Editorials

While the Clinton-Obama campaign battle dominates the headlines as it rages on, another more powerful fight is going on behind the scenes. And this one has a direct effect on you, me, and your aunt’s first cousin twice removed.

The federal reserve, the nation’s central bank, and the U.S. government, are struggling mightily to keep the economy from sliding into a recession. So far, they are not succeeding. The fed is force- feeding billions of dollars into the economy, hoping to mitigate the disaster occurring in the housing market collapse.

The problem is, that while the fed cuts interest rates, including another 75 basis points predicted this month, government debt buyers are reluctant to buy bonds with inflation growing by leaps and bounds. In effect, the fed is pushing on a string.

It doesn’t take a rocket scientist or an economist to see what is really going on in the economy. Real wages, adjusted for inflation, are falling for the first time since the Depression. Unemployment is rising. Home values are declining. The stock market is in retreat. Gasoline prices are rising. Inflation is gaining ground.
The economy today more closely resembles the stagflation we experienced in the early 1980s, when we had higher prices for commodities and other goods, but had higher unemployment at the same time.

We have record levels of household and government debt, with consumers in the red up to their eyeballs and a two-front war being fought by the United States. As the late Vern Myers used to say, all of these debts will be paid, either by the lender or the borrower or someone else.

The way the government pays for this debt is by inflating the money supply which devalues the dollar.

What can we do about it? You and I cannot stop inflation, and the federal government does not want to stop inflation. Experts say pay down your debt, invest in short-term government debt or certificates of deposit, and hang onto your job. Sophisticated investors might try their hand at buying gold, both physical and gold stocks. Gold is now at almost $1,000 an ounce.

At the end of the day, it will take another year, perhaps two, for things to sort out, and then it will be time to get back into the stock market.

↑ Top