Sunday, May 3, 2009

Better Economy?

Auburn Hills, MichiganImage via Wikipedia

The people, who would smile gleefully as their houses burned, are now saying that things will get better in late 2009. I would just like to point out that better is a relative term. If your neighbor's house burns to the ground and yours only loses the roof then you might think you are better off.
This is a depression people and the government refuses to call it what it is, because they don't want to take the political heat. All the signs point to more unemployment and devastating times. You may say this is doom and gloom, but it is really economic reality. When 6 million people lose their jobs, every other job is affected. GM and Chrysler are on the skids and up to another million people could lose their jobs as plants close and their suppliers take a major hit. Bottom line this is going to be a long depression.
Now for the worse news. Inflation is likely to hit double digits when the economy does pick up, because the government has printed money more prolifically than BINGO halls. Too much money in circulation forces the federal government to raise interest rates. Any one who lived through the post Reagan years saw interest rates in the 25% range. The banks raised their credit card rates from 6 and 7 percent to 20 and 30 percent and they didn't come down. Thank you congress.
Stocks may rebound immensely, but their value tied to inflation won't. This is just an economic fact. Deflation results in the printing of money and inflation follows, because there is so much money in circulation that buying power goes down.
People need to buy commodities that are undervalued now as a hedge against inflation, but gold and platinum are at the top of the bubble now and the bubbles is about to break. Those commodities will see a huge drop in value as suddenly a house prices did. The bottom line is that when things reach a price that shuts out people's ability to buy in great enough quantities, there is no market for them and the price falls, leaving the last people holding the bag with any empty bag.

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