Reply #41: Of fires & deficits

[54anickel]

http://www.gold-eagle.com/editorials_05/buss021005.html

One of the things about human psychology is the desire of wanting to fit in. It's not easy to go against the crowd or herd mentality. We like to feel cozy with our friends and colleagues and family. And so it goes with journalists and analysts and Dollar watchers. After President Bush came out and announced his grand plan to cut the US budget deficit to a "manageable" number, all the pundits fell down on their knees in amazement as though a holy entity had been seen on high or, in fact, the holy chalice itself had been found.

snip>

Now let me get this straight : What Bush said needed to be said. The Markets, big M, were getting very nervous about the US Dollar situation. Too much negativity was snowballing against the USD and thus needed to be dealt with. Talking the talk. Check. As I said, this talk promptly strengthened the USD and drove gold down. Oil is also down. USD is back up to 4 month highs against the Yen and Euro. Suddenly a tide of US positive news while just a month or two ago, one couldn't have pried such a statement out of anybody. My, my, how quick we are to forget. Remember, this is all just planning and talking by Bush, NOTHING has actually happened yet. Congress still has a big say in all this and so do the foreign investors, bond markets, etc. This whole story is now just beginning, not ending.

snip>

The biggest problem continues to be : How to avoid the pain of this imbalance to the US consumer and economy?

I honestly think the US budget deficits will increase until exhaustion. Why? I believe neither the US politicians nor the US people have the ability to take that pain. The medicine of fiscal tightening should have taken place directly after the 2000 bubble broke. It was avoided.

What the world would look like with a USD whose inherent value is zero I cannot fully imagine. I believe the next years will bring so much unforeseen happenings to the forefront that possibly historical data will play no major role in contemplating or predicting how financial markets should be functioning, after all, models of chaos are not the standard models by which institutions model. Nevertheless, nature does at time purge itself just as economic markets do. I feel we may be in the upsurge of that purge cycle.

more...