Will stocks go up from here, or will they continue their fall?
That’s the question right now, and many mainstream news agencies correctly point out that the answer largely hinges on what the Federal Reserve Chairman Ben Bernanke says later today with regard to monetary policy.
Imagine: the world’s largest and most powerful economy ALL tied to the words and deeds of an academic in Washington DC.
How did we get here?
Well, you probably know the story by heart: the US Government has spent way too much money, and promised millions of people a variety of impossibly expensive perks, just for being citizens in the US. Work your whole life, retire at 65 and then the government will foot the bill for a good chunk of your medical care and it will pay you a small stipend.
They seemed to forget that such a system only works when you have more young people than retirees. But they promised it anyway, because it got them votes.
The Government squandered one of the greatest growth periods in world history by engaging in one expensive, counter-productive war after another.
What do we have to show for Korea, Vietnam, Grenada, Panama, Iraq the first time, Somalia, Bosnia, Haiti, Kosovo, Afghanistan, Iraq again, and now Libya – not to mention another dozen smaller military actions scattered throughout the decades – or our broader Wars against Things – like Drugs and Terror and Poverty.
We didn’t lose all of these wars, but only a handful of them improved our standing in the world. Most of them created more enmity than good will, and all of them further bankrupted this country. Vietnam knocked us off the gold standard, and since that time, the dollar has lost 90% of its value.
If a devaluing currency wasn’t bad enough, the Government further hamstrung the economy. They played favorites with large corporations, letting them write laws, giving them tax loopholes, while simultaneously giving them disincentives to keep jobs at home.
THEN they backstopped some of the biggest corporations with promises that no matter how broke the banking, mortgage or car industry gets, the Government would bail them out.
Free of all semblance of risk or any downside whatsoever, so-called "too big too fail" corporations and all of their associates engaged in risky behavior in order to juice their profits.
When they failed, the Federal Government absolved their debts, by taking the millstone of debts and liabilities from corporate necks and placing it on the neck of the already debt-ridden US government. And the US government promptly transferred those debts to the dollar.
So there’s no reformation of the banking sector. Any new "regulations" from the Dodd-Frank act or any other legislation simply pales in comparison to the types of rigorous changes that WOULD have happened, had the Government allowed banks to fail.
And there’s no reformation in the mortgage or automobile sector either. Jobs are in the toilet – because corporations and businesses feel uncertain about everything.
And now it’s all tied to what the Federal Reserve Chairman says today, at 2:15 pm.
We know what he’s going to say. He’ll hem and haw and mumble some economist jargon. And in the end, he’ll decide to print more money. It’s the only thing he’s ever done. It’s the only tool he has in his possession, and it’s the only thing he will do until the market steps in and intervenes.
Right now, the market is too distracted with stocks in freefall, and huge debt problems in the Euro-zone.
But its attention will turn to the dollar after the Euro.
How bad could it get?
I’m not worried about the stock market. It will recover sooner or later.
But look at what is happening in London, right now.
Fires. Riots. Looting.
As I’ve said before, the Euro-zone is a crystal ball for the United States. It looks like the Euro-zone is about 12-18 months ahead of the United States. Remember, Greece had its FIRST downgrade from AA to AA- in December of 2009.
If you see the inevitable coming: further bailouts, further debt, further waffling from leadership in DC, and further dollar devaluation, you should have your elephant gun ready to buy inflation-proof assets on sale. Market uncertainty is making people sell all kinds of things they wouldn’t normally sell.
Above all, I’d look for any dips as a great time to buy more gold.