The weakening dollar tells us that more trouble is on the horizon.
Most personal financial bloggers try to stay away from politics and stick to small ways that readers can improve their personal finances regardless of what the government is doing.
But that approach is not as beneficial for readers because the government is the biggest dog on the block and if you are not careful, he will eat your entire lunch. The government's role in the economy is too big to ignore. Without understanding the government’s role in the economy, you cannot make accurate financial decisions and are likely to lose your life savings.
No One Wants To Talk About Monetary Policy
No one really wants to talk about monetary policy. We want the politicians to do their jobs and take care of it. But we also want the politicians to continue providing entitlement programs without raising taxes. And there lies the problem.
Raising taxes is not something that any politician can run a campaign on. Voters want it both ways. We want to elect politicians like Obama who say they can lower taxes and also increase entitlement programs.
Once in office, congress and the president realize that they cannot even afford to fund the entitlement programs that were already committed (SS, Medicaid, Medicare, etc.), let alone add any new programs without a drastic increase in taxes.
The solution is to increase the national debt and create more money by lowering interest rates – through political pressure on the Treasure and the Federal Reserve.
The short term consequences are a booming economy that delivers what was promised. The problem is that the long term consequences result is a devastating crash after the phone economy tips over, when consumer credit and debt is exhausted.
Then after unemployment spikes and the economy starts to look like it is in a dose drive, suddenly everyone wants to talk about monetary policy and the role of the Federal Reserve and how it affects the economy - but it's too late, the damage is irreversible.
The most important part of managing the economy is understanding the role of the Federal Reserve and how they led us into this recession. Once you get that down, you can clearly see how Wall Street and congress worked together to create the housing mess that we are in.
In the last few years, many good books have been written in length about the misguided monetary policies of the Federal Reserve, like Peter Schiff (Crash Proof), Ron Paul (End The Fed) and Thomas Woods (Meltdown).
But nothing has changed, if fact the monetary policy has gotten a lot worse and the Federal Reserve is creating money even faster and holding interest rates near zero - inflicting further damage on the economy, while the politicians are busy selling there plans to the public.
The really sad part is realizing that the deepening recession and millions of lost jobs could have been prevented. If only the Federal Reserve would have maintained it's independence and resisted political pressure to juice the economy.
Despite the Federal Reserve’s argument that they are independent of congress and the president, they have clearly actioned in junction with the president for at least the last 20 years. There motive for choosing to print money is purely political.
Even if the monetary policy was reversed today and interest rates were increased to market levels, the economy is going to suffer for many years from the damage that has been done.
Here is quote from Peter Schiff’s latest book, The Little Book of Bull Moves in Bear Markets,
“Even the most uninformed US citizen will be forced to notice that other nations’ living standards are on the rise, just as ours is on the decline. This may finally force them to realize just how badly the United States has lost ground as an economic power-and how much work it will take to dig ourselves out of the gigantic economic hole. “
“Ultimately, we are going to need a free-market president, who understands sound money and Austrian economics and has the toughness, courage, and leadership talent to take the bull by the horns and begin the process of shrinking government, dismantling programs we can’t afford…”
Without an understanding of what the government has done and is still doing, it is very difficult to make investment decisions or career decisions, because you don’t know which companies will survive as the government reacts with more regulation, more taxes and more central planning.
The days of ignoring the government’s monetary policy are over. Everyone needs to become educated in what the government is doing and how each action they take will affect their business, investments, jobs and the long term consequences on the economy.
If you want to protect your personal finances, find the time to educate yourself about monetary policy and the economic trends that are created by the actions of the government.