onlinejournal: Bush's Chernobyl economy; hard times are on the way

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"No one believes the price of oil is going down any time soon. As energy prices rise and the housing market falls; consumer spending, which added $825 billion from home equity into last year’s economy, will continue shrivel. Thus, the Fed will have to make the tough choice of whether to loosen the purse strings and lower interest rates to keep the economy sputtering along or ratchet up rates to attract more foreign investment. (Keep in mind that the real estate market is already in retreat, even though the full force of the Fed’s interest rate increases won’t be felt for up to six to 12 months after they have been raised. The worst is yet to come)

Most economists believe that Fed Chairman Bernancke will be forced to lower rates sometime in 2007 to try to stimulate the economy and to affect a “soft landing” in the housing market, but don’t count on it.

I believe the Fed is more likely to either keep rates the same or raise them to outpace the anticipated increases in Europe and Asia. The reason for this is simple: it presently takes nearly $2.5 billion per day to maintain our current account deficit. To continue to attract foreign capital, US Treasuries must offer a higher rate of return than their foreign competitors. Now that the economies in Europe and Asia are growing, their interest rates are going up accordingly (to slow inflation). That means that the only way that America can continue to expand its debt, through the exchange of fiat currency for resources and manufactured goods, is by raising the return on Treasuries. And, that is probably what Bernanke will do, even though it will skewer the struggling American worker and the US economy at the same time.

The secret to running the global economic system is to control the issuance of currency and thereby be in a position to expand one’s own debt as one sees fit. The Federal Reserve must preserve its “dollar hegemony” if it wants to maintain the greenback as the world’s “reserve currency.” To accomplish that, the dollar must stay one step ahead of its competitors (higher rates) and prove that it is on solid financial footing. This is impossible now that the US economy is contracting, so Washington has decided to do the next best thing; corner the oil market. By controlling Middle East oil, US policy-makers believe that they can force foreign nations to accept the debt-plagued greenback regardless of the faltering US economy. It is no different than any other extortion racket.

If the plan succeeds the dollar will remain the de facto international currency. But it is a difficult task and the escalating violence in Iraq suggests that the results are far from certain."

You don't have to tell me I have a fetish for doomsday literature! I look at it as having my eyes wide open. I like to be prepared for the worst, and if something better happens, I'm REALLY happy. I don't like surprises.