Matsop, honest question -- do you think there will eventually be a demise of our economy and dollar and, if so, how much longer do we have until it happens?
I don't want to hear any politics and blame games, there's enough blame to go around for both parties. I just want to know if you feel it's really true our economy is walking on very thin ice right now and it's only a matter of time until it collapses.
#90 | Posted by CalifChris at 2013-02-27 04:09 PM | Reply
Chris, everyone laughed at Ol' Ray but even though Ray didn't often supply cogent answers for the reason he felt the way he did, his feeling of doom had a lot of legitimacy.
I do feel we have seen the best of America's economy in the past although it depends on one's definition of "best". The markets in this country are no longer free but the manipulation is amazing---it's amazing since our indebtedness has grown to the point where we may have passed the mark of "no return". We are walking on very thin ice and the only thing supporting the economy and conventional markets (stock and bond markets) is the direct involvement by the Federal Reserve who now has the option of purchasing bonds and mortgage backed securities to the tune of 85 billion per month----that's right; 85 billion dollars/month. The balance sheet of the Fed now has 3 trillion dollars sitting on it and by the end of the year it'll be 4 trillion if they purchase all 85 trillion. The Fed has essentially said they'll continue to print like this until employment falls to 6.5% and inflation gets above 21/2%. It's said by some that our government debt along with unfunded liabilities is approaching 220 trillion.
How do we get out of this dilemma?---by reducing deficits/debt. How do you reduce these----it's a combination of increase taxes, decrease spending, increase growth (GDP), and inflation. If you increase taxes and decrease spending too much, GDP growth decreases. So you see the dilemma. The other option is a LOT of inflation and that's where we may be headed. All the central bankers over the globe are spending money like crazy in an attempt to prop up their economies.
Chris, I could go on and on and I won't get political. We are in a very bad place in this country and the rest of the globe not much better. The chickens will come home to roost----you can only keep a Ppnzi Scheme going so long until the whole thing folds. Since I don't have faith in governments ultimately taking the hard steps, I'm afraid the markets will decide when the end game comes----and it won't be pretty.
Yes, Chris, the economy will collapse but it could unfold in 2 different ways. The bond vigilantes could finally decide that 1% doesn't do it anymore especially if our currency starts a significant slide---they would drive rates significantly higher especially if inflation pokes it's head higher. The Fed would have to buy ever more securities but would not be able to keep rates down. Increased rates along with the lousy demand out there today would bring our economy to its' knees. All lending would cease.
The other possibility is a slow slide over time which would consist of very high umemployment over the years with a slow rise in inflation which would crush the consumer's discretionary spending even more then it's crushed today.
I could talk hours on this stuff, Chris----but this country is in deep trouble regardless of how it appears right now. The storm clouds are gathering and there's not much room for error.