Fiscal Policy Implications

Now I am not one to hammer constantly on the Federal Reserve, nor am I one to hammer on anything for long. I am a trader and to win at this game you have to be able to realize when you are wrong and change directions quickly or lose a lot of money being stubborn. However, some times you have to stick to your guns or, in my case, have a trading strategy that is able to go with momentum while continuing to prepare for the inevitable.

At present the fiscal policy being implemented in the United States is one of quantitative easing. Not that I am completely opposed to quantitative easing, I am just opposed to how it is being implemented. For me the best example is one of starting a business. When you start a business it takes money, hard work, a belief in what you are doing and innovation. Of all these, innovation and money are most important. I can always find a better management team to get the job done, but without some core competency and the money to withstand a poor economy or lack of management, even the best ideas will fail.

Now assuming that the idea is fantastic and that you have unlimited sums of money, in theory you will not fail. It is just a matter of time before your product or service is noticed and then you are off to the races (unless someone steals your idea of course). Now let's turn our attention to the government quantitative easing program.

Essentially they have as much money as they need. Having their idea stolen is not an issue. so there is no problem there either. Now all they need is an idea. Well this is where they are falling flat. They are not even looking for ideas. Instead they are throwing good money after bad by buying junk debt from banks and the like. This is effectively supporting the banking system and allowing them to recover from their greed just to do it all again I fear. Where is the lesson other than now as tax payers we will be stuck holding the can for all of these government purchases disguised as "stimulus"?

Now what if we spent the money on ideas? Sure this is tough to quantify but if you had spent a large portion of the money on research and development, education and infrastructure projects then the future would look far more healthy as these ideas and projects would be the backbone of an American resurgence. Furthermore the American people would once again have their belief back instead of walking around with bowed heads. Unfortunately this opportunity has been wasted on political cronyism and paying bankers ridiculous bonuses for their greed. Certainly the dissatisfaction of the people was highlighted in the recent election results.

In the meantime the world continues to move away from investment in the United States. China, India, Brazil and other emerging economies are starting to take the lead and at some point in the future they will be the world leaders. I think that the demise has started and at some point the orderly decline in the dollar will turn ugly. This will drag stocks with it so be prepared. Furthermore I would advise you to have an allocation to gold and silver.