“We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.” – Ayn Rand

It has been three weeks since my last update but man, have we seen some interesting events during that short period of time. First, we were shown very clearly how inept and dysfunctional our leadership in Washington, D.C. has become. The debacle of the national debt ceiling debate and subsequent agreement was a full three-ring circus. I am embarrassed for our country and all the citizens who are looking to the bozo’s we call our leaders to provide some positive direction out of this extremely serious economic situation that our country currently faces. Now to be fair, we do have some members of Congress who are informed and working to make the right decisions but obviously, these people are in the minority based on the outcome of the debate. I have no political party affiliation and am equally critical of the leadership of both parties as well as our President for their collective failure to adequately address the monumental problem of our run away national debt and the fact that we budget for continued annual deficits. Our leadership increased the national debt ceiling to over $15 trillion – a number equal to the total GDP for the United States for an entire YEAR! And their token reduction in expenditures of $1.3 trillion is a joke. This reduction in expenditures is to be phased in over a ten year period and since all the pain was pushed past the 2012 Presidential election, it won’t even be an issue during the campaign. What our leaders didn’t make clear to the general public is that we are still running a $1.5 trillion annual deficit or the fact that any increase in interest rates which are guaranteed to be coming soon, will wipe out that $1.3 trillion in cuts in a heartbeat. We were rewarded for our country’s lack of leadership by a downgrade in our debt rating by Standard & Poor’s. We no longer have AAA debt rating and probably the new rating is still too high.

As I watched the choreographed political debate I was curious to see if any serious cuts in military spending would be put on the table. We do have two acknowledged wars (Iraq and Afghanistan) and one not so acknowledged war (Libya) which the President has been running without Congressional approval since February. I did not see any meaningful reduction in our war machine. How are the citizens of our country being helped by this wasteful spending of people and resources? I served in the Air Force in the early 1970’s and was stationed at RAF Alconbury in England for four years. At that time, there were five or six U.S. Air Force bases in England with aircraft and probably at least the same number of other installations doing non-flying activities. My old base is still active and is being used by the Air Force and I expect all the other bases are there as well – still burning up our precious resources doing what???? If our leaders are serious about getting control of our ongoing annual deficit, a good hard look at the military spending should be the first order of business.

The next interesting event that has occurred since I wrote last is the wild gyrations in the stock markets. Investors are scared and rightly so. The downgrade in our debt rating seemed to finally serve as a wakeup call that all is not right on the home front. Anyone with the interest to do a little reading could have seen that our economic future is dire, not only here in the United States but Europe as well. Heck you don’t even have to read anything, just imagine that your household budget is the United States’ budget. Each year you spend more than you make by a significant magnitude. How long will you be able to do that? The United States has been fortunate in that the dollar is CURRENTLY the world’s reserve currency. I capitalize the word currently because I believe that will be changing in the near future and not for the better. Consider that our debt position is worse than Spain and Italy’s yet when you see the news, they are in a much worse position because they can’t print money like the U.S. can. That is about to change. We are already seeing countries like Iran, Russia and China to name a few who are setting up the mechanism to trade without dollars. They see the significant negative impact of the U.S.’s pathetic fiscal policies and are feeling the inflation in their own economies caused by our Federal Reserve’s printing of money. It is interesting to note that despite several trillion dollars of stimulus over the past two years, unemployment remains stuck at the 9% level and economic growth is still in the range deemed to be a recession. All we have to show for this massive amount of government intervention with the printing presses is a dollar that is worth less and prices for food, gas and other essentials escalating at a significant rate.

You should expect to see continued wild gyrations in the stock markets. With every bit of bad news coming from Europe, and there will be a lot of that in the near future, our markets will tank. I am certain that our Federal Reserve will fire up the printing presses again before year end and with that the dollar’s value will start heading down again. Remember my advice from the July blog – consider precious metals (gold and silver) to protect some of your assets. Since I wrote the July blog, the price of gold has gone up 11% while the dollar has declined. Precious metals will have their own ups and downs but the long-term trend will continue to move up as central banks continue to accumulate gold and the individual investors wake up to the fact that their paper money will eventually be worthless.

I want to close with an interesting quote from an Englishman, Alexander Tyler, who in 1787 commented on the new United States experiment as a democracy. He said, “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.” Does this sound familiar????