Reply #1: Market Observation

[ozymandius]

The Sacrificial Lamb?
BY CHRIS PUPLAVA

To date the Obama Administration has thrown an unprecedented amount of stimulus at the economy, with the latest bit of stimulus being the $1 billion Cash for Clunkers program that lawmakers were “surprised” was depleted so quickly. Really? Who wouldn’t want free money thrown their way? John Stewart had House Speaker Nancy Pelosi on his show a few months ago and even he was asking her how he could get his hand on all the money flowing out of Washington, with his question to Nancy Pelosi below:

The Daily Show with John Stewart (04/08/09)

“Let me ask you a question. How do I, John Stewart, get in on some of this delicious TARP money? How badly in my own life do I have to screw up before you could give me say, not a billion, 500 million?”

Because the program was so successful Congressional leaders on Monday passed a $2 billion extension to the program with a vote pending in the Senate. But the question we have to ask is how much of future sales are we pulling forward and at what cost? Once the program expires what will happen to auto sales with unemployment continuing to rise and wages and salaries continuing to plummet? Will there be an extension to the extension?

There will be a price to pay at some point for the government’s recent largesse and that price tag increases with each and every new initiative coming out of Washington...

If the U.S. economy can not stand on its own two feet without the monumental support of the government and current programs to date are merely slowing down the rate of descent in the economy, what tool is left to use? Perhaps the key lies with one of the last tools in FDR’s tool box, that being a devaluation of the U.S. dollar. As was seen in the Great Depression, once FDR devalued the U.S. dollar the economy began to turn around as deflation was arrested and exports picked up as U.S. goods became cheaper to the rest of the world. One of the most dreaded words to central bankers is deflation as debt remains a constant while asset values decline in recessions, thereby increasing leverage in the system unless the debt is either defaulted upon or paid back, while inflation makes debt cheaper as it is serviced with cheapened currency.

http://www.financialsense.com/Market/wrapup.htm