As the fallout from the global financial crisis continues, the burning question in international financial circles is whether the U. S. dollar, the world’s reserve currency since the Second World War, can retain its status. Chinese and Russian leaders have already signaled their distaste for continued dollar hegemony, and the latter have even taken the extraordinary step of publicly seeking assurances that their dollar-denominated assets — U.S. government debt — will be protected.
The Federal Reserve caused the current economic crisis by suppressing interest rates and creating the housing bubble, Texas Congressman Ron Paul, Euro Pacific Capital president Peter Schiff, and others have charged. And now there’s finally been enough political push-back for the damage the Federal Reserve has wreaked that the Fed will be hiring a lobbyist.
The Obama administration’s efforts to borrow the U.S. economy into prosperity are meeting more and more skepticism on Wall Street as investors in the bond market are fleeing the U.S. debt market for greener investment pastures. The understandable skepticism of bond investors has forced the U.S. Treasury to increase the interest yields on 10-year Treasury notes, increasing the interest burden of new debt on taxpayers by more than 60 percent since December.
A hundred and eight billion dollars — $108,000,000,000. Not exactly an eye-popping sum anymore, in an era of multi-trillion-dollar annual budgets and multi-trillion-dollar annual deficits. Still, even with government spending streaking into the stratosphere, $108 billion is not mere chump change, especially when it’s leveraged as seed money.
Next up for ailing mega-banks: a credit card meltdown. No surprise here, really; Americans have overused credit cards for years, trusting always in unending economic expansion and plentiful employment to guarantee their ability to service consumer debt.
Social Security and Medicare, Big Government’s two most cherished social-welfare programs, are running out of money far faster than expected, thanks to the persistent economic downturn. Medicare, which is already running a deficit, will run out of money by 2017, while Social Security will be broke 20 years after that, according to new estimates from the Obama Administration.
It’s official: this year’s budget deficit will be one for the record books. The latest figures released by the Obama Administration contemplate a $1.8 trillion deficit for fiscal 2009 as the United States economy continues to significantly underperform relative to earlier forecasts. This year’s record-setting deficit is now reckoned to be four times last year’s — the previous record-setter. Next year, the deficit is expected to decline but still to exceed $1.3 trillion — and that’s only if everything goes according to plan.
Back in the bad old days of the Great Depression, the breezy assurance of the Hoover Administration that “prosperity is just around the corner” became, as the years of depression dragged on, a mainstay of Vaudeville comedians and Hollywood screenwriters alike. As things turned out, elusive prosperity did not re-appear until after 16 years of depression and world war, and even then was not fully in evidence until after Congress finally removed all wartime price controls and slashed government spending by a third. An entire decade was squandered by eager-beaver social engineers in the Hoover and Roosevelt administrations, who could not be shaken from the notion that more government spending and controls on market activity could solve the economic crisis — a crisis that had been created by government in the first place.