic bonds that he knew nothing about, let his bank go under
and get rid of the CEO, don't give the screw-up a fat bonus.
As for GM, they've been "out
of it" for years. Let them go bankrupt and turn 'em
over to the bankruptcy courts. Why keep them alive? They're the
"walking dead" already.
So why is the government spending
all these trillions in an attempt to keep the corpses
alive?
Answer -- the politicians have to appear to be doing
something. The pols know absolutely nothing about economics.
If they did, they'd get rid of the Fed tomorrow. "yeah,
I'm from the government and I'm here to help you." Do us
a favor, don't do us any favors.
My recommendation -- get the government out of our hair
and out of the economy. The government at this time is our worst
enemy. You cannot spend yourself out of a depression -- even
if you're willing to go broke trying to do it.
###
Richard Russell
website: Dow
Theory Letters
email: Dow Theory Letters
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