I have long had an interest in studying macroeconomics since a good grasp of them is key to understanding why the movements and trends we see in financial markets occur. As many others have discovered in their research of economics that politics and economics are inseparable. Especially in a nation which seeks to control its economy through government edicts.

Unfortunately this is the case in 21st century America and a prime example of it is the American Housing Rescue and Foreclosure Prevention Act of 2008 (H.R. 3221) which Congress used as a band aid for a housing market which is bleeding to death. This abomination which was in part spurned by public pressure for the government to “do something” to fix the problem they created in the first place. Originally bestowed upon us by Franklin Roosevelt as part of the New Deal Fannie Mae has lead the way for the housing crisis we are experiencing today. This fascist GSE (Government Sponsored Enterprise) is privately owned but state controlled (the definition of fascist ownership) so that the investors reap the rewards and the taxpayers cover the losses. As a result, Fannie Mae and Freddie Mac which would both be out of business without the taxpayer bailouts own or back about half of the $12 trillion in U.S. mortgage debt. Indymac who worked in concert with Fanny and Freddy has already collapsed. Obviously the accumulation of risky loans by these behemoths which are bankrupt has lead to market instability.

So what was the solution enacted by Congress? Create a new government agency the FHFA which answers to the privately owned Federal Reserve to oversee the GSEs in question. This gives more power to the elitist bankers who already rule Washington by funding the Federal government’s socialist programs and of course the campaigns of all the most influential politicians. It gets worse, in addition to the new powers given to the Fed, treasury secretary Paulson was given a green light to loan as much money as he wants to Freddie and Fannie for the next 18 months out of the public treasury. If this is such a good idea why doesn’t the fabulously wealthy Hank Paulson loan them the money himself? Keep in mind our treasury already owed $9.8 trillion dollars to its creditors prior to this stunt and now is well over the $10 trillion mark as a result of this bill. So in essence what we have done is loan money that we don’t have to a failed enterprise. Anyone who studies economics as I do realizes how monumentally foolish this is. In addition $300,000,000,000 ($300 billion) has been set aside for FHA loan guarantees for all those subprime loans that the bankers are eager to unload on someone. The subprime mortgages in risk of foreclosure will be converted to low fix rate mortgages and the risks associated will be absorbed by the government. Meanwhile the banks get to write off every one of these mortgages as a loss (even if it is not) and will have further responsibility for these bad loans. On top of all that money has been allocated to the states to buy up abandoned and foreclosed properties. The home builders who are on their last legs will be sure to benefit from this and of course government’s position is strengthened as well due to the increase in land ownership. What really takes the cake is the provision of this new law to report ALL debit and credit card transactions to the IRS going forward. This is just one more step towards the total control and oversight off all financial transactions of American citizens. Of course when you need to stick a sucker (you) with the bill you have to make sure the sucker can pay it. 

This is clearly the action of a socialist government apparatus which seeks to manipulate its economy (always with bad results) which is why I point it out to you. This communist style economic control has a direct effect of the value of our free floating currency. It also has a direct effect on the overall health of the U.S. economy since it takes money out of the hands of the individual who would otherwise put it to better use in the private sector. It is precisely these socialist programs which harm America’s economy and which have created the bubble which is busting. What is really frustrating is the apparent blind faith in the government displayed by our citizenry and even the financial markets. The dollar has rallied nicely since the enactment of this monstrous band aid legislation. I can assure you however that ultimately the value of the dollar will decline as a result of this detrimental bill. If this country operated in the same fashion of France which just keeps raising taxes until their deficits are funded this bill would never pass. Because we live in America where the Federal Reserve is happy to give us all the credit we want so that we can pay interest to them by way of the Federal Income tax we foot the bill for the reckless actions of U.S. banks (the same banks who own the Federal Reserve) and citizens instead of letting those responsible suffer the consequences. We add $800 billion more to our deficit with ONE BILL in Congress and those who championed it are proclaimed heroes instead of traitors. At current tax levels we can’t even afford to make the minimum payments on the debts we already owe. We have trillion dollar deficits owed to the likes of the friendly communist Chinese regime which has killed more than any other in history and the friendly Federal Reserve bankers who have counterfeited our currency for almost 100 years.

Why should we care though? After all it is our sons and daughters and their children who will suffer the consequences, or so we would like to believe. If that is the best case scenario then it is clear drastic change must occur now. If the sinking ship which is the United States is to survive as a free nation we need to start holding people accountable for their actions today. The intergenerational tyranny we are subjecting our offspring too is unacceptable. The real question is as Warren Buffet suggested in 2005 at what point does China or the Federal Reserve demand land or other resources in payment of this debt? What kind of slavery and abject poverty will are children be subjected too?  All we are doing with this housing bill and others like it is delaying the inevitable and making sure things will be worse when the reckoning finally does come.

