The good news: The economy is starting to turn around. It will be a while until we're in full recovery mode and until job growth really starts to kick in (probably not until 2010), but the worst is finally over and things will gradually begin to improve between now and the end of the year. This is good for those of us leaving school and finally entering the job market.
Look for President Obama, who has only been in office for 60 days, to take credit for this recovery and somehow attribute it to the trillions of dollars that haven't even been spent yet. And look for the media to give him a pass on this.
My hope is that things improve rapidly enough that it will erode Obama's "disaster/crisis" mandate for the trillions in new spending proposals and allow voters to realize that none of what Obama is proposing is necessary or beneficial. It is tragic that the administration feels it necessary to burden us and future generations with massive amounts of new debt when we could have come out of this mess just the same without Washington spending even a dime.
The bad news: once banks start lending again and the expansion takes hold, we are going to have inflation, the likes of which haven't seen since the 70's.
3 comments:
This might be a stupid question... but in times of inflation I would assume buying securities is better than keeping cash in savings. Correct?
Or, does the stock market have no correlation with inflation?
I don't know much about the stock market... even though I report stock sales everyday.
Yes Hank, stocks do a hell of a lot better than cash because stocks are priced in dollars and inflation is merely the printing of more dollars. One must first truly understand what inflation is in order to understand its effects.
The modern-day, mainstream media, post-New Deal definition of inflation is when prices go up across the board. By that definition, we haven't had any inflation over the last 6 months.
The classic and true definition of inflation is when the supply of money is inflated. By that definition, we've had the largest bout of inflation in American history during the last 6 months. They money supply has more than doubled.
We just haven't felt the effects yet because the banks are sitting on piles of newly-printed money unwilling to lend it out. Prices don't go up until the additional money begins to "chase" the goods and services (and stocks). Milton Friedman correctly argued and demonstrated that it usually takes between 2-3 years for inflation to "show up."
So the stock market certainly has a correlation with inflation because, like any good or service, equities are priced in the very dollars the Federal Reserve has been printing more of. I'm no financial wizard or guru and I have no idea how stocks will perform as compared with precious metals over the next 5-10 years. But I do know that you sure as hell don't want to be holding cash any time in the coming months.
Thanks, that what I was thinking. With inflation, you'll actually loss wealth by sitting on cash.
Because of the recent stock crash, clients have been selling shares like crazy at huges losses, and converting the proceeds to CDs.
They're hurting themselves in two ways... selling at a loss and putting cash away at the beginning of the doomed inflation climb.
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