US Government is Irreparably Beholden to Lenders, Speculators and Imprudent Borrowers: Lookout Below

Well that unhappy time has come. This is when the rubber meets the road. Our government is facing a financial crises that has been long in the making. Institutions including Banks, Mortgage companies, and Financial firms together with individual speculators and imprudent borrowers have been acting, for years now, with irresponsible financial abandon. The US Government is Irreparably Beholden to Lenders, Speculators and Imprudent

Borrowers. The government makes commitments that taxpayers must shoulder.

What does the future hold?

In the absence of a credible crystal ball there are several "TELL" signals ( revealing behaviors of individuals or government agencies which are truer than the words they bandy about) and if correctly interpreted give guidance on what is likely to happen with the economy in the near term future.

Tell signal one : When a whole slew of government officials assure you that everything is alright and there is no reason for panic yet they get together on a sunday to patch together a plan to refinance government or private mortgage and banking firms you can be sure it is they who are worried.

Tell signal two : When the solutions they come up with to address problems that developed because of excess credit creation require the creation of additional excess credit, you can be sure the problems are not likely to permanently improve.

Tell signal three: Bailouts by the Treasury and/or the Federal Reserve reveal a definitive preference by government for higher inflation and a weakened US dollar in an attempt to prevent a substantial slowing of the economy. That preference or bias has long historical roots, interrupted only when Paul Volcker raised interest rates in the 80s and beat back inflation stemming from the inflationary forces in the 70s.

Tell signal four: If history is any guide when inflation gets so high it's scary and the dollar falls so low nobody wants to hold onto it, our feckless leaders will embark on a course correction and raise interest rates until they have defeated inflation.

That brings us back to the original question. What does the future hold?

A punishing stagflation ( escalating inflation and slow growth) followed by a painful deflation (a period in which demand for goods and services spirals down). Financial survival strategies for each are very different and timing the changeover from the one to the other is a highly inexact science, because it involves both numerical analysis and group psychology.