The Canadian government is posting its first deficit (and a big one) in thirteen years and still our currency is on a free flight upwards against the US dollar. What's going on? The markets seem to be losing faith in the US currency and debt and, among other things, flocking to buy into oil and gas as a hedge.
Like the rest of humanity, a government can only borrow against collateral, perceived or real. While a government has some ordinary assets, like buildings and real estate, its main asset is its ability to command the taxpayer to pay. However, there are even limits, somewhere, to the value of this asset. The US taxpayer, long the most favored by bond buyers, because deemed most reliable (at least in the long term) of all taxpayers is currently being saddled with unprecedented debt and at the same time, with the economy in decline, tax revenues going into government coffers are plummeting. This week the market has responded by pushing up interest rates, despite Federal Reserve Chairman Ben Bernanke's attempts to keep interest rates down by flooding money into the bond market. If this continues, the cost of borrowing for both the US government and consumer goes up and the government has to either print more money and risk an inflationary spiral or stop borrowing and face the music of cutting spending and paying down debt and letting banks and others who have made bad loans into the housing bubble go bankrupt. Either scenario suggests further economic collapse and decline in government revenues (in hard money).
Still, we see much talk out there of "green shoots" in the economy as people look for positive signs in the economy, and in bank balance sheets, engendered by the first surge of government spending and money printing. How real are these "shoots", and not just just a short-term artefact of an increased money supply? Can the supposedly independent Bernanke pull back on the money supply once the economy shows signs of growth and not be countermanded by an Obama government bent on expanding government spending according to Keynesian theories and political demands from the left?
Fear of inflation, which could lead to either hyperinflation and hence a destroyed economy, or to a collapse in government borrowing and hence massive cuts in government spending leading to deflation, seem to be on the rise in money markets as the US dollar tumbles. Are we heading towards another depression? Some think so: Bernanke: How's The Vise Feel? - The Market Ticker
In any case, we will probably have to learn again that our desire for great men to provide us with magical solutions, or free money, to our economic stumbling blocks is misplaced. Real growth has to be built on a trust and faith in the covenants that structure the economic system. Credit and bankruptcy need to be seen to be given where credit and bankruptcy are due, at least a good part of the time.
Like the rest of humanity, a government can only borrow against collateral, perceived or real. While a government has some ordinary assets, like buildings and real estate, its main asset is its ability to command the taxpayer to pay. However, there are even limits, somewhere, to the value of this asset. The US taxpayer, long the most favored by bond buyers, because deemed most reliable (at least in the long term) of all taxpayers is currently being saddled with unprecedented debt and at the same time, with the economy in decline, tax revenues going into government coffers are plummeting. This week the market has responded by pushing up interest rates, despite Federal Reserve Chairman Ben Bernanke's attempts to keep interest rates down by flooding money into the bond market. If this continues, the cost of borrowing for both the US government and consumer goes up and the government has to either print more money and risk an inflationary spiral or stop borrowing and face the music of cutting spending and paying down debt and letting banks and others who have made bad loans into the housing bubble go bankrupt. Either scenario suggests further economic collapse and decline in government revenues (in hard money).
Still, we see much talk out there of "green shoots" in the economy as people look for positive signs in the economy, and in bank balance sheets, engendered by the first surge of government spending and money printing. How real are these "shoots", and not just just a short-term artefact of an increased money supply? Can the supposedly independent Bernanke pull back on the money supply once the economy shows signs of growth and not be countermanded by an Obama government bent on expanding government spending according to Keynesian theories and political demands from the left?
Fear of inflation, which could lead to either hyperinflation and hence a destroyed economy, or to a collapse in government borrowing and hence massive cuts in government spending leading to deflation, seem to be on the rise in money markets as the US dollar tumbles. Are we heading towards another depression? Some think so: Bernanke: How's The Vise Feel? - The Market Ticker
In any case, we will probably have to learn again that our desire for great men to provide us with magical solutions, or free money, to our economic stumbling blocks is misplaced. Real growth has to be built on a trust and faith in the covenants that structure the economic system. Credit and bankruptcy need to be seen to be given where credit and bankruptcy are due, at least a good part of the time.
