Silent Archimedes

Posts Tagged ‘mortgage’

A Letter to America

Posted by silentarchimedes on November 3, 2008

Dear Fellow Americans,

The land of the free and the home of the brave...

The land of the free and the home of the brave...

Tomorrow is one of the most important days in recent American history. It is a day that will affect the short term prospects of America and the standing of America in the world for the next century. The events and actions of the past eight years have accelerated the damaging path the country has embarked on for the past thirty years. The irresponsible actions have left America crippled economically, politically, morally and psychologically. Both parties have been hijacked by the special interests of corporations, ideological groups and personal interests. The values in which America was founded on have been distorted. The decision made by America tomorrow will go a long way in determining if we continue this egregious path of self-destruction.

The debt at the national, local and consumer levels are not only due to the actions of the past eight years. The decision by the Supreme Court in 1978 (Marquette National Bank of Minneapolis vs. First of Omaha Service Corp.) to deregulate interest rate caps at the state level was the precursor to the inundation of credit cards and the mortgaging of personal futures for the present. Although Reaganomics has been credited with bringing the country out of the vitriolic stagflation of the late 1970s, it has had a long term effect that has eaten away at the fiscal responsibility of the federal government. At the core of Reaganomics was reducing tax rates by reducing government spending which in turn was achieved by reducing costs associated with regulation and social programs. However,  unexpected costs from the burgeoning Cold War resulted in large trade and federal budget deficits. In order to cover such deficits, the government began borrowing heavily both domestically and abroad. This decision to mortgage the future of the country for the present instilled a belief that debt is good, even to other countries, such as China, Japan and India. America became a borrower nation instead of a loaner nation, which it had been for decades during its prominence.

The deregulation of these two critical issues are the main causes of the current economic problems. It instilled bad habits at all levels of society. Although quality of life continued to increase the past thirty years, it was mostly at the cost of the future. Both politicians and individuals began feeling entitled to such luxuries and expected it to last forever. However, as analyzed by Pulitzer Prize winner Jared Diamond (Collapse: How Societies Choose to Fail or Succeed), it is this infectious mindset that causes great societies to fail. This country is at that critical juncture. Do we reinstate the values, sacrifices and hard work that made this country great or do we continue down this destructive path?

In addition to the present economic and ideological problems that endanger the quality of life of America, there are many massive elephants in the near future that can derail any sense of comfort in the nation. A fundamental restructuring of social programs like Social Security, Medicare and Medicaid is required in the next one or two presidencies before the effects of the baby boomer population cripple the flow of aid from the system. The high quality of life has left Americans lazy, fat and indifferent, and the medical costs associated with treating related diseases and health issues threaten to destroy the already broken health-care system. The super-highway system that supported the rise of American power is also the bane of the country’s dependence on foreign oil and its lavish automobile lifestyle. Furthermore, the infrastructure of America is crumbling and poses a danger to the lifeblood of a large country like America. A massive government infrastructure initiative is required within the next twenty years. The only question will be where does all the money come from? As globalization continues to redistribute the wealth and power of the world, the education system and America’s ability to compete are also being tested. American children  continue to fall behind other countries at all levels of education, from middle school to college to graduate school. This country has been able to sustain its technological competitiveness partly through the immigration of top-level students from countries such as China and India. However, the current backlash on immigration coupled with the increasing prestige of other countries’ higher education systems, begs the question of how America will sustain its technological edge? Corporations and special interest groups as super-humans continue to eat away at the fabric of America. Their selfish narrow-minded view of profit and ideology permeate all levels of society, from individuals to the government. Ideology has especially polarized the country into two hardened stances, secularity versus ideology. The effects of this has left the country fearful and suspicious of each other. Finally, the effects of the internet and other entertainment-related technologies cannot be understated. Although they have created luxuries beyond anyone’s belief and increased the free flow of information, they have also created a schizophrenic society of 24 hour media frenzy and questionable freedoms of morality. The neutrality of journalism and the mental well-being  of society are at stake. Coupled with the constraints of global warming and moral responsibility, the above problems must be faced responsibly.

These problems will definitely be difficult to face and resolve. Most of these have been simmering for years, but have been effectively ignored. However, what has always made America great has been its ability to come together as a country and sacrifice for the greater good of the country and the world. The sacrifices by this country during the Civil War and World War II for the greater good cannot be forgotten. Although society was simpler and less polarized then, the country must come together once again to face the unprecedented wave of issues that threaten to send America down the road of self-destruction.

