We have entered into a new and unexplored territory under the leadership of the Fed, the Treasury, and Chairman Bernanke. In its efforts to fight inflation, the Fed has pulled out all the stops. In my opinion, the U.S. has entered a period that may prove as challenging as any in our history - one which none of us will be immune to.
Here's why:
First, the Fed has started creating large sums of money out of nothing. The fancy term is quantitative easing; in essence, the printing presses are now churning out currency.
WASHINGTON — The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.
Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.
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Now, let us look at the well-nigh immediate consequences:
MOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.
Calls for a rethink of the dollar's status as world's sole benchmark currency come amid concerns about its long-term value as the U.S. Federal Reserve moved to pump more than a trillion dollars of new cash into the ailing economy late Wednesday.
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If the dollar loses its reserve status, then the U.S. is faced with the problem of living within its means - moreover, we must do so as tax revenues decline due to the current recession.
Let us consider the budget:
We'll spend about $3 trillion dollars this year. You can see the breakdown
HERE
Now notice that the deficit, as announced today, will increase to $1.75 Trillion dollars for the year.
President Obama is expected to receive bad news on the budget front on Friday as the nonpartisan Congressional Budget Office releases what sources say will be a grim assessment of his $3.6 trillion budget's affect on the nation's deficit, a $1 trillion increase above previous projections.
The staggering figures will include the recently-passed $787 billion stimulus bill and the $410 billion omnibus spending package, both adding directly to the deficit, and to members' concerns that Obama is trying to do too much, too fast.
Obama has projected an historically-high federal deficit of $1.75 trillion this year, but he expects to cut that down to $533 billion by 2013.
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So if the U.S. were to lose the ability to borrow more money, every program - including Social Security, Medicare, Medicaid, and Defense - would face an immediate loss of 50% of its budget.
Will that happen? I certainly hope not. And matters often muddle through in something better than a worst case scenario. I expect economic challenges to continue, and perhaps to worsen. On the good side, even though we as a nation have some financial problems, most other nations are in worse shape. This may make our debt a safe-haven, at least for a time.
Hybrid Mode
