Digging Holes

Before Bush came to office, cutting budgets normally meant cutting planned budget increases. There was the odd pork cut, like the mohair goat subsidy that was eliminated entirely. But for the most part, programs seen as essential for the domestic well being of the country normally didn’t see actual budget cutbacks.

Since Bush has entered office and costs of goods and services have continued to rise to match the free wheeling Fed policies, budgets for domestic services have been cut, while budgets for foreign policy and security programs have seen an unending series of budget increases.

At this time, it appears that this trend is going to continue and accelerate.

Right now, the value of the US dollar is under fire. Under Greenspan, the virtual printing presses were running wide open. After the recession that began in May 2001, the Fed dropped interest rates to ridiculously low levels and flooding the international market with dollars. If you look at the chart at the top of the page, you can see how the US government has gone on an unprecedented spending spree, freely borrowing and spending money like there’s no tomorrow. Other nations have taken notice.

Japan and China are both making measures to reduce their dollar holdings. Iraq attempted to do the same and begin using Euros and their trading currency instead of dollars. That experiment was short lived. The US invaded and removed Saddam from power soon after he took that action. Now Iran has removed their money from the European banking system and is steadily exchanging dollars for Euros. In March, Iran plans to quit accepting dollars as legal currency for oil and require Euros instead.

This is not about which currency oil is priced in, this is about what currency you need to provide to buy oil. As the dollar is losing strength against the Euro, exchanging dollars for Euros to buy oil, means that not only does the price of oil rise in dollar denominated pricing, but its costs are also felt in fees for currency exchanges and time lags in making the exchange.

If oil is sold in Euros, then the best currency to hold in order to meet expected order for oil is Euros. This means that those buying oil, will be encouraged to trade in Euros and may take a hit if they in turn accept payments in dollars. The shift will come up the line with international corporations encouraged to divest dollars and keep their accounts in Euros. This means that the international banking system will be responsible for holding dollars, instead of corporations and nations and will incur losses when the dollar slips further in value. They will attempt to move the risk back, to US entities that will see an increase in the rate of dollar devaluation. The more nations we see selling oil denominated in Euros, the more risk will be moved upstream, back to the US Government to cover losses, currently covered by China, Japan, Saudi Arabia, Iran and others. Eventually the value of the dollar will rest on the actual industrial output of the US which sees exports at one quarter of its imports. The US will be forced to either control the rate at which the dollar inflates, or find itself unable to purchase foreign goods.

The Republican lead US Government, shows no sign that they wish to reign in spending or change economic policies to repair this deteriorating situation. Instead, the White House is working to further inflame Middle East tensions and is pushing Iran. Iran knows they are in Washington’s gun sights and they know that if they don’t escalate their arsenal, they’ll become another Iraq. They also know that adding nukes to their arsenal, they’ll likely be turned into another Iraq. The White House is following the same course it did against Iraq and this sends a clear message that war with Iran is a done deal. So from Iran’s point of view, war is imminent, so they must prepare for the fight. Preparing for war, means getting working their nuclear weapons working. And if they do have nukes, and the US does start bombing them, then we can be sure they’ll detonate those nukes somewhere. At this time we can’t even be sure that the Russians haven’t already provided them

If the US does not go to war with Iran, then Iran will lead the way in devaluing the US dollar. Other nations will see the wisdom in getting ahead of the trend and the rush will be on. If the US does go to war with Iran, then oil shipments out the gulf will be dramatically reduced and the world will be plunged into a deep recession/depression. Perhaps the US is simply looking at this as a Mutually Assured Destruction scenario? If so, go against Iran (a nation that’s much more used to war and sacrifice than the US), expecting them to back down, isn’t very smart.

I think whatever plan is in the works, has some intelligence behind it. I believe that the White House and friends know the situation is no irreparable, so they’re just taking what they can before it all burns down. I would think there’s a good chance that Bush and Cheney both have large holdings in Euros.

So the stripping of funding on education, Medicare, Medicaid, Amtrak and probably countless other useful programs will continue and accelerate. This will lead to civil unrest, so funding to support Homeland security is of course, without bounds.

The purpose appears to be to ready the nation for war. It’s to give the people a choice of starving in the dark or taking a bullet in the ME. And it will creep upon us in little pieces, in little bites. They know they can’t do it to us all at once.

The year of 2006 is expected to see the first major natural gas shortages. With that will of course come price gouging. So the people will be diverted to being angry, not with the government for bad policy, but at bad people who are exploiting the situation. Of course, our leaders have known all along that the US is running out natural gas, that’s why they created subsidy programs to pay corporations to move their operations overseas.

Enjoy the show.