Tomorrow begins that choice. Tomorrow the country decides which path to take, one of sacrifice for the greater good or one of continued wantonness. Tomorrow begins the day where America can begin reinstating the values that made this country so great. A country of uniqueness not found anywhere else in the world. A melting pot that protects individual rights and helps others at times of need. A constitution so strong that the thought of a revolution is unfathomable. The land of opportunity and openness. A land of thousands of parks and natural resources. The separation of church and state and the freedom of religion. The land of the best medical care and higher education system. A land of tolerance and hope. And the land of the free and the home of the brave…

Whomever you vote for tomorrow, please think openly and clearly. Without any bias of age, race, religion, and fear, think who will be better for America. Who will lead America towards a path of redemption and strength. A path that requires sacrifice but cherishes American freedoms. A candidate that realizes that what America needs now is a problem solver with pragmatism and humility, and not one fixated on idealism, intolerance and fear mongering. Look closely at your choice, and know that when you go home afterwards, there will be a better America tomorrow. A better America for yourself and your family, and also for its great citizens of today and tomorrow.

America’s tomorrow begins now…

Thank you.

Silent Archimedes

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Commentary: What’s next for gold, the Dollar, U.S. economy and inflation?

Posted by silentarchimedes on October 28, 2008

Gold, Gold, Gold

Gold, Gold, Gold

The economic turmoil the past two months has sent some very mixed signals to people who do not fully understand the commodities market cycles and global economic forces. The global economic train is now in the midst of a long and dark recession tunnel. The actions taken by the large economies of the world, such as the United States, and European countries, the past two months have made the average investor skittish and scared. They see stalwart financial companies like AIG, Wachovia, Washington Mutual and General Electric either crash and burn or bought out by other companies or halved in price.  Their 401Ks, Roth IRAs and other investment accounts tumbled. To make matters worse, they see high crude oil prices that had peaked above $140/barrel go on a crash dive to barely above $60. Wasn’t the global demand of oil, especially from China, India and other emerging markets suppose to keep gas prices above $4.00 for good? Now they are back well below $3.00. Other commodity prices, such as silver, copper and platinum followed suit. All tanked from multi-year highs just reached not long ago this year.

However, contradicting this gloomy wave of news was the ‘strengthening’ of the U.S. dollar and the 30%-plus drop of gold prices. Gold was supposed to be seen as the safe haven when things go bad.  Well, now things are really bad so why is gold also dropping? And why is the dollar strengthening when the U.S. economy is tanking? How can this be? In the simplest explanation, although quite wrong and unsubstantiated, was that the commodity bubble had bursted. Gold dropped because the demand for commodities was over. Many people began believing this and even some gold bugs were confounded by what was going on.

Their is a very simple explanation for it, and all the reasons for the dollar strengthening and gold prices crashing are all temporary. As a matter of fact, it provides the best opportunity to buy gold in several years. The recession is in much deeper quicker than anyone thought. Many investors are being forced to sell even their safest haven assets in order to cover for their losses on the risky side, such as stocks, houses, hedging, etc. This includes the liquidation of gold. They do not want to do this but are forced to. This is a major factor in the instability on the down side of gold. Second, the safest non-gold haven for money is U.S. Treasuries. They are one of the only things that guarantee still a net positive return, albeit a small interest rate, at this juncture in the economy. Countries have no choice but to buy more Treasuries because the faith in other fiat currencies is still not strong enough since this is a global recession. This temporary strength in the dollar against other fiat currencies also has a downward push on gold prices and other commodity prices since they are all priced in the dollar. That means $100 now buys more gold than before.

The thing is these two actions are only temporary. These actions are only to save the global recession from a global depression right now. These are short-term reactions to a longer term problem. These actions are known as deleveraging. It is allowing the new economic state to take root. It is a finite process and will soon come to an end. Why? The federal reserve continues to pump lots of new unbacked dollars into the economy. And the $700 billion dollar bailout begins this week. The Feds announced that they will give the initial $125 billion dollars to nine banks. What does this all mean? INFLATION! And soon, HYPER-INFLATION. U.S. Treasuries will have no choice but to increase their interest rates in order for countries to continue buying them. Mortgage rates will rise, as they already are, even though recession takes root. The dollar will reverse trend and weaken due to inflationary pressures. More dollars will come home to roost from other countries. What does all this mean? Gold will rise, rise, rise.

Update 6:15pm: So the Dow Jones goes up 890 points (10.88%) today, with the NASDAQ and S&P500 posting similar percentage increases today. The two main reasons for such a historic rise (second largest point increase of Dow Jones ever) is due to bargain hunters and an expected interest rate cut by the Federal Reserve. Although the cut might help in the credit and liquidity crisis, this is another long-term inflationary signal. If Treasuries have lower interest rates, who will buy them? More Dollars will come back to America, which means a weaker dollar. Although this might help the current local minimum (credit and liquidity), the entire graph continues to head towards a weaker dollar and a continuation of the commodities bull market and a rise in gold prices.

Disclaimer: This is a commentary by an amateur investor and is not meant to be taken as professional advice.

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