Waterbury Financial Strategies Inc CEO / Founder Rahim Thawer post this week “Federal Deficits keeps soaring and prolongs Recession”
As the Federal Deficits soar, it puts our economy in a perplexing position amongst the foreign investors who are holding these notes and are reluctant to offer any further resources regardless of zero default by the federal government. The question they face with, whether the US can service its debt not to mention the ticking time bombs, the Medicare and Social Security. The federal revenues also keep declining based on a various external factors such as loss of jobs which restricts the consumers to spend money which in return lowers the sales tax. There is also a formidable struggle for the local businesses as the bankruptcy filings have gone up to almost 62% reflecting 55,000 business filings.
The small businesses account for 70% of the employment and we don’t see any funds allocated in the stimulus package. Well, if you studied economics you would know that there are two distinct possibilities for the government to pull out of this recession. First, the government increases taxes through which they can increase their revenues to recoup and offset all that spending. Even with that being said, this would be a challenge simply due to the nature of the current financial system being in a chaos. A number of businesses are already paying taxes in excess of 50% when combined with federal employment tax, social security, state taxes, federal, sales tax, etc.
Second option for controlling the recession would be by simply printing money as the gold standards are not applicable. This will simply create inflation and also raise the prices and devalue the dollar. Based on the current rate that the Federal Reserve is printing money, we will see a huge drop in the dollar valuation in the upcoming 12-18 months. This would perhaps be the most favorable option for them due to simple economics. When you are in inflation, the dollar is devalued and the prices go up. Once the dollar is devalued, the government collects more money quickly. However this is also a very risky game especially for foreign investors. Not only we will be in inflation but the Federal Reserve will need to pull all that money back, so we are caught in a catch 22. After all, we do not want to end up like Zimbabwe with inflation rising exponentially.
This is perhaps the very reason why the foreign investors are concerned with the current state of the US Economy and not knowing which way the current administration is going to turn to overcome this recession. We are already seeing the government burdening the new generation with exorbitant debt and obligations, what is going to be next? The Chinese have been proposing of an idea to use a global currency system to replace the dollar. If that happens, not only are we going to lose the upper hand in the global arena but also in the Oil trading platforms and currency. We just took a back seat this week based on a report out of Geneva, Switzerland that American is now the 2nd most competitive economy in the world after Switzerland.
My Thoughts: Make wise investments and possibly diversify your holdings in a Global Market. Position your companies so that they are on the gaining side and not losing. All the best Men!
Rahim Thawer / CEO of Waterbury Financial Strategies Inc http://www.waterburyfs.com
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