ATTENTION - DEFICIT DISORDER - PART II

[wadestock]

It struck me just recently the horrible dilema we're in because of this administration.

Most of the people I know are applauding the low interest rates, what extra equity they've gotten out of their homes, etc. Actually America in general has continued its spending largely because of these ultra low interest rates. Thus, many economic indicators have looked reasonably good.

Problem is, the economic balloon is about to burst. We're not only re-living the Reagan years but having an unaffordable war on top of it as well. Reagan was blessed with a low total debt when he pressed for tax cuts for the rich and increased military spending. W...attempting to re-live the glory days of Reagan, has been able to pull off his tax breaks and spending in large part because of low interest rates. Although the interest on the debt this year was about 340 Billion, it was "only" 8% of total outlays because of interest rates being so low.

So what's wrong with long term low interest rates?

Answer - if you have an administration that has purposely exploited these low rates, overspending to the point that such low rates are MANDATED to maintain low interest payments on the debt each year.....all is fine and well until YOU ASK SOMEONE TO PICK UP THE TAB AT ULTRA LOW INTEREST RATES!!!!!

In the past, the dollar was strong, US financial securities were considered the best in the world, etc.

All that has changed today because of this administration.

Just about an hour ago Kerry was on Meet the Press...and he pulled from under his suit jacket an article which he held up to the camera....

"Central Banks Shun US Assets"

read here:
http://www.mindfully.org/Reform/2005/US-Assets-Shunned24jan2004.htm
"For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases,has led to negative real returns. Alan Greenspan, the chairman of the Federal Reserve, warned in November that there was a limit to the willingness of foreign governments to finance the US cur-rent account deficit."

Also interesting:
http://shareno.net/dollarcollapse.htm
"As long as lenders are willing to invest in dollar assets, the US can continue to borrow to maintain its current lifestyle. However, if foreign lenders begin to shun US markets because of a falling dollar, it could cause serious problems for the US Government, economy and people."

"The risk exposure for Asian central banks is already great," concluded Matthew Higgins and Thomas Klitgaard of the Federal Reserve Bank of New York in a recent paper. In November, Alan Green-span, US Federal Reserve chairman, suggested foreign investors would reach a limit in their desire to finance the US current account deficit and diversify into other currencies....

OR DEMAND HIGHER US INTEREST RATES....

, "elevating the cost of financing" the deficit and "rendering it increasingly less tenable".

[acmejack]

1. Suggested Reading

"Running on Empty" Pete Peterson's new book. The dollar is expected to lose up to 20% of it's value. The State of the Union is widely considered to be the tipping point. If I had the big (hell, any) money, I would be frantically converting $ to Euros.

[ultraist]

2. Doesn't sound like a good time to invest in the Stock market

Yet, Bush is pushing privitization. Outsourcing a social program to private stock corps that are in a very precarious position due in part to the deflating US dollar, sounds like very poor investment advice. But, then again, we all know how successful Bush was as a businessman.

[Festivito]

3. This is WHY Bush wants SS privatization reform.

Stocks drop while owned by the general public through SS, while the rich cash out of US stocks and currency.

The Baby Boomers start becoming elderly and also cash out of stocks to pay for their retirements.

Thus, the regressive SS tax system, i.e. the poor pay more than the rich, will then rob the poor and give to the rich so they can leave the US stock market as it drops.

[wadestock]

4. I read today it's 25%.....

I believe the "tipping point" will occur sometime within the next 2 years. The key banks or through political announcements, we'll be hearing other countries will be balking at financing our debt at low interest rates.

There will be NO CHOICE but to incrementally increase the rates on these securities.

Think of numbers like these:

2006 Total debt 9 Trillion, interest on the debt 400 Billion
2007 Total debt 10 Trillion, interest on the debt 500 Billion
2008 Total debt 12 Trillion, interest on the debt +750 Billion

by 2008, interest on the debt will be easily the #1 budget item.
The Bush legacy will be complete....he will have bankrupted the country.