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Inflationary Recession

Posted On: 2006-07-19Length: 1:15:12

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Right. Welcome to the second edition of the Vigilant American, formerly we had just done our first show under the Johannes Ernharth show as we're sorting things out, but going forward we are the Vigilant American and this is Johannes Ernharth with our subject today which is going to be, actually hitting a couple of things, but I think that the core discussion is the title of the show if you've come through the Talk Shoe web site, you see it there, it's Inflationary Recession, Can it Be? Inflationary recession is something that you're just beginning to hear. Some people talk about on the fringes of the major media and talking about it on our Vigilant Investor journal site pretty much for the better part of nine months that it was on the horizon and that we pretty much felt strongly that we were going to have something like that coming down the pike. And low and behold, the past numbers, I'd say you know, 6, 8 weeks, things that have been coming out are showing that things are beginning to slow down. So we want to get into a little bit of a discussion as to why that's happening and hopefully with understanding some of the very rules behind where this particular recession is coming from, people will better understand things for the future. And one of the points of our show is not to just be focused in on purely economic issues or for that matter, I think a lot of people talk economics or think you know in terms of what's the economy going to do, what am I going to do with my investments and so forth. And, we're not really going to be an investment show, that's not really the point of the Vigilant American, we're going to be a lot more broad based. But I think that when you take a look at economic issues, you want to make sure that you are understanding the history of the world. And I, being a history major from college going back, you study different events and themes and one of the strongest themes in history is just following the money. And, it seems obvious enough on some levels and the biggest cliché is just follow the money and you'll know what's going on. But we tend to sometimes separate that from economics. And economics really is the idea of what's going on with the money and the wealth and so forth. Now, I'm going to try to do a little more with this show, differently than maybe your typical investment show that you hear out there, or your ordinary political rants either from the right or the left. It's to try to come in from a commentary that takes maybe a little more of an approach of giving an education on some of these factors and tying it into you know, here's what happened before and here's where we might be going, so plan accordingly. And that, planning accordingly, maybe that is your investments. And maybe it involves, you know, what you're doing as an entrepreneur, or as a business person, or as an employee, or maybe you're contemplating a big change in your life - you're going to be moving from point A to point B, or maybe you're going to buy a house or you're contemplating, you know, things for the family and so forth. And, also I think that from a broader perspective as well as we go through some of these issues, and hopefully we can get the live listenership up to a point where we can get some good conversation and dialogue going on. But, to make people think it's through maybe more of a political lens, and one of my biggest gripes, and again turning back to the show title Stagflationary Recession, we'll get into what that actually means. But, you know, taking a look at this problem through a political lens, are the Republicans or the Democrats really doing anything to prevent this kind of thing from happening or are both parties really complicit in enabling this kind of thing to happen, or what? I think a lot of people have this perception out there that, oh boy the economy just kind of does its own thing. We have the free market in the U.S. and you know, boy it just kind of tumbles along and you know, well things kind of happen, whenever there's something bad happening it's usually because of you know, greedy people on the [...] bad things, the Enrons the Ken Lays and all that kind of stuff, or [...] sloth it off as being that, or it could be something that's more event driven. And they say, oh boy, hurricane Katrina came through and therefore we have all of these problems, or the terrorists flew planes into buildings on 9-11, and now we have the following consequences to the economy. And that's not to say that there are not event driven shocks to an economy that can actually cause problems, clearly they can. But, I think following the broader trends on a political level, and an historical level really, you know, from my own perspective, from my own practice, doing what I do, has really helped explain things a lot better and make me feel a lot more comfortable about what we're doing on our, you know, business wise. And, the people I talk to, it makes them feel a lot better having a broader understanding. And, maybe they're not, and again, the point is not to say, go bet your fortunes on red #5 at the roulette table, that this is going to happen... I don't think anybody has a crystal ball. But rather, I think the purpose, and you know, the title, the Vigilant American is to maybe broaden perspective a little bit so you keep your eye on another ball or two out there, tracking different variables to make better decisions going forward. So, with that as a, you know, kind of a summary of what, you know why we get onto some of these topics, and to get a little more of an introductory into Vigilant American as a regular show for listeners. Let's move on to the details. Stagflationary recession - the topic for today. Recession basically, officially defined is any time the economy dips below a certain growth level. And growth generally is measured through what they call Growth Domestic Product, which is GDP. And whenever you flick on the news and typically you'll hear on the financial news stations, the GDP number came out today and the economy is growing in X percent, annualized... Whenever that starts slipping below about a percent, annualized out, that's when you start hearing you know, officially, that oh boy we're slipping into a recession. The more severe recession it is, the more negative that number ends up being. As for the term Stagflationary [...] it's obviously related to you know, the inflationary term, inflation term. And inflation is typically in a modern usage, used to describe the rising of prices, and when we say prices are going up, we say ah, that's inflation. And then getting back to the official numbers that come out of Washington, the various reporting bureaus, that's typically measured in CPI, which is the Consumer Price Index. And, technically, what the Consumer Price Index is, is simply a basket of goods that is supposedly measured, and when prices go up, CPI goes up, and when they go down on average the CPI is going down. CPI officially has been tracking 2 to 3 percent over the past bunch of years and generally has agreed to be under control, especially when we listen to the mouthpieces from the Federal Reserve. They say that inflation has been you know, we're fighting a battle against inflation, we constantly