Monday, August 1, 2011

The Debt Deal and the Addiction of Deficit Spending.

If you listen carefully over all the propagandistic noise coming out of the mouths of the politicians and news pundits you will hear that sharp metallic clanking sound of the debt/deficit can once again being kicked down the road. QE3 is here with a vengeance to the tune $2.8 Trillion!

The debt addicts of Wall Street and at both ends of the Washington Mall now have their fiat fix and will count on their party and news media enablers to try and convince the masses that all will be well, at least until after the next election. As soon as the commodity markets opened in Asia gold prices fell sharply and the Yen and Swiss Franc both fell off against the US Dollar. We can expect the DJIA to recover a good portion of last week’s losses on opening on Monday morning.

The problem with addicts and addiction is that each new fix produces diminishing returns until the point where the addict is cut from his support system of enablers and either cleans up his act or continues to ingest the poison until it kills them.

Clearly at this point that small but growing part of the body politic that seeks to cut off the addicts from the drug of debt have been overcome by the larger body of enablers. They have been told to “get their ass in line” and succumbed to the pressures of the larger mass.

Just how long the markets will buy into the delusion of politics as usual and some newfound dollar stability will remain to be seen. At some point the realization will set in that this new $2.8 Trillion in debt has no more chance of being repaid than the previous $14.3 Trillion and the markets will reverse once again. What the trigger of that realization will be no one knows. The potentials are seemingly endless. An evitable default in Europe, renewed wars in the Middle East or another unforeseen natural disaster are all within the realm of possibility. Whatever the trigger is, when it happens the shackles of political hubris and fiat addiction will come off the beast of hyperinflation and our economic reality will change almost overnight.

So then I would suggest that we all, especially our politicians, familiarize ourselves with the stories of recovered addicts. They will all tell you that the period of withdrawal is the most horrific and difficult thing they have ever done. But they will also tell you that they came out the other side stronger and better people and with a sense of self-reliance they never knew they had.

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