Deficit Drop Off
In school we were taught that the U.S. was the bedrock of the global economy and its triple A credit rating was almost like an assumption. U.S. bonds were the safest investment in the world and the chance of a default was unthinkable. Of course with our politics in Washington we now know that we are living in a fool’s paradise and what should be abundantly clear is that we can’t continue to have our cake and eat it too.
Call it a deficit drop off! Oil prices dropped dramatically after the S&P lowered the U.S. debt outlook from stable to negative. Precious metals saw extreme volatility as traders were not quite sure whether to take the news as bullish or bearish. Normally if the U.S. debt rating is lowered the value of interest-rate will have go higher to attract investors to buy our out-of-control debt. In that case the value of the dollar would go higher. Yet higher rates could slow economic growth thereby creating a double whammy for energy prices. Lower demand and a higher dollar would mean lower prices.
Normally that would be bearish for precious metal, yet the threat of a downgrade for the U.S. could shake confidence in the entire structure of the global economic system creating a desire to get rid of worthless government paper and get into hard assets like gold, silver and even Black Gold, our precious oil.
Now the question is whether Washington will finally wake up to the very real threat that stands to shake the confidence in the greatness of the Untied States of America. Our politicians live in a fool’s paradise just like the fools that are saying that evil speculators are driving up the cost of oil. Why can’t these people acknowledge the risks that are right in front of them? Why can’t they see that the U.S. debt and the steps to keep our economy afloat is a major factor driving commodities?
The Untied States of America is running a dangerous deficit printing money like it is going out of style, is at the highest risk of default in many years, and people wonder why they have to pay $4 of U.S. paper buy a gallon of gas! Is it any wonder why open interest is running to commodities? It is because the fundamentals demand it! Interest rates in the U.S. are below zero, forcing money into commodities!
Wake up! It is time to grasp the truly historic macroeconomic events that are playing out before our very eyes and realize that printing money to pay off debt has a real cost to everyone in this country. It impacts the cost of oil. It shakes confidence in the purchasing power of the dollar. It shakes confidence to the global economic infrastructure and makes commodities inherently more valuable.
I am tired of the growing attacks on the free markets and freedoms in general as people want to live in a world of denial. Don’t you get it? The U.S. is in big trouble if they don’t get their budget under control. Oil is more expensive because the U.S. has been printing money to prop up its incredible amount of debt. I am tired of Washington blaming Wall Street or capitalism or speculators for the global economic problem when the problem is mainly creating in Washington by those same politicians. You can’t keep spending money you don’t have. You can’t keep printing money to pay off your gluttonous spending. You can’t keep strangling economic growth by taxing the heck out of the most productive parts out of our economy and continue to expect that we provide the type of growth it will take to grow the economy out of its current fiscal situation. Wake up!
I am tired of analysts with such a narrow view of fundamentals who can’t acknowledge that the market is right and they are wrong. The Market is acknowledging the impact of the U.S. debt situation as well as the Geo-political threat to oil which is at the highest level since the Arab oil embargo. Ever since I have been in the futures business, I have heard people blame speculators for the price increases in oil, yet looking back over the last 25 years you can see a solid fundamental reason for the price moves. In fact, I have been telling people since the year 2000 that explosive economic growth in China and OPEC getting its act together not speculation was driving price
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.