Currency trader and banker Chuck Butler publishes a daily foreign exchange newsletter called The Daily Pfennig. We read it via email every morning for which you can subscribe at no charge. Chuck knows his stuff and is a straight shooter.
Today Chuck made an observation that we need to keep in mind.
"The Government's decision to bail out Fannie and Freddie and place them into
conservatorship may shore up the mortgage meltdown in the short term... But to
me, this is just another in the line of things the Fed and Treasury have done in
an attempt to bring calm to the financial markets... (Bear Stearns, mortgage
bill, money supply, low interest rates, and dollar intervention, stimulus
checks, and more!) But, when you step back and look at all this, none of it, and
I mean NONE of it had done anything to alleviate the pressures on rising home
inventories, falling home prices, upside down mortgages, unemployment, the
deteriorization of the financial markets (see the dead man walking list of banks
that are in deep dookie) and that doesn't just mean banks... The major
Brokerages are standing on the street corners with their hands out, begging for
any sovereign wealth fund that might give them a capital infusion."
The basis of the US economy is broken. The bubbles and busts are not incidental, but represent the essence of what it is. Even if Ben and Hank can patch this up by printing money in the short term, it does not fix the problem that the US is not a going concern, does not have a positive cash flow, is relying on credit lines and new debt that cannot be repaid.
The system will stop and fail when we default on the debt or can no longer service it by paying the interest.
Based on our calculations we are already paying the interest with new debt. That is one step from default and insolvency.
The Fed and Treasury are trying to patch the ship of state and keep it afloat. But the problem is that we are in shallow waters grinding through shoals. We need to change course.
