Barack Obama has admitted what everyone knows: America is out of money. Over the weekend, an interviewer asked him, "You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?"
"Well, we are out of money now," Obama said. It's kind of shocking to hear a politician be so direct. Surely it must have been a slip up. But the man is right. America, along with Britain, is financing a hodge-podge of corporate welfare and classic handouts with deficit spending, otherwise known as borrowing.
If they can't borrow the money-which is getting more and more expensive as interest rates rise and investors fret about sovereign credit quality-they will print it. What happens when "quantitative easing" is expanded on a greater scale is anyone's guess. We'll have more on that tomorrow.
Dan Denning
for The Daily Reckoning Australia
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Related Articles:
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- Obama: One of the Great Men of History?
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Lachlan on 25 May 2009:
Deflationary depression came first, now QE then hyperinflationary depression then new currency. Using one event to justify the following action. The fallout from that action is used to justify the next action. So its not suprising at all that Obama is being so honest....now it seems to be too late.
Comment by Dan on 25 May 2009:
It would have been more amusing if Obama had said "Gaaaaack! We're broke! We're all freakin' doomed!" and then jumped out of the office block window. That's what people tend to do when they care about being broke.
But the fact he is not doing that is, in a way, the dog that did not bark. It seems he's just making sure the US economy is a proper train wreck, so that whatever eventuates thereafter definitely happens. I have no idea what that could be, however.
Comment by Biker Pete on 25 May 2009:
He was dealt a lousy hand, Dan. While Clinton launched the debacle, The Bushes oversaw a longer period of ruinous economic policy. I agree that Obama has done little to address the true position, but can you imagine George W ever making a bottom-line admission (We're broke!) like Obama has? Time will tell... .
Comment by Coffee Addict on 26 May 2009:
"All the King's horses and all the King's men couldn't put Humpty together again." ... well if I were in Obama's position couldn't fix it either ... though I'm yet to reach a conclusion on what Obama's actual long term policies are (other than to stay in office for at least one term).
Yeah ... Obama is accountable for accellerating the Bush stimulous policies, thereby making this crisis worse. I think that is Dan's point.
I don't actually blame any of the US Presidents for the reality of economic cycles or indeed for responding to economic crises in populist ways. In this sort of context, J.S Mill once said the people elect what they deserve. We were all greedy, many of us lived high on the hog and most of us are both responsible and accountable for the consequences.
At the risk of sounding like a broken record, I believe that most of the debt will be inflated away at the expense of the the creditors. As Dan say's in his Firing Squid blog - $9000/oz gold will not necessarily mean any intrinsic increase in the value of the metal. A 20% inflation rate will get gold to $9000/oz in about 12 and a half years.
Well at least Obama is in a position from which he can slip out the truth from time to time. When poor old Wayne Swan was giving his media briefing on the Federal Budget he appeared (to me) as one step away from crying his heart out. I guess that he deeply wanted to tell the truth but couldn't and the shame was getting to him.
Comment by hal on 26 May 2009:
I’ll tell you what, this holiday weekend news continues to raise my cause of concern for the country.
I’ve been tracking the price of gold with the widget http://www.learcapital.com/exactprice and it’s been interesting to watch the price of gold rise in the May when typically it doesn’t. And now I’m wondering just what’s going to happen to the price tomorrow at the opening of the markets with this news from the President?
More or less he’s basically said the dollar is worthless. That's sent a striking message to all those holding US debt.
Tomorrow is going to be one interesting ride.
Comment by Ross on 26 May 2009:
CA, your characterisation of the political process and having it following populist responses is on the money. But when everybody is on the money and it is already in the wheelbarrows look out. it is like Weimar except Joe citizen hasn't seen it yet because its either all being debt sourced (on the never until someone calls foul on treasuries) and dumped into balance sheets and/or half still sits in the off balance sheet vehicles not booked by the insolvent banks and the long overdue FASB regulation doesn't start til 1/10.
When it tips over into the real world Bernanke says he can reel it all back in by shutting down the mass of short term paper he issued. Yeh right ... like a politician is going to allow him to put it into a wall at 100mph.
I agree too with the characterisation of Swann except that it is the public servants and not the politicians that are behind it. The Australian politicians of both sides are aware they are in a face off with the public service on accountability. So far the public service pussies are still fronting them as tough guys and threatening to take down either side of politics based on the past policy malaises that these public servants themselves pretend that they were not complicit in. These same in their balllooned out departments funded by ticket clipping debt fueled consumption racketeeering.
Comment by Lachlan on 26 May 2009:
Gidday Hal.
I a gold watcher also. For extra infusion of fun/terror I'm watching the USD fall off a cliff too. Things got pretty critical early last week as this inverse relationship cranked up a gear or three. I've put my bets on gold amongst other things but to actually see this happening for real just blows me away. Maybe there are many negative elements in the US but theres a lot of really nice people living there too. I hope the fallout from this doesnt get too nasty.
Comment by Hal on 27 May 2009:
Well, the fallout I was thinking would show in the DOW today didn't happen at open. Gold actually lost a few dollars and the DOW rallied up right now something like 2%. Seems the consumer confidence report for may is taking things up. And it's like the news of the President's comments were buried.
I certainly don't want our country to fail but I'm getting real nervous by the moves away from freedom I'm seeing in our country by the enslavement via finance and debt that our government seems to have it's hands all over.
Comment by Lachlan on 27 May 2009:
Im certain golds in a major leg up and the USD falling away. I think DR was eluding to this a little while back with their USD/Fork In The Road thing. Im no tech expert but the analyses I use shows that we'll probably look back at this USD chart soon and see a double top confirmed. Still, what a sterling performance by the Dow. All this volatility just proves how many tummy aches the system truly has.
As for Australia. Youd think our commodity dollar could benefit enormously from all this USD fallout. It remains to be seen just by how much the governments Swann dive into red ink can ward off the lucky countries luck.
Comment by Greg Atkinson on 27 May 2009:
I think the USD is already pretty weak especially if you look at it compared to say the JPY. In any case we need to remember that the $AUD is actually gaining strength now that markets are factoring in that commodities demand is still around. (Although the miners are having to give up their over-the-top 2008 prices) Of course if the RBA cuts rates again then this will push the $AUD down for a while.
As for gold I just do not see what the attraction is at these prices. Sure it might go up a bit but I reckon oil is a better long term play. Anyway let's see what does best in the next 12 months, gold in $AUD or say BHP stocks?