Pick up any magazine or paper and you will get conflicting reports on just about everything. Big Ben Bernanke is watching the economy so we don’t have inflation. You have to be kidding. Prices are rising on so many products today that I wonder on what planet Mr. Bernanke actually resides? As Mark Zupan said in an article in the latest Kiplinger’s Personal Finance, “our nation is flirting with resurrecting inflation to levels that are reminiscent of the grim 1970s.”
Rising government spending has rapidly expanded our debt to now more than $14 trillion dollars. We face a debt ceiling issue within days along with a Congress that has developed “deficit paralysis.” Add to this, the Fed’s recent actions which have eroded the dollar’s purchasing power, and it means that imports of just about everything are becoming more expensive. And, of course, all of this occurring as banks sit on $1 trillion dollars in reserves. Because of the turmoil in the Middle East and North Africa, the near term potential for explosive increases in oil prices is very real. This could translate into rising prices for food and other goods and services very soon!
The housing market is a “disaster” as Big Ben said the other day, but who can get a mortgage? If you have a good job, a good credit history, and a slug of cash for a big down payment, you might be considered for a mortgage. Yes, these rates are at historic lows and there are great bargains out there. However, for a great majority of people, the rate could be zero as they either can’t sell their current house or they are so far in the hole, that selling it would yield them almost nothing. A lot of young adults are also afraid to jump in. They fear that prices will continue to fall as former homeowners move to renting. Home ownership rates in the U.S. are now down to 66% of all households. Of course, foreclosures are setting records and the figures change daily as to how many homeowners are under water on their mortgage with record declining home prices.
How about that dynamic job market? As one firm hires, it seems another lays off employees. Some economists feel we are making progress while others predict a “stagnation” of the job market. Jobs are absolutely essential to any type of long term recovery. I think this is what President Obama said a few years ago when he stimulated our economy or, at least, spent a few trillion dollars trying to stimulate it? Unemployment seems to be going nowhere and the stock market goes up and down daily in what is being referred to as a “Yo-Yo market.” There seems to be no direct relationship between the firms listed on the exchanges and their actual year to year performance. Why is it that a firm can declare record earnings and have its stock price tank because the government of Greece may default on some of its loans?
Car prices, if you haven’t noticed, are going up. Automobile manufacturers are adjusting production to keep inventory low as they struggle with how to get more fuel efficient vehicles to market as gasoline prices rise daily. I imagine that it takes a lot of long term planning – something that has not been a core skill in the automotive industry over the years.
I tried to understand a report on the retail industry the other day and I became so confused that I switched to reading the sports section. It appears the retail industry is building inventory and this, so the article said, is not a good thing. Now that it is getting warm and we see summer weather coming, I guess having Spring coats in stock is not a good thing especially when retailers should start ordering Winter parkas?
Lastly, the ripple effect from Washington has done a job on the budgets of almost all the States and cities in the U.S. With Uncle Sam unable to send more debt to the States in the form of loans, allocations, grants, etc. the States have to look to balance their budgets on a realistic basis. I know it hurts but it is like having your MasterCard at maximum. Couple this with the decline in housing prices and tax dollars available to cities and States are becoming scarce these days. My prediction is that, after we survive this latest economic crisis, we will have a stronger economy and less debt. But then if I pick up a paper or magazine, I may get a different opinion. Confused?