When all this is considered, it becomes obvious to see why the dollar has crashed and why it is impossible for our economy to ever improve fundamentally while business as usual continues in Washington. While this bill and other stunts to prop up our economy until the elections are over may boost the dollar don’t expect it to stay strong for long as long as this nonsense continues.

The taxpayers of the United States had to shell out around $862 million to bail out a traditional bank through the FDIC insurance program. I guess in the overall scheme of things it does not really matter in a small way because the Fed can just print more money and loan it to the Federal Government to pay for it. In a big way though it shows exactly what is wrong with U.S. government’s monetary policy and their abandonment of sound money. That coupled with unsound banking lead to the recent events. The good news is we can trade FX and short the dollar to profit. Just like the banks did who are responsible for the whole situation. The bad news is there are large a chance of a very hard landing for the U.S. economy to say the least.

If you look at the long term charts it’s clear we are headed back to the dollar being as weak as it was in the seventies and worse. Obviously make money for your families while you can but make sure you buy some Liberty dollars and request the coins or buy gold contracts and take delivery.  Because in the end that is the only thing that can save you from a currency collapse taking all your money. It is really only a matter of time.

Big surprise, the fed decided to leave rates unchanged. In their statement the fed pointed to higher retail sales as evidence of health in the economy. However this is not significant when you realize that these figures count the sales from gas stations and groceries. It is appalling to me that they did not raise rates because of the inflation that is occurring due to the weak dollar and artificially low interest rates in large part. On the other hand they know just how close the entire financial system is to falling flat on it’s face so they dare not hike rates. After all if you were a struggling bank (which is what the Fed is comprised of) and you had to choose between cheap loans to yourself and higher inflation I am sure you would pick the loans too. Obviously we are entering a period of stagflation in the United States which will probably make the late 1970s look like a walk in the park.  Especially considering that we still have a war going on and government contractors taking the taxpayer to the cleaners. A war that the pea brains in Washington want to expand further by attacking Iran. needless to say with the Fed letting us down and our politicians doing the same I am still bearish on the dollar. The stock market bounced after traveling within 15 points of the March low and was looking desperately for a rate cut from the fed to save it. The 200 day moving average comes in at 11709 on the weekly chart as well so it is a level the market will respect the pattern completion and moving average for a while. It may even attempt a feeble rally before it plummets based solely on technical trading.

It has been a very interesting week with the dollar gaining ground as inflation is growing and oil is remaining at all time high prices. Bernake recently admitted that the high price of oil is due to the meddling of the Fed and their week dollar policy. It appears that the markets expect him to reverse course and start raising rates again to counteract his previous blunders. Let us hope it is not idle talk and that he will follow through with it now that the Fed has bailed out it’s member banks. Meanwhile the Japanese decided to hold rates steady and forecast “slowing growth” in their economy. No doubt due to the recession in the U.S. and it’s implications to exporters like Japan. I am sure the Japs are happy to see the yen backing off today after their meeting and somewhat gloomy forecast. They do cite inflationary pressures but it does not look like they are poised to raise rates anytime soon to curtail it. Especially when doing so would cause the yen to appreciate and they are not comfortable with that scenario. No doubt they are counting on the Fed to raise rates and thereby ease Japanese inflation because oil is being sold only in dollars outside of Iran, who began accepting the yen and the euro at the end of April. No wonder so many people in Washington want to invade them now.  It seems that the BOJ is betting on raising rates so they won’t have too. Higher rates in the U.S would ostensibly solve two problems for the Japanese, increase the purchasing power of the dollar, and decrease the  cost of food and fuel which is priced in dollars. That is of course assuming that the dollar actually rallies if and when the Fed raises rates. Of course the Japanese who have a notoriously weak currency despite being the number two economy in the world have shown they are not afraid of a little inflation. In fact over the years they have proven quite happy to devalue their currency in an effort to give themselves an unfair trade advantage over western rivals. We all know we are already at their mercy should Japan and China decide to unload all the dollars they have stockpiled one day and bring the U.S. to it’s knees. Who knows, maybe that’s what the Amero proponents are counting on.

It was good to see Bernake admitting the Fed is at least partly to blame for the fiasco that they also of course “solved” in his speech today. It was laughable when he mentioned that low cost imports helped make the Fed’s job of containing inflation easier. The plan to solve the problem they created includes additional regulation, additional money creation to bail out banks investment firms, interest rate cuts which cause inflation and last but not least “close attention to the foreign exchange markets” to ensure that our currency remains valuable enough to buy junk from the Chinese at low prices and thereby do the Fed’s job and keep inflation low. I really don’t think that any of these measures will solve the problem, since the problem is the Fed itself.  Well at least we know why the dollar went up today, the Fed said they would wave a magic wand and stabilize it.

