Friday, April 17, 2009

The G20 Meeting, Monetary Policy, China, et al by Team Member Tim Chilleri

I don't agree 100% with Tim here, but other than grammar, spelling, etc. I do not alter or otherwise interfere with an author's thoughts and opinions. Well, here goes.

John A.

The G20 Meeting, etc.
By: Timothy Chilleri


The Fed and Treasury believe they are doing an admirable job resurrecting our economy, when in actuality both are prolonging and amplifying the pain. They repeatedly show that they do not understand our problems and are now pursuing the wrong solution.

Last week at the G20 meetings in London, President Obama reiterated our loose monetary stance while begging the world to loan us the money to finance our massive spending plans. Our numero uno lender is China of course who just days before the event asked the world to consider replacing the USD as the world’s reserve currency. While some would say this is an insignificant remark, I disagree considering they hold roughly $1T of our debt and can begin diversifying out of the USD at anytime, without anyone’s approval but their own .

As some of you may know, I am against government bailouts as well as nations bailing out their neighbors. While Obama tells the world “we’re in this together” more or less, the United States is largely responsible for the crisis. What we need is for the rest of the world to cut us off. We’re money drunk and the world needs to send us to Money AA. It’s incredible to think about. If you’ve taken 10 shots of liquor at a bar in an hour, the last thing you need is more shots. But that’s what we’re soliciting. In fact, we’re asking the bar to wheel out cases of booze and we’re convinced we can consume it all safely. Instead, we’re going to end up passed out or dead at the bar. And the same can happen with our economy.

Very recently Obama stated that the auto companies might have to go bankrupt. Once again, it goes to show that you do not throw good money after bad. How many venture capital funds would have delivered sub par returns or losses if they continually did not set the proper risk controls in place? This policy of simply throwing money at problems has set a dangerous precedent. Will we see a bounce in the short term? Perhaps, I don’t know. But this will only serve to harm our economy in the long run.

And one last quick point. I follow the CPI numbers very closely every month and they have ticked back up in January and February. While this is a sample size bias, let me remind you that we are going through the worst economic contraction since the GD. In 2008, the CPI was .1% which is very worrisome since the government rigs the numbers . This means that Bernanke has been spending lots of time down in the basement with his printing presses and he’s seeing how long he can run them non-stop. 2008 CPI number should have been negative, even with oil prices in the summer. We watched trillions of dollars go up in smoke and we still saw inflation? Yikes. Thus, the dollar could be in for a bumpy ride over the next several years.

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