The Fed is not The Problem. When it comes to the financial markets… We are The Problem.

We have a Problem. Considering the amount of hot air blowing out of the talking heads today one would think that the institution that is the U.S. Federal Reserve Bank has the power to solve The Problem. Anyone may read the Federal Reserve Act of December 23, 1913. If you take the trouble to do so you will be as sure as death and taxes that the Fed cannot solve The Problem.

Like most problems, The Problem is not a uni-faceted phenomenon, or should I say is not without the subsequent problems inevitably caused by The Solution(s) - proposed, enacted, or ignored – that the Problem will eventually have.

The Problem that the U.S. financial system is experiencing is not housing, or sub-prime mortgages, P/E multiples, or consumer spending, or consumer debt, etc… these are merely symptoms of the condition that is The Problem.

The Problem is the U.S. borrows $2 billion or so each and every day to fund its current account deficit, and the preponderance of that is for the purchase of OIL (I told you there was more than a one part to this problem, and you had to have known that it would include oil). There it is. That is The Problem. The good news is that we don’t have to do one damn thing to solve The Problem, because The Solution to The Problem is going to happen without any of us having to lift one F$#&^!# finger, and boy are we NOT going to like it, not one bit.

You see, in the coming 10 or so years U.S. Oil imports are going to decline dramatically. Over the following decade Oil imports will decline to the point of the inconsequential. And that will be the end of the current account deficit, the U.S. Dollar (in international trade), the U.S. Treasury Market, the Stock Market, the Federal Budget Deficit, Medicare, Social Security, and any and all Welfare State Transfer Payments (I don’t give ONE HOOT about your political sensibilities, left or right, right or wrong, for or against, just calling them as I see them). The impacts from the previously mentioned fact of disappearing Oil imports mean all of these things.

For a family man in his 40’s this should be quite disconcerting, but not surprising. Your participation in Social Security and Medicare, while not voluntary, is quite futile. You will receive absolutely no value for your input except the warm and fuzzy feeling one gets from letting the previous generation bilk you out of the fruits of your productive years while sending your progeny off to combat zones to fight and die for the very last squirt into the toilet of imported Oil to put off the day of reckoning onto another generation of Americans, and a future American Administration and Congress for the sole purpose of allowing the previous occupants of those illustrious branches of our Federal Government to be able to say: “Not on my Watch”. The Ponzi scheme that is the American financial system is ENTIRELY built, at this moment in time, on the continued flow of cheap oil imports in exchange for dubious IOU’s backed by the full faith and credit of the world’s largest debtor nation, a country that has no intention of paying them back. The amusing thing is that we accept this grand theft as our birthright while arguing over school prayer, flag burning, gay marriage, the Ten Commandments in government buildings, french or freedom fries, and other nonsensical, contrived issues which only continues to mask the harsh reality that in doing so we are merely tightening the rubber band further for the eventual “SNAP”.

For the same family man in his 40’s, contributions into the financial system will meet a similar fate. What contributions you make now are purchases that allow some seller somewhere to liquidate. Our family man here will not have the same opportunity in the future, say in his 60’s. There will be no buyer for all (some perhaps, though I think not) of the financial assets he (you) has so assiduously accumulated over his (your) working life. Why? Because the global financial system requires an ever-increasing use of BTU’s to power exponential economic growth, something the long-term readers of this blog know to be impossible, both from a mathematical and geological point of view.

Some very smart folks in the 1970’s warned us about the mathematical certainty that infinite linear systems and finite resource endowments are mutually exclusive events, not to mention the absurdity of making war for financial interests (often called “American Interests” – though very few Americans have any interest in these “interests”), Korea, Viet Nam, Iraq, Iran… sorry, I am getting ahead of myself/country. Did the powers that were, as it were, attempt anything constructive at that time? Not a shred. And the powers that be, of our time, will they attempt anything constructive? Not if Chuck Norris and Oprah Winfrey have anything to say about it. “Problem? What Problem?”

Well, they say that no matter where you go, there you are. Here we are, indeed.


Mentatt (at) yahoo (d0t) com