Risk Off, Risk On, Which Is It?
Nearly every trading day the major stock indexes will either rally sharply higher or decline sharply lower. One day risk is on, another day risk is off. Last year, after the Federal Reserve Bank announced its QE-2 program and this caused the major stock indexes to rally sharply higher. At that time, traders and investors believed that the Federal Reserve would simply keep pumping cash into the financial system. This action by the Fed drove interest rates lower and caused the U.S. Dollar Index to fall. The weaker U.S. Dollar Index caused inflation around the world and that brings us to where we are today.
The debt ceiling increase in the U.S. is the big debate now. Should the United States continue to borrow more money in order to fund wars and social programs that it simply cannot afford? Believe it or not some people say yes. Meanwhile, if a family was leveraged to the hill they would be forced to cutback and make some tough choices. Yet, the United States government can simply borrow more money that it does not have. Obviously, the United States can also print its own money which is really defaulting on the American people. Congressman Ron Paul (R-Texas) said every time the U.S. prints money they cause inflation and that is a default on the American people as products become more expensive. Is he correct in saying this, or does the money supply not really matter? Well that is open for debate depending on who you talk to.
Does anyone care about the weak U.S. Dollar? Gold, silver, oil, gasoline, copper, corn, wheat, and most food products are so expensive because of the weak U.S. Dollar. Now sure, weather and demand will have some effect on prices, however, the weak U.S. Dollar is the driving force behind most of the inflated prices around the world. Just look at how fast oil prices declines when the U.S. Dollar Index strengthens. Gasoline prices effect every single consumer around the world. When gasoline prices increase it becomes a direct tax on the user of the product which is everyone. You cannot say that $4.00 a gallon gasoline at the pump does not have a negative effect on the U.S. consumer. This is not a soft patch it is a real tax on an already strapped U.S. consumer that caused the May stock market decline. Coffee, sugar, milk, and wheat are all products that have surged higher over the past two years. These are products that most people use everyday to live, if these products increase in price there will be less money to buy other goods. Remember, we cannot eat our i-Pad or cell phone.
Will the U.S. government raise the debt ceiling or not? Of course they will raise it, they have already increased it seventy times in the past. Can the politicians come up with real spending cuts such as war, and social programs? There should be cuts across the board, the same way a family would need to cut back in order to get out of debt so should the government. Why does the U.S. have a military presence in ninety different countries around the world. Why is the U.S. in five different wars that cost billions of dollars a day? Why are one out of seven people in the U.S. on food assistance programs? Why does every large corporation such as banks and auto manufacturers get bailed out whenever they make a bad decision? When will the United States return to true capitalism which allows companies to fail? Oh I forgot, only small companies are allowed to fail. Small business is what makes the United States a great country. That is starting to end and could be the end of the U.S. as we know it.