To quote the show Family Guy "you know what really grinds me gears?" When people say its the fall of capitalism and free market. We actually haven't had a capitalistic society for quite sometime...not since the Fed was created and all of the power of interest, loans, etc was given to the Corporate Government. This happened about 90 years ago...you know before the Great Depression. When a government controls the market and trade principals, it is NOT a free market. What don't you people understand about that?!
The banking system has allowed us to live beyond our means for long enough and despite efforts from the PGPF foundation (which I fully support) it seems like unless we start taxing all Americans for this huge deficit we've "inherited" we will most likely see a decline in our living standards. You know what's ironic is that while many Americans are still living how they normally are, those that have been hit by the current recession are cutting back and making ends meet...if they can. You all have already seen the effects of what happens when the credit markets freeze up and although they have been loosened by the easy money our government has offered for lending, it won't last. Someone has to pay for all the money that we borrow from foreign countries. For the first time in America's history, our parents do not believe that we will be able to live a life such as they have for the past 40-50 years in America which is a very scary thought. Check out this video from Dave Walker, president and CEO of the Peter G. Peterson Foundation:
Here's the truth of what will happen in the near future. Stock market may have a slight boost for whatever reason. Of course, no one at this point can really tell how the market is going to act...after reading a few articles on WSJ a few analysts even expect the DOW to go to 5,000...that's pretty serious. This much is true that we won't see it going to 14,000 anytime soon...if ever. Sometimes, I ask myself what would I enjoy more ignorance or power? If people say that ignorance is bliss but knowledge is power...which do I choose?! I'm sure those tribes in Brazil separated from the rest of humanity aren't worrying about the financial meltdown and the credit markets freezing...they're probably excited that spring is coming and that they will be able to grow food again. Oh! What a simple life it would be!
Well, before I go any further, I'd like to educate you on a few things that I love otherwise known as the Fundamental Factors that Affect Currency Values! Hurray! I know, being an wannabe economist is an uber dorky title but hey I love it. So our currency, the dollar, is based on fundamentally on 4 things; 1) GDP, 2) Retail Sales, 3) Industrial Production and 4) CPI. So in a nutshell, our GDP has fallen, retail sales have fallen, industrial production has fallen and our CPI (which measures inflation) has gone up just a little after two consecutive quarters of negative of inflation. Basically that means prices for goods and services were lower, most likely because of energy (oil went down) which cause the negative growth. As people begin to hoard their money our GDP and retail sales will suffer as will production since no one is buying. The Fed and government who are pumping ridiculous amounts of money into the system we will most likely see inflation in late 2009, early 2010...probably have a short-lived deflationary episode. This video was shot in September 2007 (timeline) when we all started finding about sub prime and how devastating it was to the global economy:
No one wants the to be in the current recession/depression that we currently face. The American way has always been, "postpone what you can do tomorrow, let's just live for today and let someone take the hardship later." The hardship is here and one way or another we will have to face it. There will be a realignment of strongest and wealthiest nations and I can almost guarantee that China will be the #1 power going forward. Of course, we are supposedly the wealthiest nation, but you're not really wealthy when you're using borrowed money...and especially not when you have to pay it back. China (7.2 trillion GDP) has the second largest economy behind the US (11.7 trillion GDP) and their public debt is about 18% of GDP while ours is approximately 70% of our GDP...so as you can see its inevitable that one day or another someone is going to have to pay the pied piper...just a matter of when.
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Yo Man this was very informative!