There are a number of factors that signal that a “double-dip
recession” maybe on the horizon. This is not paranoid dribble; this is a
straight look at the markets and determining what they are trying to tell us. I
am not, by a long shot, the first to claim that a double dip recession is on
the horizon. This has been said by some of the sharpest economic minds in the
country, including those that predicted the housing crisis (Peter Schiff, Ron
Paul). But more than double-dip recession fears, I believe there is a bigger
problem on the horizon, Stagflation. There are three reasons why I believe this
country is in danger of going through a Stagflation period.
1 1) Growth of the current economy
2 2)
The power of centralized banks
3 3)
Our Debt.
There is little growth as an economy in its entirety. The
last report that came out of the Commerce Department shows that the national
economy only grew at a 1.9% annual rate. This does not keep consistent with the
rate of inflation, which will obviously draw the ire of political talking heads
on the right. The ire is deserved, as a slow growth rate after billions in
stimulus programs, tax cuts and 2 rounds of quantitative easing tells us that
employment may suffer further. There is also a low national savings rate
(leading to a large percentage of private
debt). When private debt gets to be this high, consumers are less likely to
spend and when this happens the economy slows further. There is virtually no
incentive for Americans to save as the bond market is abysmal and interest
rates are at all time lows. When a government works in a Keynesian fashion to try and stimulate an economy and is met with lagging growth numbers, Stagflation becomes an immediate concern. The 2 rounds of quantitative easing brought on by the Fed only produced gains in the equities market, this is not the answer going forward and actually brings me to my second point. We need to reign in the Central Banking system.
This is what I find most surprising about the current
progressive argument. They claim to blame big banks for the failure in the
housing market, yet they don’t want to audit the very entity that allows them
to control loans and apparently the American people. What rubs people the wrong
way about TARP, should rub them the wrong way in regards to the Federal Reserve.
The biggest political blunder, to me, in regards to TARP was the fact that the
oversight committee that was tasked with keeping accountability of TARP has no
idea where all of the money went. This is obviously frustrating as the American
taxpayers see it as the Government losing track of 900 Billion dollars of their
hard earned money. Who could blame them? The Federal Reserve has initiated two rounds
of quantitative easing while keeping interest rates low, virtually giving away
free capital. This is the reason I believe that we’ve seen growth in the
equities market but not anywhere else. If progressives are so angry at big
banks, they should be willing to audit the Federal Reserve. If they are angered
by the lack of transparency coming from big banks, they should be more
concerned with the hand that feeds. It is absolutely baffling to me that the
Democrats would stand against auditing the fed on partisan grounds. When we
give an institution to control our currency and then not have any oversight of
that institution, we are asking for corruption. The Congress has a blank check
at the Federal Reserve to appropriate funds, and they have had little to no
hesitation to do so.
The third reason why Stagflation could be on the horizon is
our rising debt. Rising debt is not only a sign of poor financial policy, it is
also a metric as to how big the government has gotten. A government that spends
more money has more reach. A government that spends in agricultural subsidies
ends up controlling the agricultural industry.
“We want you to do this, this and this or else we will cut your
subsidy”. This is controlling an
industry. We keep hearing terms like “stimulus” and “enabling the private
sector”. The problem with these strategies are that neither one details how our
elected officials plan on reducing the size of the national debt. Taxing the 1%
is not going to do enough to tackle our current Trillion dollar plus deficits
and cutting taxes without cutting spending will only make the debt issue a
bigger deal. Both sides have played ring-around-the-rosie and have grown our
national debt at an unsustainable trajectory. The debt has already had its toll
on the global economy. Treasuries and bonds are getting killed in this market.
China is reevaluating its financial outlook and India is also following suit.
The problems in the EU have been well documented (and even have been used to
foreshadow what maybe to come for the US). History has shown us that cutting
spending usually leads to a political candidate suffering in the demographic
that was hurt most by the cut in the following election. Our Congress has very
little to gain politically by actually making real cuts in the budget. Whenever
a cut is brought up, the government reacts with fear mongering. They tell you
what disasters will occur if “program x” is scrapped, but take little time to
explain what disasters are pending if we don’t cut “program x”. The growth of the economy isn’t keeping up
with the rate of inflation, interest rates are bottomed out, and we keep spending
money, A formula for Japanese style stagflation.
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