Friday, April 29, 2011

When O'Reilly and Obama are on the same page, you know you're being had.

So now our would-be “master of all things energy related” has decided it’s time to take on the “corrupt speculators” in the oil market. I’d say this was hilarious but unfortunately he’s serious. But what are we to expect from a neophyte whose depth of understanding of how markets and economies function is about as deep as a mud puddle after a quick spring rain. What’s even more disturbing is seeing populist pundits of the so-called “fair and balanced” kind carrying his water and providing political cover by spouting the same garbage.

This is what happens when ideologically driven politician and pundits listens to a bunch of ideologically driven economists who have no more of a clue than they do. Pundits, Presidents and economists have no more influence on the state of the economy than the weather man on the six o’clock news has influence on what tomorrow’s weather will be.

We’re in this mess because politicians and economists think that all that is needed is just one more government intervention, one more tweak to the system is all that’s needed to fix a particular problem or aspect of the economic landscape. Too bad for these self-important and self-proclaimed experts, economics operates in a vast interconnected world of supply and demand, and reacts in direct correlation to actual and/or perceived value of the currency of exchange.

Both the Obama administration and O’Reilly are engaged in a pernicious little game of either denial of reality or deliberate obfuscation in order to keep the public from casting a critical eye upon actual cause of rising energy and food costs, namely a weak dollar policy, endless spending by Congress and endless printing at the Federal Reserve.

Where O’Reilly’s reasons maybe simply be to further his populist reputation, Obama’s, being a politician, are far more cynical. All the rhetoric about allegedly wanting to defend the consumer aside, his focus is on getting himself re-elected and the “record profits” and speculation make for a convenient scapegoat for his dismal failure on the economy.

In the meantime this false narrative will be played for all its worth by the media and campaigns. None of which will do anything to change the underlying spending and printing problems or slow down the unraveling of the economy by but a fraction. O’Reilly and the like will use their stance to try and apply pressure to the Republican candidates to if not endorse, at least not oppose the continued kicking of the can down the road.

Both sides are making the bet that our fractured economic system can be held together long enough to ensure that the next President whoever it may be will not be someone who will challenge the corruption of the existing incestuous relationship between Wall Street, the Treasury Department and the Federal Reserve.

A lot of things can change of course between now and the nominating conventions and the election, and it would be my bet that they will. During the first two years of this administration the big “inflation is under control” con job has held together. One of the factors helping this has been the American family, those that still have jobs anyway. In the face of what they better recognize than our so-called political leaders as economic uncertainty at best and disaster at worst, they have cut back on spending, added to savings, paid off consumer debt and some have even made extra payments on the principle of their mortgages. All this has had the definitive effect of decreasing the velocity of money through the economy. But now the cumulative effect of decades of growing spending, growing debt and just plain bad monetary policy have triggered a growing political instability in the Middle East and are exacerbating the all too predictable and inexorable beast of inflation.

With these responsible and frugal families seeing the evidence spreading all around them, higher prices at the gas pump, higher prices and smaller packages at the grocery store, lower interest on their savings and higher charges for using their credit cards, we can fully expect a shift in the mindset of these formally frugal families. With a growing sense of futility for all their efforts, and seeing that each new pay check is able to buy less and less, therein lays the danger of a paradigm shift in their attitude towards money itself.

Why postpone on spending on the everyday things they need to survive, when they know full well that by the time the next paycheck arrives things will be even more expensive? Why try to save when it’s buying power shrinks exponentially against any interest payments they may earn and the anticipated price for whatever they are saving for? When this change in attitude sets in look out! When the acceleration rate of money through the economy goes up, the already increasing inflation rate will be placed on steroids. Throw in another economic or political shock event and the breaking point will be reached and all confidence will be lost in the viability of the Dollar. That will be when bad inflation will tip over into hyperinflation. When that happens, all bets on the existing system will be off, violence will rear its ugly head and people will listen to any demagogue that comes along and makes the promises they want to hear. Fear will become the driving motive of politics.


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