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G&G Associates Tax & Financial Consulting
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How to Protect Yourself from Washington’s
Latest “Feel-Good” Lie
Hotep (Belssings) G&G Readers,
“All the signs I look at show the housing market is at or near the bottom.”— Hank Paulson, April 2007.
Our former U.S. Treasury Secretary said that three years ago…just months before the REAL housing problems erupted in the market.
It looks like housing sunk on Paulson’s cue.
So why am I bringing up a speech from before the recession even started?
Well, it is my contention that our leaders don’t have a clue. When they speak, they do so only to make you feel good about the markets. They want you to believe their comforting lies so you continue to spend and support their devastation of our country. The question is…do you continue believing them?
Today, I’ll show you the latest in a long line of these “feel-good lies,” which has major implications on where the dollar is heading this year, and beyond.
But first, a quick review of other major Washington lies…
I Hate to Point Fingers Fed Chairman, But…
“The subprime fallout will not affect the economy overall” — Ben Bernanke, Chairman, Federal Reserve System, June 2007.
One month after Ben made this ridiculous statement, we saw the subprime housing market infect Wall Street, when the first Bear Stearns hedge fund went belly-up.
Six months after that, we had the first bailout in the markets. Bernanke and his Fed-Heads started desperately cutting rates, and all the while, housing prices continued to sink around the country.
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Borrowers started to default on their homes. All those lovely mortgage-backed securities turned toxic.
This toxic debt eventually took down the financial institutions deemed “small enough to fail.” As of February 2010, an astounding 203 banks have failed since Big Ben Bernanke assured us that the subprime fallout would “not affect the economy.”
As we all came to realize, our Fed Chief had no idea how significant this financial meltdown would be. I bet he’s hoping no one remembers he said that!
Freddie and Fannie
Remember the shenanigans both Bernanke and Paulson played with Fannie Mae and Freddie Mac stockholders?
Once again, Big Ben was out to appease the markets. He formally stated on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”
Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”
Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.
Do you see a trend here? They will lie to you to keep you fooled and dumb and leave your money in the pot of ruins…
I’ll even pull one out of the cobwebs, from 2002. At the time, Al Greenspan was leading investor's down the slippery slope as he promised we were not heading toward a housing bubble…
“The current data suggest that we don’t have a demand for housing which could all of a sudden slip…We are effectively not building up a glut of excess housing. Under those conditions, one would presume that even though we have been having some fairly strong gains in home prices, it is our conclusion … that it is unlikely that we are confronting a housing bubble.” — Alan Greenspan, 2002 FNMA Annual report
Blind Leading the Gullible
So, after all the popped bubbles, the bailouts, and the back-room deals, our country’s leaders have not only failed to see the crises developing — they have also botched the hard decisions that followed. On top of that, our leaders have deliberately misled us about what they are doing to our currency. Just this February, the current Treasury Secretary Timothy Geithner was once again in the news saying…
“Of course I believe in a strong dollar…In fact, that particular phrase and commitment of policy was first written in my office in 1995.” — Reuters, February 2, 2010.
Nice try Geithner, but we all know better.
In spite of such emphatic promises, flowery speeches, and pat-on-the-back continual reassurances, our currency remains on the tenterhooks of a devastating loss. This is a shell game our leaders play with us. They know all too well that the dollar is the eventual loser here. They know all Americans who depend on the dollar for stability and purchasing power are going to suffer eventually.
They know this because they have run out of options for paying our debts in the future!
Long ago, far away on a planet that few remember, we had fiscal responsibility. That fiscal responsibility gave the U.S. its reputation as a global powerhouse. But those days are gone, just a distant figure in the rearview mirror…
You see, when a country runs up deficits that take up huge chunks of their GDP, like the U.S. has done since 2001, the government has to come up with some way to pay them. Generally they have three options. They can choose to…
1. Raise interest rates aggressively, so they can offer bonds with higher rates. That attracts more bond buyers to the market who can pay off that old debt. But by doing so, they risk collateral damage to the economy. This is why China owns the U.S. (literally), because for years now they have been buying up our debts.
2. Reduce Deficit Spending…Unfortunately, the Congressional Budget Office (CBO) has issued a report saying the U.S. will experience at least $9 Trillion in deficits over the next 10 years. Our deficit is supposed to reach more than 4.5% of GDP during each of those years!
3. Allow the currency to fall…They can allow a general debasement of the currency, which would allow foreigners to buy our Treasuries for cheaper prices…
You must understand the significance of having a debt worth 4.5% of your GDP. You see, this was the fundamental reason the dollar entered the weak trend in February of 2002.
Historically, whenever any country reaches 4.5% in debt to GDP, it experiences a currency crisis.
But What About The Dollar Rally Now?
So given all this debt, you may be wondering why the dollar is rallying right now. Ahhh grasshopper… as I explained in the beginning of the year, there will always be dollar rallies.
Once in a while, the dollar does catch a break, and corrects within its greater downtrend. It’s actually a good thing. It keeps the dollar from becoming a one-way ticket to debasement torture.
I also said there will be times when it makes sense to buy the dollar and take advantage of these short-term rallies. Indeed, this is one of those times.
In my mind, the dollar strength will continue until traders realize the U.S. deficit and financing is still a huge problem for the dollar. When that happens, the dollar rally will come to a close.
During the next 3-6 months, you’ll hear lots of so-called experts saying the dollar is about to hit a multi-year bull rally.
Those same traders called for the end of the dollar bear market in 2005 and 2008. In reality, those were just short-term dollar rallies that lasted for a few months. But still, they insisted the strong dollar was here to stay!
Of course, that’s what our leaders would have you believe too. But given their track record of spewing comforting lies, you wouldn’t expect anything less, would you?
Bottom line: No matter if it’s about the dollar, the housing market or certain institutions, politicians will always pander to the masses. They will always tell you what you want to hear…not necessarily what’s best for you or the economy in the long run.
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Until the next time!
Asante Sana (Thanks)
Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
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