So hot on the heals of my post about the Australian tax revenue, I was sitting around today reading the news and what do you know, we’re starting to see things happening faster than I expected. Maybe my original statement of “by May” could prove true after all. Who knows.

What I do know is that this weekend analysis in the financial columns has almost mirrored my speculation. I think I need to stop this navel gazing and start putting money into the markets. At this rate, I could make a killing. Then again, I’m only looking at very broad trends and not the individual specifics.

Lets start with a small little notice in the NYTimes that I almost missed.

After almost two months of gains, the stock market declined modestly last week, although a rally on Friday helped to mitigate the losses.

On Friday, the Federal Reserve disclosed its methodology in the stress tests it has conducted for 19 banks to determine whether they are prepared to cope with a continuing economic downturn. The results of the tests were not revealed.
[...]
For the week, the Dow Jones industrial average lost 55.04 points, or 0.7 percent, to close at 8,076.29. The S.& P. 500 index dropped 3.37 points, or 0.4 percent, to close at 866.23.
Stocks Slip, Despite a Friday Rally - New York Times

Thats not so bad. Less than 1% drop. No biggy right? Until you realise that the Friday “rally” closed up nearly 1.5% from where it opened and still closed 60 points lower than the previous Friday. So until that point, the market for the week was down nearly 3%. When you consider that through October and November, 3% losses were not unusual, you can see that the downward trend is still there, but easing off a little as the year progresses. The rally is going to start turning soon.

But its not just happening on the Wall Street markets. The UK is feeling the results of their tax cuts last week as well.

The pound slid against most of the other major currencies as Moody’s Investors Service said the U.K.’s finances are “deteriorating rapidly” and the economy shrank the most since 1979.

The dollar tumbled versus the euro, Swedish krona and New Zealand currency on speculation a widening U.S. budget deficit will undermine the greenback.
Pound Drops After Moody’s Says U.K. Finances ‘Deteriorating’ - Bloomberg

So the UK economy is deteriorating rapidly and has shrunk the most since 1979 (which was a direct result of the 1979 Oil Crisis) and this is starting to affect the British Pound.

What I find interesting is that finally the US deficit is starting to have an effect on the dollar. Since coming to power, President Obama has promised more than $4 trillion dollars in spending and bailouts. Both in the US and to the IMF. That is… $4,000,000,000,000. (You can see how much that is on my previous post “How much is that?”)

And none of this promise money actually exists. Its being made out of nothing. Its not got any value to it.

Which leaves us with a situation of significant inflation.

The US economy is getting itself into more debt by more than $3,500,000,000 a day. The current national debt is over $11,100,000,000,000. That means that on average, every US citizen owes around $37,000 for their share of the debt. And I’m pretty sure most of them didn’t even agree to it. This is what that debt looked like in March 2009 as $100 bills. Click the image for the full size.

11 Trillion Dollars

11 Trillion Dollars

Now the Government wants to create another $4,000,000,000,000 out of nothing? What will that do to the debt levels? Will it help improve the problem or make it worse? What will happen to the value of the US dollar? And with that significant drop in value, what will the effects of the inflation be on the US economy? What will it do to the Global economy?

China is already actively promoting the Yuan as a core currency and reducing dependence on the US Dollar. They are also spearheading the push to create a new base currency against which all others are valued. Essentially, a return to the gold standard. Which is fair enough given they’re stockpiling gold and precious metals by the tonne at the moment.

I don’t know how to get this through to people. I feel really futile and despondent because I see the big governments repeating mistakes that were made at the beginning of the 20th Century. I see people thinking that there will be no repercussions to just printing money.

The markets should have been left to fall on their own and the governments should have only stepped in afterwards. The off-sheet balance hiding of toxic debts using “shadow banking” and “magic” securitisation that caused this problem should have been dealt with years ago when the SEC were first aware of it. They should have regulated it properly instead of letting the industry bully them into turning a blind eye to it. While I definitely believe in a free market, I also know that without some core rules there can only be chaos.

Unfortunately, I don’t think throwing money at this problem is really the solution. Nor do I think heavy handed regulation of the market will work either. In the end, the only way I can see this being resolved properly would have been to let the free markets fail, and then come in and close the holes in the laws that let the shady dealings happen. Unfortunately, no one has the balls to let the greedy SOBs fail completely because they are all afraid of a repeat of the 1920s and 1930s. They fear a prolonged depression. Rather than letting the markets correct themselves and a necessary deflation occur, they are instead going to force things to carry on as much like normal as possible and push us into a situation of significant inflation.

I don’t know. Am I talking through a hole in my head? Am I really that clueless and out of touch? Am I simply not seeing things the way everyone else is? Am I missing some fundamental key point that will make my whole premise totally wrong and convert me to the current popularist way of thinking?

Someone help me please. Because what I see happening right now does not look right to me.