Sorry for the long delay between posts, I admit that I have not made this blog a priority. Hopefully you have made use of the technical analysis now available on the site if nothing else in the interim. I am not surprised to see the stock market down in the dumps again after it’s double top formation last month. It bounced of Fibonacci support today which comes in at 12347 and this seems to be the only thing keeping it afloat at the moment. Certainly the exuberance affected by the Fed with their bail outs has worn off at this point and reality is sinking in again. With oil at $125 a barrel and companies reporting huge losses it is easy to understand why. Gold has been sold off big time on it’s rallies but keeps creeping up to be dumped once again, and looks like it will stagnate for a while in this pattern. In any case get used to gold at $800 an ounce or more for a long time to come.

Turning to currencies, Aussie GDP is coming out in a few hours and should give a good idea of the situation down under. With a whimpy .3% growth forecast for the measured quarter it will be hard to come in below that figure and I suspect that if there is any deviation it will be to the upside. Although this pair is on a downward bias today it is unlikely to break $.95 tonight unless the number is really terrible as $.95 is a strong support level. Although if it does it should be a very strong move pushing AUD/USD down to $.93 before you know it. Both AUD/USD and NZD/USD popped up last month, stalled out and have started to reverse. Any dovish wording in tomorrow’s RBNZ statement will only serve to fuel the decline which I am sure suits the RBNZ just fine.

As for the dollar in general it looks like it has finally found some support and earned some respect in general. Perhaps bears are just waiting for it to pop up a little bit more before selling it off to new lows. It probably wont be long now before the Fed intervenes again and sends into the abyss. Maybe they are just baiting in the suckers to buy the dollar before they do so. We all know that the Fed is owned by the banks who trade Forex so it  is a logical conclusion. Let’s hope for the cost of food and energy’s sake that they cease their meddling sometime soon.

Another day another all time high for oil. The UK and ECB continued to keep rates on hold which may have contributed to higher commodity prices today since the currencies of major oil importers went up. Europe and Japan are forced to buy in dollars and there currencies went up against the dollar so if oil were to stay the smae price then it is actually cheaper for them. Hence when it goes up a little oil is just keeping pace with the currency of some of it’s best customers. Of course oil is not going up just a little and all this violence in Beirut is not helping to cool off the already red hot oil market but I was just pointing out yet another reason why oil is gushing right off the chart. Surely gold is benefiting also from this turmoil in the mid east and skyrocketing crude as well.  The Dow is resting at support  right now,  support which has held for the  last  two weeks but I think it is finally ready to crack it.  Just like GBP/JPY looks like it is ready to crack it’s support which  is being tested for the fifth time today  right now.

The pound is correcting sharply after hovering around $2 with no good reason for a very long time. Sure rates are higher now in England but recently they were not and many of the same problems America faces are shared by our cousins overseas.  Now that key support of $1.9650 was cracked this morning it is quite possible to see this pair head towards $191.50. GBP/JPY is also on the ropes and the falling stock market coupled with the bad news from England are helping drive the pair lower. US data came out just as bad as expected with pending home sales sliding another 1% last month. Although the dollar is gaining against the overvalued pound it is weakening against the undervalued yen. The carry trade is unwinding today and stocks are falling also. The same correlation we saw last summer is still intact.

Today’s strong non manufacturing ISM took the market by surprise but the dollar could not hold onto the gains it made on this market shocker. This gives some good insight into the mentality of the market and the dollar bid tone at the moment in it. The market tends to move in weekly not daily waves since there really is only one close to the market, Friday at 5 pm. So naturally that is when many people exit their positions and when the market reopens many of these same people place positions on the opposite side of the market. Certainly big money traders at banks and other places operate this way. They have to much money to receive high leverage so for them to see a 3% return on their trades they must make 3 pennies in the market. This often takes a week to do on one trade and since they have no leverage they are not panicky and getting stopped out or margin called like the rest of us. Thus the mentality of a swing trader is buy it on Monday sell it on Friday. Obviously the weak hand will be shaken out of the market and the strong will survive the daily whip saw action until Friday when they cash out. I am not saying everyone who has real money puts trades on Sunday or Monday and holds them to Friday, I am simply saying enough people do it to make it  predictable. So this week it looks like the dollar is  being sold. After the rally last week it makes perfect sense to me and certainly gold is steadily climbing which indicates this to be the case.

The dollar did rally as I figured it would after breaching yesterday’s key inflation figure, breaching the key 2% level. The dollar was already up on the morning and this helped propel it further.  Today’s  employment report  showed that  another 20,000 jobs have been slashed but this was considered to be “good” by the markets who were expecting much worse news. So the dollar continued it’s rally today however it sputtered and stalled at 10 am when factory orders came out. The number was good but the market figured the dollar had already appreciated enough this week and began to sell off. It was sold at noon and just now prior to 1 pm as European players dumped it and got out for the weekend. I don’t think it will do much for the rest of the day. Hopefully you already made your money today and don’t need to try to force a trade now in this quiet market.

I suspect we could see the dollar sell off next week. The same people who bought the dollar today will likely be selling it next week. Especially if the non manufacturing ISM comes out weak again.