Is the Administration trying to be clever?

With Obama's recent decision to send $250 checks to seniors (link) it is easy to conclude that his administration has about the worst grasp on economics imaginable. Sending this money out in the face of a falling dollar and more importantly in the face of falling confidence by our creditors (that we actually have the stomach to right our sinking ship) leaves many of us utterly speechless.

The Chinese have continually voiced their concerns over the value of their $800 billion of US dollars, as have other countries. The BRIC nations have reportedly held secret meetings about how to move away from the dollar reserve and now several Latin American countries are working on their own means of replacing the dollar (link).

As many shake their heads wondering whether the administration could get any dumber, it occurs to me that maybe this is not sheer stupidity. Maybe...this is intentional.

Consider the fact the our debt and future obligations now add up to well over $70 trillion. Consider next that our GDP is about $14 trillion and even that is not enough to cover our annual expenses resulting in a $1.4 trillion deficit this year. The long and short is that we literally have no conceivable way to pay this debt off, ever! Let me say that again, the United States of America has so much debt that it can NEVER pay it off.

What does this mean? It means that our only two avenues of escape are 1) an official default on our debt which is unlikely (call it national pride) or 2) paying back our debt in devalued or better yet worthless currency. Either process is really a default but the second option, while probably more infuriating in the long run, still seems to be the most palatable by our fearless leaders, and more specifically the White House.

So let's imagine that the administration has decided to pay off our debt by drastically devaluing the dollar. How would the US do this? Since we are no longer on a gold standard (thanks to President Nixon) we cannot simply devalue the currency by repricing gold, which is how Roosevelt did it in 1934. Without the option to directly alter the value of our currency, what options are left to Obama?

The answer is to destroy confidence. Obama and Geithner have repeatedly touted their commitment to a strong dollar, yet at the same time the administration approves bailout after bailout, all the while promising the Chinese that we will stop our reckless ways just as soon as we can.

Is it possible that Obama's administration is quiety working to destroy confidence in the US economy and therefore encouraging the international community to reduce their appetite for dollars? By doing so the dollar falls in value (now approximately 20% less in just the last 7 months). Furthermore the constant touting of the importance of a strong dollar may be an effort to buffet or slow the speed of the currency's collapse.

Is it possible the government is trying to be clever here?

If so they are being terribly naive about what will happen to the country itself if the currency becomes worthless. Think Weimar or Zimbabwe if you want an example. Pray that they are not being clever.