| A River of Inflation is About to Bust the Dam |
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| Written by Paul Kluskowski |
| Thursday, 10 September 2009 01:27 |
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Seems like there is a river of money flowing and headed for the falls. Hundreds of billions for corporate welfare. Short term interest rates at record lows. Mortgage rates are still better than any time over the past 30 years.
Seems like there is a river of money flowing and headed for the falls. Hundreds of billions for corporate welfare. Short term interest rates at record lows. Mortgage rates are still better than any time over the past 30 years. But truth be told, people and corporations are still going broke at an alarming rate. The reasons are varied but the huge elephant in the room is that cash is not reaching folks who need it the most to create jobs. The money rain has been torrential but the banks built a dam and the level is rising dangerously. To be sure, there are some leaks here and there but the watchkeepers are sleeping through the alarms. When it finally breaks the overflow is going to be inflation that rivals developing nations. And it is going to go over a Niagara Falls into an abyss of future obligation. Though some money is starting to trickle out it still seems to dry up before it gets to producers, workers, and spenders. So capitalism as we like it is just plain anemic. Underemployed folks, like Tom Persinger who now makes 24k/yr as a nurses aid, have have pulled significant power from the economy. He used to make 60k/yr for GM before they got bailed out. He is relatively lucky though. Just under one out of ten Americans have no job at all so they cannot contribute earnings so that others have jobs. But the government is also manipulating statistics. Prior to the Clinton administration that 10% would have been closer to 21% unemployment which certainly echoes the Great Depression. Even governments are squeezed. California is issuing IOUs and other states are shutting down for longer and longer periods to ease the pressure. Being a government employee just does not provide the security it once did. Nervous about the stock market? Just when it seems equities are stabilizing you and every other investor gets faked out when they dump again. Real estate, though housing markets seem to no longer be in free fall, is still causing anxiety and hand wringing. Interestingly, some major European countries are beginning to recover more quickly than the USA. Though many reasons can be cited a salient point is that they did not jump as deeply into the stimulus pool. The irony is astonishing when you consider that most of them are, for now at least, a few darker shades of socialist than America. Bond professionals are saying that the cranked up money printing presses are being used to keep interest rates low which. Low rates, overabundance of money that is not accessible is guananteed to keep the economy underperforming. So the bankers are caught in a Hobson's choice where the only logical thing is to do nothing and reap the taxpayers largesse. After all, if they loan out all that money so people can buy assets that are not going to appreciate soon and jobs are still hard to come by then they lose. So they just stop up the supply so that nobody wins. But eventually everybody loses. Cash flow and asset depreciation lead to deflation. But what goes down in economics, must go up. When it does it will be because the dam is broke and when that river of cash finally starts flowing we will be swept away by inflation. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. My Market Friend is Paul Kluskowskis's blog. It is packedwith up-to-date financial, economic, and market news. He is a financial manager at T/R Financial Management Group. He has been in the business for over 10 years and writes extensively with numerous articles and three ebooks to his credit. Paul also manages the PINGP Work Control Center Mgr at Xcel Energy. You can gethis financial servicesand newsletter at My Market Friend |