I have been on a rampage about the end of the American way of life: prosperity, safety, a sense of the future as bright and stable. Well I still want that. I think it is still possible to have a great future. It won't be exactly like we imagine it... probably nothing like we imagine... but it can be good to great.
First let's look at the problems we currently have:
Dependency on an energy source that is at least being over utilized if not actually running out. Currently the world consumes 2% more oil that is being pumped and refined. That number is growing because of developing countries like India and China. It is also believed that Iran currently is consuming 98% of the oil it is pumping and before the end of the decade most likely will be importing oil. This is a real indicator that the currency of the earth, Oil, is going to become affordable only by very powerful and 'important' people and or groups. Who are these people/groups. First would be the government... then all industry that supports the government... Anyone else who wants oil or oil byproducts will have to pay a hefty price... and maybe even before that hefty price one would need permission to even have oil or gasoline.
If oil becomes un-affordable due to inflation what will happen to it's value? Does it's value remain high? I think not. When oil and it's derivatives become un-affordable innovation will rise up and present with a new source of energy... and in a fairly rapid way this new technology will become the new currency... it will be at least as expensive as oil will be but the value of it will be in it's abundance. I do not know what this technology will be.... just know it will present. This of course happens in the event that a deflationary depression does not occur.
Now... in the wake of this switch... oil will drop off to $0... because it will no longer be needed for energy... rather it will be used for plastics and other chemical uses.
This link talks about the fact that Oil rich countries are beginning to use more oil.... eventually they will not be able to export.... they will build refineries and use it all
“Incoming information suggest that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,” the FOMC said Tuesday.
This statement to to general public (which i am a member) seems merely informative. But to the economist this statement sounds like this: " We are very scared here at the Fed. Shaking in our boots we are going to try and not panic and pull a rabbit out of our hat that we have been holding onto till things get really really bad.... which is like right now!"
The Fed has been around since 1913.. created to stabilize currency through a centralized banking system. The Fed is not government owned... rather it is private but it has government appointed leadership. The Fed has had a type of accelerator pedal and a type of brake for the economy. Primarily the Fed uses an interest rate that is offered only to banks. Banks borrow money from the fed to then lend out at a higher interest rate. This tool is to increase the money supply... <- what the heck does that mean? I think it means the more money floating around from hand to hand the more some one gets to keep, like the the government...
The Fed raises rates to slow down the economy and lowers the rate to speed up the economy... it hopes. And this usually works...
But what if the rates are really really low and everyone has borrowed money and can't afford to borrow more money? Suppose the banks who have lent all this money out have found themselves holding lots of loans owned by bad borrowers? Suppose the dollar loses value? Suppose inflated energy prices squeezes individuals and businesses?
Well this is all happening... What does it mean? I don't know... why are you asking me? Oh, you are not asking.... maybe you should!
The Fed has been holding something in their hat for awhile... only to pull it out when things are really bad... it's a brand new never been done before program... an auction!!!
That's right an auction... like EBAY. They have introduced this program to decrease resistance by banks to borrow from the Fed. The incentive is to the bank is that they could possibly get a loan from the Fed at a ridiculously low rate, maybe even .5%.
Could help banks fill up the 'vaults' but will the banks find borrowers?
My take on this is a well controlled and camouflaged panic by the FOMC (the Fed).
What should I do with my money right now you ask? Stay tuned, I will give my opinion, non-binding of course.
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December, 2007
