Dystopian Paradox

Before the fed bailed out Fannie Mae and Freddie Mac this weekend, the national debt was $5 trillion. But Fannie and Freddie have a combined $5 trillion debt. So by the fed taking them into conservatorship, the U.S. National debt doubled in one weekend.

What difference does it make whether you owe $5 trillion or $10 trillion. The fed has the keys to the money printer, so they can payoff anything that comes due that they can’t get refinanced.

So we’re back in business here in the U.S. The dollar has risen from about .73 against the average of other major currencies to over .79 in the last few weeks. That helps knock the price of oil down. We’re riding high. But only for the moment.

Jim Rogers became a household name in financial circles when he along with George Soros started the The Quantum Fund in 1970, a seminal global investment hedge fund that went up 4,200 percent in a decade while the S&P 500 did about 50 percent. In other words, Quantum did about 85 times better than the S&P 500 during a ten year period. When Rogers talks, people listen.

In an interview either yesterday or today, Rogers said all Federal Reserve Chairman Bernanke knows how to do is print money. The politicians aren’t going to pressure him to do something sensible like raise interest rates, because that would be unpopular with the public. Just push the problem into the future and let future politicians and bureaucrats deal with it. It’s like an alcoholic or spenda-holic. Hair of the dog strategy. Keep drinking and keep spending and don’t deal with the real problem now. Just treat the symptoms. Besides, most people don’t understand what’s going on and wouldn’t know how to deal with it if they did.

Rogers says that the U.S. is in a financial decline that may take many years to totally bankrupt the fed, but that’s where we’re head. The U.K. in 1918 was the most powerful country in the world, both financially and militarily. But things started going south. By 1939 the U.K. had exchange controls in place so severe that it was treason to use anything in the U.K. as currency other than the pound sterling. Rogers says the only thing that bailed the U.K. out was the North Sea oil fields beginning in about 1970 that produced a positive balance of trade.

Rogers says we’re going to see more bailouts bigger than the Macs because Bernanke’s single-minded solution is print more money. Buy time.

Just like the only way we can claim victory in a war is to occupy the place and stay there forever, even if the people whom G.W. Bush thinks should be grateful for liberating them aren’t and want us out of there since we’ve made things worse than before we invaded it. Only we can’t stay there forever because we can’t finance the war forever.

Moreover, we’re just trading places with the British who couldn’t hold its empire together which included Iraq. They were bankrupt after WW II.

You gotta read the whole Rogers interview that Money Morning published online today. Lots of good information and not BS you get from the talking heads on msnbc or cnn. The tip in this interview is to get Rogers’ new book A Bull in China. He’s long on China.

We don’t have a huge oil field to bail us out. But what we can do is start pouring private and public money into the development of alternative energy. That improve our balance of trade, strengthen the dollar, and help lead the way in reversing global warming.

All of these issues- financial, international relations, and environmental- are inextricably intertwined. And addressing any one of them in a rational manner results in positive action on the other two. If we start now, there is hope for our future.

Chip Dickey

Ridge Dickey