This is just my view and should not be taken at face value. I wrote the following paragraph at the end of 2009, outside of this blog:
"I have recently consumed myself in every bit of news around the US economy and I have listened to Peter Schiff, Ron Paul and many others as well as people with different views on the current situation. The desperate attempt by people like ben bernanke to artificially stimulate the US economy is just making matters worse, as his solution is to print more money and to give it to the banks and businesses such as Freddy and Fannie, which now have 100% of their loses covered by the government. The government is getting bigger and bigger and intervening with the free markets, which I disagree with. The housing boom was brought about by too much easy credit, you only needed to put down about 5% to get a house, and people believed housing prices would just continue to rise, I mean how dumb is that. After the inevitable crash what then would have happened would be that lenders would tighten up on lending and be more cautious to lend to people who were too likely to default. But the government stepped in and said we will guarantee the loans so then people started to lend, the interest rates were at a record low and this encourages no one to save and again encourages people to take risks they wouldn't have had the government stayed out of the free markets. The government encouraged more spending, more debt in many ways, e.g cash for clunkers. The country is massively in debt and they desperately need to let companies that are failing to be productive fail, let resources be bought up and let new companies start up, which aren't owned by the government and aren't a drain on tax money. They need to allocate resources to allowing the country to be productive again."
3 months later and not much has changed, most major economies continue to debase their currencies, which means to devalue their currency by means of a printing press. The guys who were saying the US are pulling out of recession are still saying it and unfortunately the US is trying to get back to its phony economy, which was based on consuming and spending. I don't hear any focus on production and being competitive or trying to save money, which I think is the right direction to take. How can a country borrow money and spend it's way into debt, find itself broke and decide the solultion is to simply print more money and borrow. Each time they print money they are punishing people in the US who are saving. It seems so many figures are skewed and news is reported with such a bias, I wonder how it goes so untalked about. The government won't be honest about the situation, which is because the economy needs faith to function properly and their plan to go back to spending and consuming won't work if no one believes in it. The problem is going back to a phony economy is no good.
China holds so many dollars and is dependant on the US buying its goods that it feels forced to help and it does this by pegging its own currency, the RMB to the dollar. It does this by printing more RMB, this is creating inflation in China and sooner or later it will be forced to raise interest rates. Why? because it needs to curb inflation and it can't allow it's economy to overheat and burst. This is a problem to china, as when it raises interest rates it will be advertising it's currency to the world and people will buy the RMB because they will get higher rates than if they held dollars. China also wants it's exports to be cheap so that the US can afford them and the US is China's main consumer. China think that it should continue to support the US because they will lose a lot of money if they don't. Therefore they throw a small amount of money to try maintain the wealth they have, unforunately it's costing China more and more all the time, which in my view is because the US isn't fixing it's own problem. Firstly my view is that the US is just a drain on China, China think it needs the US, but if it's lending money to a country so that they can buy its products, what is this country actually providing them? China can simply buy it's own products, so why does it need the US to consume for it! If I am honest this was a point made by Peter Schiff who is running for senate in connecticut, but it makes complete sense. One of his slogans is "short term pain for long term gain" and right now we are exercising "short term gain for long term pain". Barack Obama is focussed on building jobs and stimulating the economy to try and get it to function how it was before the recession, but all his efforts will cause further pain in the long term. Going back to an economy that spends and consumes but has more debt than before surely will be painful and will not last.
Barack Obama is focussed on creating jobs but jobs are created with capital which come from savings, and the US have no savings so it has to borrow the money to create jobs, or it destroys jobs elsewhere. Unfortunately the public sector is getting bigger in relation to the private sector and government is getting bigger. Taxes and regulations are growing and will continue to do so, unless a sudden change in direction is taken. The stock market has been rallying for some time, but a lot of money has been injected into the economy. I read today that 20% of it will find it's way into US stocks, but printing money comes at a cost which is, it devalues the currency. If you measure the US stock market in terms of gold which holds it value at times like these it hasn't been performing so well. It is not suprising the stock market has rallied but it is not because of true growth it's because of huge government intervention.
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