>I don't know who is really in charge of anything anymore!
>I was told by one of my super patriot eagle types that once the >Republican party gets most of the control of the government,these things would change.
>Well two years later...nothing!
>Not one powerplant...not any new electrical transmittion lines just the usual blue smoke and mirrors.
Well, The Republicans made other issues the priority, namely the economy and the War on Terrorism. Currently, the US has a budget deficit of $528 Billion. We have record fiscal stimulus in order to stop deflation (from the stock market bubble) There is no money for infrastructure investment. If the gov't didn't take action with massive amounts of economic stimulus, we definately would be in a very very terrible recession or possibly even the dreaded "D" word: Depression.
I believe the US is going to face some very serious problems after the election. The oil issue may just be the candles on the cake.
1. The US has an unstainable trade deficit. We need to borrow $520 Billion a year just to pay for the goods and services we import every year. Right now foreign Central banks are making up the trade difference by accumulating US dollars. At some point they are going to have to stop. It is highly unlikely and foreigners are going to dramatically increase purchase of US made goods and services. If you sum up all of the debts since 1987 it now exceeds 4.5 Trillion.
2. The US Federal Debt is going up each year, now at about 500 billion per year (BTW: This is complete seperate for the Trade deficit). Despite all of the media over the budget surpluses, the Fed Debt has never stopped growing. The money for the surplus came out of Social Security. See http://www.publicdebt.treas.gov/opd/opdpenny.htm
(Show me the Budget of 2000 and 2001 surplus!)
3. We have a huge consumer debt problem. Excluding mortgage debt, the average american owes over $18,500 ($8500 which is for Credit card debt). if you consider the average household income for 2003 was just $56,000, Americans spend about 14% of disposable income just on consumer debt. What happens when the interest rates return to nominal rates? What happens to Credit card costs when rates rise?
4. We have a Huge asset bubble (in housing). Housing prices have inflated above the levels of the 1920, because of the extraordinary low interest rates (Was at 46 year lows, now only at 40 year lows because of the .25% rate hike a few weeks ago) Banks and other lending institutes are over extending home buyers with record debt levels. The lending standards have degraded at their lowest point since they were implemented in the 1930's. Banks do not care, because the debt is sold to Gov't Sponsored Enterprises (GSE's) like Freddie Mac and Fanny Mae, and the GSE don't care because they are making lots of money right now. The Banks hold no risk, but the GSE do!. Does the S&L Crisis of the 1980's ring a bell? Every once in a while you hear Greenspan, the President or the treasury sec'tary speak about the "systematic risks" the GSE pose (google: Greenspan "Systematic risk" GSE:) Greenspan and the President have tried to empose limits on the GSEs, but the house wouldn't let them impose limits last year or even this year.
The GSEs make extensive use of interest rate swap derivates. This is a tool that permits lenders to use short term bonds for long term loans (such as 15,20 and 30 year mortgages). They estimate the interests over the life of the loan and charge the borrow a interest rate that exceeds that estimate. if they guess right the lender makes money. However, if they under estimate interest rates, the lender loses money.
Back in Sept of 2003, Freddie Mac's 30 year fixed reach a low of about 4.99%. Until late march 2004, every 30 year fixed mortgage issued by Freddie was under 5.50%. Since the 1980's the yield on 30 year treasuries has never been below 5%. I'll let you do the math and let you draw your own conclusions.
Today most homebuyers are using ARMs or adjustable rate mortgages to finance there purchases. They are using ARMs because they are unable to afford fixed rate mortgages. Over 70% of all new mortgages issued this year are ARMS.
Unless these people can significantly increase their incomes over the next two years they will lose there homes because the interest rates are going up and they are going to get squeezed.
5. In 2008, the first wave of Baby boomers will be eligable for Social Security Benefits. By 2011, The amount of SS Benefits will exceed the taxes collected for SS. Currently the SS surplus is transferred to the General trust fund and is spent by the gov't. SS is a Pay as you go system, There is no "lock box" or deposit for SS surpluses. Before 2011, The gov't must either dramatically cut SS benefits, dramatically increase taxes or dramatically increase the Federal Debt. Either way it going to have a major negative impact on the economy.
6. Medicare is a program that already exceeds its tax revenues. Because if increases in Benefits (New Medicare Drug program), the rising cost of Medical care (about 10% to 12% per year) and the rising number of recipients, it going to be a huge additional expense to taxpayers.
The Politicians have over spent and overpromised with funds that just don't exist. Somethings going to give and it very likely its going to end very badly. At this point there are virtually no options to escape. Its just a matter of time. With in the next two years, I expect sigificantly higher taxes ( to reduce the fed budget deficit) and substantially higher interest rates in order to attract foriegn investment to pay for the trade deficit.
Want to read up on the state of the economy visit: http://www.prudentbear.com