June 26, 2019

The U.S. Economic Train is Beginning to Derail

Like most Americans today, I keep hoping for economic news that is good for a change.  Well, folks, I am afraid that we are in for more tough times.  We have had to struggle with a declining housing market full of foreclosures, short sales and out and out “walk-aways.”  So many people are under water on their mortgage and home values that it is old news.  Couple this with a ten percent (10%) national unemployment rate and then add another ten percent (10%) unemployment for those people who have exhausted their unemployment benefits, and we have a formula for economic disaster.

During these tough times, we have a Federal Government that is broke.  But what is more disturbing is the fact that most politicians, Senators and Congressmen in America just don’t get it.  Our National Debt is so staggering that it is difficult for most politicians to address it.  As sad as it is, a $38 billion dollar reduction in the budget for 2011 is rather meaningless.  The 2012 budget has to be reduced by several hundred billion dollars just for starters along with the elimination of the $1.5 trillion dollar deficit that is a built-in part of the 2012 budget.  If not, we add to our economic problems with more deferred debt going forward.

Now it should be no secret to any thinking Americans that with the Federal Government broke, the States and the Cities in America are going to struggle like never before.  Our prior Governor in Michigan had an easy time balancing the State budget using $1.5 billion dollars in stimulus money that the current Governor no longer has available.  Naturally, this $1.5 billion dollars was all debt.  Even with all this, the economic train is going to derail for another reason.  Inflation is coming.

The rising cost of gasoline could not be coming at a worse time.  With the exception of the Northeastern States, most of America is dependent upon the automobile. The automobile manufacturers have been slow in bringing fuel efficient automobiles to market probably because the profits are not as great on a Chevrolet Cruise as they are on a Cadillac Escalade. They have been advertising a campaign of “highway” mileage but in reality, for most Americans, “city mileage” is more critical.

Add to this the fact that a large percentage of the products sold in the United States are petroleum based.  Food and services will be affected big time in the coming months as the rising cost of transportation is added to every product in the local grocery store.  Inflation has to be the result of these added costs.   Inflation is defined as a rise in the general level of prices of goods and services in an economy over a period of time.  However, I define inflation “as paying more for the same goods and services as you did before.”  It costs the American consumer $4.00 now for the same gallon of gasoline that he or she paid $3.00 for a year ago.  If this cost rises to $5.00 or $6.00 per gallon, the economic hurt becomes greater and you still get just one gallon of gasoline.

Inflation will hurt America.  The rising cost of gasoline took it from what I forecasted as a “penny here and penny there” type of inflation to a faster, more destructive inflation where costs may go up 10% or more on a steady basis eroding the purchasing power of the dollar.  I often wondered why it took so long for the United States to get out of the Great Depression in the 1930’s, but as we Americans roll along in 2011, I hope there is a light at the end of the tunnel or we may be in for a similar type of a ride.

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Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

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Written by Donald Wittmer