America the great has 41 million of it's people on food stamps, and 26 million looking for work!

Image by Beverly & Pack via FlickrAmericans everywhere continue to espouse the view that they live in "the greatest country on earth". This is so ingrained in the American psyche that the words are spoken as a matter of fact, without question.  It makes me wonder how the rest of the world views Americans who continue to believe this in the face of a creeping, almost overwhelming sense, that the American century has officially ended.

Are you getting dizzy yet?

Is the air getting thinner up here, or am I just having a "Deja vu" moment after a year of Lehman Brothers, Bear Stearns, Merrill Lynch, AIG, bailouts, GM, Chrysler, Fannie, Freddie, the mortgage crisis, gold spikes, Greece, Portugal, Derivative doldrums, dollar demise, Euro borrow, Volcanoes, sub prime, Fab Fabrice, Bernie madoff and who ever else "made off" !!

Should we feel good about the great earnings reports coming in this quarter, or feel nervous because those earnings may be thin air themselves as bailouts and new accounting rules fudge the real numbers? And what was the problem with those big investment banks....hhmmmm, oh yes, now I remember, the 3 $Trillion or so in poisoned mortgage derivatives those banks somehow do not show on their books any more?  Hmmmm.......Now where oh where did those numbers get to.......must have misplaced them I guess.

Actually, since I have done quite well over the past 12 months, I'm feeling pretty good.  Maybe I'll go to the black jack table again and try my luck, or maybe roulette this time.  No, craps, now that's the ticket.......or maybe......well.......if I took my winnings and put it in the bank for awhile........hmmmm   decisions, decisions!

Hey, who are those guys in the boat?>

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U.S. Dollar headed South - Will it's economy follow?

Image via Wikipedia

On January 13th I noted on this blog that I felt the usd was due for a dive and I pointed out that, because of this, and the fact we are better positioned to ride out the recession than our G20 partners (plus our abundance of commodities) I felt our Canadian Dollar was due for a sharp upward swing.

I also said I had then sold my usd cash into Canadian dollars and predicted it would go to .90 at least.

At that time, the cad was at .79 us and I am glad to report that yesterday it went over the .90 barrier.

That occurred much earlier than I anticipated and Now, to expand on that, I believe it will go to parity by the end of this year.

If you are sitting on u.s. cash holdings because you think it is safe, then think again.

The good ol usd is the most unsafe place to hold value. It is one of the main reasons for the stock rally of late. (and the fact major hedge funds are stocking up on Gold and other precious metals)

Now, if you believe, as I do, (and hedge fund managers obviously do) that a 1.7 $Trillion deficit this year, added directly to a 9 $Trillion national debt in the U.S.A., coupled with the unprecedented government ownership of major banking and industrial companies, will lead to a rapid rate of inflation in America, then you must ask yourself these two questions:

1. What will my Retirefund look like in 3 years time?

2. How can I protect what I still have?

Now, while I am in this pessimistic mood, let me put some more holes in the boat!

1. The U.S. has been suffering the loss of 500,000 to 650,000 jobs per month, for 8 months, with no respite.

2. The jobless rate will (according to U.S. Government numbers) exceed 10.3 percent this year. (and no one is willing to speculate where that number will top out).

3. 30% of home owners in the U.S. now owe more money on their home than it is worth>

4. War in Iraq, War in Afghanistan, and now Pakistan and North Korea are on the edge and the World Health Organization (WHO) is preparing for a possible mutation in the Swine Flu, that will manifest itself this fall.

5. Who will buy more U.S. Government debt, certainly not China, the largest holder of such debt who are now grumbling about the devaluation of those holdings.

6. And finally, What does America still make, that the rest of the world wants?

Ever heard of "Stagflation"?

Now lets sink the boat!

When the American Banking giants released their earnings this spring, and surprised everyone with what appears to be healthy earnings reports, did they include the $Trillions still on their books, of Derivatives ( referred to by pundits as "The toxic assets")
That answer is a resounding "NO"!

What are those assets? Lets draw a very simple analogy shall we?

I own a house in Phoenix, and I wanted to leverage that asset.

After giving me a new mortgage, my bank sold 10% shares in my house to a total of 33 different people and businesses. These shares are supposed to be "Derived" from the initial asset, the house! The Bank then convinces a major insurer to insure these derivative products, for a fee of course.

When hard times hit the owners of these pieces of paper, they try to cash them in at the bank.

Obviously, the bank can't pay 33 people each 10% of that Mortgage and they default to the insurer.

Do you know where the first large bailout payments went! Yes, your U.S. tax dollars!!

The money flowed through AIG, and into the pockets of Barclays Bank in London, and Deutche Bank in Germany.

Over $60 Billion each.

And that was just the first payment!

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Derivatives are in for an overhaul.......It's About time!

President Obama announced yesterday that the Derivatives Market is about to undergo a major overhaul in that these exotic investments will become more transparent by hopefully being (for the most part) listed on Derivatives Exchanges

Since the big banks and Insurance Companies (such as AIG) have written most of these contracts, and since there are potentially $Trillions of dollars in assets that cannot be valued properly, and therefore cannot be cashed by the buyers, affecting the health of the entire global financial system, don't bet that the administration will have an easy time convincing these entities to list their contracts on open exchanges.

Though this transparency may be good for the overall economy, it may not be very good for some big players whose financial future may depend on keeping these contracts from the public eye.

However, if I don't miss my guess, the Obama administration will make these changes, or at least a strong oversight regimen, probably this year.

An Online Derivatives Exchange May be exactly what the doctor ordered, and overdue.

For more info on this subject check out the New York Times Editorial today.

Update June 4-09 New York Times

Update on the Obama Plan July 24th-09 at Breaking Views .

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