Federal Government Will Borrow 40 Percent of the Money It Spends Next Year, Says White House Report

As I watch the political system operate, if the Democrats still control congress and the White House after 2012 (God forbid), the most likely path they will take is to coerce the Fed into an easy monetary policy to keep the economy going as fast as possible and inflate away some of the federal debt and interest expense on the debt. If they’re still in power, they’ll probably choose the path of least resistance for them, which is excessively low interest rates, printing lots of money, and higher inflation to create an incentive for consumers to buy now and to effectively increase taxes on everyone without having to vote for an explicit tax increase. Their strategy, if they still control Washington after 2012, will probably be 1) inflate away debt, 2) cover up actual inflation with phony “official government” inflation statistics that understate real inflation, and 3) deflect blame for the inflation they cause by blaming business, oil companies, and “financial speculators” for higher inflation, especially much higher energy and food prices.

That’s the path of least resistance for the Rats, because democrat voters are addicted to federal entitlement programs and falsely believe these entitlements are “free” and “the government pays for it”, or at least they believe they’re getting more benefits from the federal colossus than they’re paying in federal taxes. So I think it’s a slam dunk certainty that oil prices will move back above $100 in a few years, and it the Rats still run Washington in 2013 it’s likely that crude oil prices will rise above $140 in 2013. If they react to prices above $100 with a “windfall profits tax”, then we’re looking at oil over 150, real physical shortages of gasoline, and gas lines around the block (or rationing) like we had back in 1979. So I’m buying oil production companies and MLPs that have a lot of crude oil reserves. Farm suppliers look like a good investment, and metals and mining companies look like something to buy on a correction here in September/October.

Inflation is low right now because people are afraid of losing their jobs and they’re saving more and not buying many non-essential products. But when demand for goods and services rebounds, and it will, we’ll start to see higher inflation especially in energy prices. If the Democrats still control Washington in 2012 and 2013, they will probably choose a tax increase through higher inflation instead of reductions in federal spending, because their supporters are addicted to federal entitlement programs, pork spending, and subsidized mortgages through Fannie Mae and Freddie Mac. So everyone who doesn’t want their wealth (especially investment-grade bonds) to be depreciated through inflation had better vote the democrats out of power and vote in some fiscal conservatives who will get federal spending under some control by 2013. Otherwise, physical assets like oil, metals, and agricultural commodities will be better investments than financial assets.

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