U.S. Debt Ceiling: The Least
of Our Real Problems?
As I read the financial newspapers and the popular Internet sites this morning, I realize that if there is one thing I hope I achieve in my own daily writings, it is to make my readers wary, almost suspicious of what the media is telling them.
Here’s what got me thinking like this…
Yesterday, the U.S. dollar hit a fresh, new three-year low against a basket of six other major world currencies. The media was quick to point to the bickering amongst the Democrats and the Republicans (over raising the U.S.debt ceiling) as the reason the dollar was falling to a new record low. Wherever I looked this morning, the news sites were basically saying, “Washington can’t agree on increasing the debt ceiling, the deadline is closing in, and the dollar is falling because of all this concern.”
But that’s where reporters have it very wrong, as far as I’m concerned.
Let’s take the debt ceiling issue off the table for a moment and let’s assume Washington passed a new debt ceiling limit of $16.0 trillion or $17.0 trillion. Would the greenback still be falling off the cliff in value? Of course it would.
We are passing a law that says the government can borrow even more money. The greater the debt of a nation, the weaker its currency. We are actually better off if the government doesn’t pass a new debt ceiling and it starts spending within its means.
I don’t want my readers to buy the propaganda the media spits out. At the very least, I want my readers to be aware of the fact that most people reporting the financial news today know very little about finances or economic analysis.
The following are my five core beliefs. I hope my PROFIT CONFIDENTIAL family of readers will benefit from them.
The devaluation of the U.S. dollar that started in late 2008, early 2009, will continue as: (1) the U.S.economy deteriorates further; (2) the national debt level continues to rise; and (3) the Fed prints more money.
Inflation will become a real problem in America thanks to years of monetary policy that promoted artificially low short-term interest rates and the hyper-printing of U.S. dollars.
Gold prices will rise on the back of a weak greenback and too many dollars in the system and as inflation comes back.
The euro is as done as the dollar. Either Germanywill eventually kick the weaker countries out of the euro or it will adopt its own currency.
The stock market will eventually test its March 9, 2009, lows, as Phase III of the bear market sets in.
Where the Market Stands; Where it’s Headed:
The next couple of days will bring the close of July 2011. And with another month behind us, the bear market rally in stocks that started in March of 2009 will have lasted 29 months. A tremendous feat? Not really. As I have written before, the 1934 to 1937 bear market rally lasted 35 months.
I remain steadfast in my opinion. We are in phase II of a bear market. During this phase, the bear brings stocks higher in an effort to lure investors back into them. The easy money in this bear market rally has been made. But there still is upside potential for stocks, albeit it’s limited.
While the media is obsessed with theU.S.debt ceiling limit, the Dow Jones could easily continue to ride the “wall of worry” higher.
What He Said:
“The Dow Jones Industrial Average, the S&P 500 and the other major stock market indices finished yesterday with the best two-day showing since 2002. I’m looking at the market rally of the past two days as a classic stock market bear trap. As the economy gets closer to contraction, 2008 will likely be a most challenging economic year for Americans.” Michael Lombardi in PROFIT CONFIDENTIAL, November 29, 2007. The Dow Jones Industrial peaked at 14,279 in October 2007. A “sucker’s rally” developed in November 2007, which Michael quickly classified as a bear trap for his readers. By mid-November 2008, the Dow Jones Industrial Average was at 8,726.