The Dollar and California Here We Come!

Dollar Rebounds on Dubai Debt Worries
http://online.wsj.com/article/SB10001424052748703499404574559273731673930.html?mod=djemTMB#articleTabs%3Darticle

Might the current Washington administration be of a similar mind to their Democratic brethren in California?

If so (and why not since California is the home of Pelosi), then what did California do to keep the benefits rolling until this year? Well, for one they kept spending on every item on their social agenda. They also didn't cut back on anything and gladly raised public "union" salaries and benefits to twice the level of those in the private sector (according to a number of articles in the mainstream press; to wit, the retirement income of the Orinda, CA fire chief was reported in June to be $300,000 per year, at a retirement age of 51).

Thus, if California would be an economic model for the current administration, and it appears from their emphasis on "healthcare funding expansion" rather than "healthcare reform", this is the direction they are going.

And, since the administration and Congress appear to pay only the most cursory lip service to deficit reduction (see how they increased the budget in March for their cherished programs).

And, since they believe higher taxes is always a good idea to fund their social welfare (not unlike California), what might we have to look forward to?

1. Let's see? California has lost a bunch of its tax base as the well-to-do and business decided they didn't like paying taxes - i.e. reduced income and jobs.

2. While California has had some difficulty borrowing, Washington has the Federal Reserve's quantitative easing.

It would be nice to see policies in Washington that don't shout out "California here we come!" but, of course, who'll be bailing out Uncle Sam?

Etc., etc., etc. with respect to jobs and inflation and interest rates and American's standard of living!

In light of the above, does it make sense to hold paper dollars or something that can stand up to the shower of cash from quantitative easing?

Will the Fed Stay in Control or Not?

Fed Stands Pat But Shows Its Hand
http://online.barrons.com/article/SB125737428832429223.html


Two potential codicils to Randy might be:

1) While the administration (like the rulers of Argentina) may think that they have stimulative fiscal policies by spending lots of money on consumption, they have EXACTLY THE OPPOSITE fiscal policies on those who produce.

Thus, it is little wonder that the jobless rate is high - because after all, those who want jobs would be producers as well as consumers.

2) In terms of low interest rates and currencies, it is being widely discussed that the foreign central banks that have been purchasing the Treasuries that the Obama Administration is producing like confetti may start to have second thoughts about both the revival of the US economy and the willingness of the government to confront its overspending (note: I'm not saying undertaxing - in fact, just the opposite).

So, while printer Ben may see the need, along with a majority of the prognosticators, to keep rates low in the hope of stimulating the economy, what is going on in the Congress and White House may force a change. Either rates will have to rise to keep attracting foreign lenders; or, rates will rise to crowd out domestic borrowers, sucking capital out of the economy to support social spending.

In light of fiscal breaks on production and the open spending spigot of the administration, the possibility of a much more severe economic downturn with high interest rates, high taxes and high joblessness doesn't seem terribly remote.