Thursday, May 21, 2009

Beneficial Economic Crisis

I am increasingly optimistic on the economy. It looks like the next 10 years will be miserable, maybe mostly recession and stagflation. But by flooding the system with liquidity it looks like a catastrophic depression is avoided. It is great that USA is saving again and that people are becoming more frugal and less wasteful, and more work and less play.

However there will be much weeping and gnashing of teeth, especially in California. It looks like considerable cuts are in the offing, and most of those will fall on poor people. If they raise taxes they may collect less as the rich leave the state -- Laffer's "J-curve". I think they have reached that point. I think I heard Brisbane now has an 11% sales tax! Paris Hilton and other rich folk can easily leave. Michael Jackson left to bankrupt Dubai some years ago.

The problem is the global reach of the crisis with few places booming except for always wealthy France and a few places like South Dakota with wind power, methanol, banking,... The whole world manufacturing and exporting system must be realigned so everybody is not exporting so much to bankrupt USA which can no longer borrow very much. Too many investors got burned on worthless USA Subprime mortgages.

I am comfortable in this environment because I remember the 1970s which was depressed, but I enjoyed modeling the economy and investments and people would pay a lot of money to help understand the mess and how to profit from it. We are in a similar fix now, even with rising oil prices again.

USA needs to get off drugs and do more work and less play. We succeeded in the past and may be able to do ok in the future as well. The current crisis is a shock back to reality -- just what the doctor ordered.

Thursday, May 7, 2009

Stimulus Leading to Recovery

I got up at 3AM to listen to Geithner interviewed by Charlie Rose for a solid hour. It is clear that Obama will bailout the big banks at taxpayer expense and only make minor cosmetic fixes instead of correcting the underlying problem. Indeed he is encouraging people to take out loans to buy stuff to boost the economy, thus sinking the USA deeper and deeper in debt. This is a victory for the idle rich, incompetent bankers and uneducated cooks in New York and San Francisco and other financial centers.

The fed and treasury has have made trillions of dollars of loans (details of which they refuse to disclose) thus vastly boosting the money supply. In particular house prices that recently tripled in some areas will not fall down to what they are worth. Instead the price level of everything will jump up to match the inflated real estate values. This will happen and become obvious as people sell their overinflated houses, retire, move, etc. Indeed it seems to

This will continue the Ponzi scheme and make people feel richer and spend too much, take out more debt, and refuse to get educated and learn what they need to make our economy competitive.

Millions of Mexicans will return to the USA and build more houses at the current low interest rates.

Overall Obama snatched defeat from the jaws of victory. He should have cut taxes immediately so people could pay back their debts and have money left over to spend to keep the economy going. Some of the current depression could have been avoided -- there were too many layoffs in some areas.

The economy is not out of the woods but will probably recover somewhat on paper. The problem will occur when hyperinflation materializes and people get shocked. This may not happen if the economy cannot recover or recovers too weakly. My best guess without number crunching is that we will see a fairly strong recovery beginning this year due to the massive fiscal and monetary stimulus that is being implemented.