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Debt, debt, everywhere

Richard Russell (BIG snippet)
Dow Theory Letters
Apr 2, 2009

April 1, 2009 Debt, debt, everywhere, and nobody knows how to fix it.

Check this out. The US national debt is now 11.03 trillion. In case you forgot, a trillion is a thousand billion. One year ago the national debt was 9.383 trillion. That means that during the last year we've added 1.652 trillion dollars to the US national debt. Interest must be paid on the debt. We are now COMPOUNDING the national debt at a terrifying, unsustainable rate. As I see it, we are compounding ourselves into national bankruptcy. That or we are in the process of destroying our beloved dollar.

On top of the above, it now requires six dollars of debt to produce one dollar of Gross Domestic Product. But despite our growing debt, our GDP is actually declining. This is tantamount to running up the down escalator. In the end, faith in the dollar must collapse. The dollar, the world's reserve currency, is our "secret weapon." We need materials and goods from overseas. Easy, we can print the dollars to pay for those materials, and our kindly overseas creditors accept our "home-made" dollars in payment. It's a great racket. And it will continue to be -- as long as the dollar is accepted as safe and fair payment. But I have to wonder, how long can this go on? Not forever, in my thinking..

Today I read this in the Financial Times, "China and Argentina in Currency Swap."

"China, which is pushing to end the dominance of the dollar as a worldwide reserve, has agreed to a renminbi 70 billion ($10.24bn) currency swap with Argentina that will allow it to receive renminbi instead of dollars for its exports to the Latin American country.

"Beijing has signed $95 billion of deals since December with Malaysia, South Korea, Hong Kong, Belarus, Indonesia and, now, Argentina in an attempt to unblock trade financing that has been severely curtailed by the crisis."

Russell Comment -- China doesn't want a lot more of the US dollars, and would prefer to deal with other currencies.

And I ask myself, could this be the beginning of the battle to take away the reserve status of the dollar?


March 31 (Bloomberg) -- The World Bank and OECD warned surging unemployment may inflict another blow on the global economy as they cut their economic outlooks for emerging and rich nations.

The Organization for Economic Cooperation and Development said in Paris that the economy of its 30 members will contract 4.3 percent this year and predicted unemployment in the Group of Seven will reach 36 million late next year. The World Bank lowered its growth forecast for developing countries this year by more than half to 2.1 percent and President Robert Zoellick expressed concern of a looming "unemployment crisis."

Russell Comment -- I've been saying all along that the biggest dangers will be massive unemployment and the need for most people for INCOME. Stocks provide little income along with risk, money markets and Treasuries provide skimpy incomes, bonds are shaky and safe bonds provide little in the way of income.

Common sense -- the greater the unemployment, the less the national income. The Obama organization has picked the worst possible avenue to increase income to the government -- "Tax the Rich."

Question -- OK, Russell, you're such a wise-ass. What would you do?

Answer -- I wouldn't do a damn thing. Let the bear market do what it's supposed to do -- clean up the economy. Let those who screwed up go bankrupt. Don't keep the sick corporations in business while their CEOs roll in clover. If the CEO of a bank was idiotic enough to load his bank up to the hilt with toxic bonds that he knew nothing about, let his bank go under and get rid of the CEO, don't give the screw-up a fat bonus.

As for GM, they've been "out of it" for years. Let them go bankrupt and turn 'em over to the bankruptcy courts. Why keep them alive? They're the "walking dead" already.

So why is the government spending all these trillions in an attempt to keep the corpses alive?

Answer -- the politicians have to appear to be doing something. The pols know absolutely nothing about economics. If they did, they'd get rid of the Fed tomorrow. "yeah, I'm from the government and I'm here to help you." Do us a favor, don't do us any favors.

My recommendation -- get the government out of our hair and out of the economy. The government at this time is our worst enemy. You cannot spend yourself out of a depression -- even if you're willing to go broke trying to do it.


Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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