Glenn Beck’s Extrapolation of Financial Crisis

Unlike a lot of people, I find Glenn Beck highly entertaining. He has done a lot of good for the Tea Party movement. But, I think his economic analysis of the coming collapse was incorrect. Here is a link to the video.  Skip to 14:43 to see the salient stuff.

I don’t disagree that the left seeks to remake the US into a Western European Socialist state.  That is clear.  However, I also don’t forsee an economic collapse that will turn the US into a place where a civil war is possible.  The far left can talk civil war in their hard leftist literature, but when push comes to shove, I don’t think that will happen.

I do think that the unions and especially the government employee unions will riot when their entitlement programs have to be changed.

However, the hypothesis that China says, “No to US Bonds.”, is probably not probable.  Secondly, the second part of the hypothesis says that the Chinese refuse our bonds on Wed. Then the hypothesis is that the stock market would walk around dumbfounded the next day.  This is another place where the theory breaks down.  The market is 24/7, it would react immediately.

Why can’t China turn down US bonds?  Because they do so much trade with us.  The only reason that China would shut down buying is if a trade war started.  China gets US dollars from all the goods it sends to the US, it needs to reinvest them either in US Treasuries (safe, liquid and easy), US Corporate bonds (a little more risky, less liquid but easy), the US stock market (more risky, liquid and easy), or simply begin to buy chunks of physical assets in the US(risky, not liquid, not easy).

Beck is correct, we cannot continue down the path of ringing up crippling debt to maintain the current entitlement system in the US.  We have to change that, today.

QE2 is a dangerous policy.  As I said previously, it creates more uncertainty.  QE2 is not a Hail Mary pass.  It is lining up for a field goal to win the game.  A lot can happen.  There could be a penalty before the ball is snapped.  The kick could get blocked.  Could be a fake kick.  The kick could get returned the other way for a score.  The defensive team could get a penalty giving the offensive team a first down.  The kick could be right through the uprights.  The kick would be wide left or right, might hit the crossbar.  The risk/reward for this policy is not positive.  The Federal Reserve has taken a boat load of risk with taxpayer money.

The Chinese are Germans are correct in chastising QE2.  They are holding serve, since they chastised the PIIGS for not putting austerity programs together faster.  The Chinese are ticked since we just devalued their investment, and made it tougher to export to the US.  The Germans are ticked because their recent industrial production number surprisingly just went lower.  A cheap dollar hurts their big companies like Siemens.

At the end of the day, conspiracy theories are great if some significant probability is attached to them.  Otherwise, they are no better than a kid’s daydream.