Monday, April 6, 2009

When Will Obama Go To War

 "History does not repeat itself but it does Rhyme"

Mark Twain

 Barack Hussein Obama and his administration along with the "Great Depression" historian and Federal Reserve Chairman Ben Bernanke are repeating almost every move executed by Franklin Delano Roosevelt during the 1930's "New Deal."  This can be seen right down to the wording of their speeches and the "fireside chats" replaced by the "town meetings" to boost the "feel good" factor.

 "The only thing we have to fear is fear itself"

FDR Inauguration speech.


"On this day, we gather because we have chosen hope over fear"

Barack Hussein Obama Inauguration speech 2009


However as we enter the "greatest" depression ever in US history (see my article of September 11th 2007 and face what could be the end of the American Era of Global Dominance; history teaches us that the $3.5 Trillion will not be enough just as the $2.5Bn wasn't enough in 1932. The incredibly job building programs of public infrastructure that Barack Hussein Obama proposes, mimicking  the 1935 public works will not be enough and the 1.5m that became homeless during the 1930's will likely and sadly repeat itself. Foreclosures are headed towards an all time high and bank lending is tightening whilst fear runs rampant throughout main street America where job security is non existent. Henry Paulson replicated the FDR bank holiday and cash injection on October 14th 2008 with some $250Bn invested in the banks in an attempt to prevent the homelessness if not the rush on banks. This didn't occur as he raised the FDIC limits to $250,000 much as FDR brought the FDIC into being to prevent or mitigate the rush in the late 1920's and early 1930's. Timothy Geitner has proposed the Public-Private Investment Program to further try to avoid the mass foreclosures  but America's consumers are overleveraged as are our businesses. Spending grew out of control and the checks and balances of the economy are attempting to right the sinking ship.

Foreclosures are Inevitable

People do not earn enough to meet a three and a half time ratio for earnings unless house prices return to realistic levels. The only way to achieve this is for them to be foreclosed upon and resold. This was seen with the penny auctions in the 30's. Rents must return to being fairly close to the mortgage payment, this is, in my opinion, the essential fair value of a property and the yardstick I have always invested by. Seeing as earning cannot support higher rents then this is another reason for the overheated property market to reset. Hold off your buying for at least another 12-18 months while the government and banks realize that this is inevitable and must be done. Banks must realize and actualize their losses or the government must assume and actualize these losses through the Public-Private Investment Program.  

Suicide and the Reality of Returns

Lets hope that suicides do not once again reach their height of 18 per 100,000 as during the 1930's although the high profile suicide of Rene-Thierry Magon de la Villehuchet who lost in the region of $1.3Bn with Bernard Madoff does not bode well. Bernard Madoff exposed the weaknesses and cracks in the system which cozy's up to insiders as his scheme grew to such levels that it collapsed under its own weight and demands for injections of new cash; much like Charles Ponzi's Scheme did in 1920. Harry Marcopoulos was ignored as were many others who explained that some things were too good to be true and the basic rules of math's and economics do not and cannot be changed. Greed, Euphoria and the desire to "keep up with the Jones's" kept people investing speculatively and chasing the dream of rags to riches/ overnight successes and quick millions. Even now diner tables are still filled with people talking of the one deal they invested in where they got high returns etc and ignore and gloss over all the others they lost on. The average investor doesn't achieve more than 5-6% per annum if the truth be known although to hear them talk you would think you are missing out all the time and they are raking in 15-20%. 

Why Obama May Choose War

World War II resulted in the US government expending $500Bn and it still took till 1943 to restore employment (with a significant decrease in the male population) and till the late 40's-early 50's for the stock market to return to its pre 1929 high. This in modern money would be government war expenditure of in excess of $10 Trillion and probably closer to $20-30 Trillion in real terms. History teaches us this is the kind of figure necessary in simpler time with a less complex and interwoven global economy. 

"These are the indicators of crisis, subject to data and statistics. Less measurable, but no less profound, is a sapping of confidence across our land; a nagging fear that America's decline is inevitable, that the next generation must lower its sights." Barack Hussein Obama Inauguration speech 2009

In Conclusion

Don't lower your sights, just remember that no one gets rich over night, there are years and normally decades of hard work that lead up to "overnight" success. Slow and steady growth of investments from savings put away on a weekly or monthly basis is what built the middle class and will rebuild it again. Solid cash flowing businesses that produce essential products and utilities will always be in demand and will provide constant dividends that if reinvested will far outperform equity value growth over decades. Think long term, the Chinese and Japanese are and they are the societies most likely to take the lead in growth and power over the next Era which I like to think of as the "Asian Era." This doesn't mean that one should discount Europe which will always be a solid performer or America, just don't expect to see the kind of dominance and world leadership that has been witnessed over the last 100 plus years.

Copyright Jonathan Rose 2009 - Creative Commons License

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