want to make sure that we don't have an inflationary environment where prices go up too fast. And also want to avoid, they say, are prices dropping, it's what they call deflation. And, they're always engaged in this constant valiant battle to keep us, you know, right on the line of not too hot, or not too cold with inflation or deflation. Stagflation merely is more a higher pace of inflation where things are getting more [...] relative to what it is considered to be steady inflation and so forth. And, when you combine the two terms, stagflationary recession, you have a bit of a unique phenomenon, which is basically as things are slowing down, you actually have inflation at the same time. Which is a bit out of the ordinary. Usually, inflation is associated with n economy overheating. And that means that everybody is out there doing so much that they can't get enough of what they need because the economy is growing so fast. Take a look at it from a business perspective. You know, I'm a business man, I build, whatever it is widgets and I need wood to make these widget and I can't get, you know, enough wood fast enough for these widgets, so I'm willing to spend more for my wood. And I will keep [...] but everybody else in the economy whether they're making ball bearings or you know, computers or what have you, everybody is chasing all these supplies and in order to get them to deliver them to the consumer faster they have to, they're willing to pay more, the consumer's willing to pay more because they need them for whatever they need them for. That's generally considered to be you know, an inflationary environment is when the economy is overheating. So the general response, whenever we see inflation is for the Federal Reserve and the policy makers in Washington to try to get the economy to slow down. Well, when you have the opposite, or kind of the mixed up opposite of that, where you're actually in the midst of a slowdown and you have inflation, it kind of is not what the policy makers really want to have, nor is it something that they often, you know, talk about as something that really can happen. So why would it be that when price, that when the economy is slowing down, and the demand for these items is starting to slow would prices be rising? And, we're going to get into that because I think that is one of the defining trends of the next decade. As, why is this beginning to happen? Why are we seeing prices rise up a lot more than expected? First off, let's hit off on one of the numbers that are of cited in inflationary discussion and that's CPI. First off CPI, again, it's a statistic; it's measured by the government. It's a reflect - you know, here are the prices going up. But, I think it needs to be clarified, that the modern usage of the term inflation is not the original, and in my opinion it's not the proper definition, or what inflation truly is. If you delve into the Webster's Dictionary and you read the definition of inflation, even in a modern dictionary, you'll see that it talks about the increasing of money supply and then it talks about rising prices. If you go back 50 years ago, and let's take a look at a dictionary that was published in 1913 and the definition for inflation straight up was, you know, printing more money. And that was the original definition, the economic usage among economists was, you know, we talk about inflation, when there's inflation we're basically printing money. And printing money, what does that mean? Well, central banks in our case today, the Federal Reserve in the United States has the right as the charter from the U.S. Congress to be serving as a national bank if you will, and formally, not officially the U.S. National Bank. It's actually a private banking cartel if you will. It's twelve large bank, banking interests way back in [...] _11 managed to lobby Congress heavily enough to earn the privilege of being the Bank of the United States. They basically get to issue the currency. But, printing money is something that you know, simply is printing money, increasing the money supply. And, we talk about what that translates into from an inflationary standpoint. Well, printing money, simply increases the units of currency [...] And, I get that sort of requires the question of what is money supposed to do, what is money? And think on a superficial level beyond that, money is what we use to by goods and services. And from an economic standpoint, an economic term is a medium of exchange. It's a great way to store your wealth and simply trade value. And that's basically what a modern, you know, printed money in any economy really is about the exchange of value. Goods and services and especially free markets, whether you're exchanging labor for a paycheck or whether you're exchanging a TV set for cash, if that's your business, you're exchanging value for value. Someone values 100 dollars and someone else values a TV, and you end up saying, "okay, well I value that TV more than I value the 100 dollars I have in my pocket and I'll buy that TV." Whereas the person who is selling that TV values that 100 dollars more than they want that TV set. And that's basically what's going on. And the medium for that obviously is the currency, and it serves as a store of wealth, you have so many dollars in your pocket and you expect it to you know, be worth enough to go out and buy a TV next week or the following week. And I'm sure that the guy selling the TV expects to get 100 dollars worth of purchasing power when he turns around and [...] We do inflation, when we print more money we are not, and I think most people realize this, it's common sense, we're not creating any wealth. It won't make people more wealthy. For example, if we had only say 1000 dollars in the entire world and we suddenly printed another 1000 dollars, we did not create any wealth behind that. We didn't, you know, make a brand new TV set, we didn't make a new factory, all we did was print a bunch of paper dollar bills. And if we go out and put them into circulation, what we effectively have done is decreased the value of existing dollars, the first 1000 dollars that were out there. And, whatever the value of the newly printed 1000 dollars has for purchasing power is purely at the expense of the original holders of dollars. And, so we see an inflation out in the economy, prices are going up. What functionally is happening is that from a monetary standpoint, from a standpoint of dollars in circulation, we're seeing basically a steady devaluation of the currency's purchasing power. Those people who receive the new dollars get purchasing power at the expense of those who already have their wealth stored in dollars. So if you have a bunch of money in the bank and it's earning, you know, whatever interest rate, and people are out there printing money, you can devalue your purchasing power. So that is an institutional element of the U.S. economy. And, that's not to say that's the only form of inflation you can have the demand driven inflation which we talked about before where an economy starts heating up and everybody wants a specific good, they're willing to throw more dollars at it; and you don't even have to adjust the money supply to have that kind of inflation. But that's when an inflation tends to be temporary, because as prices rise up, chasing, lets say, the latest iPod and everybody wants to get a hold of that iPod, eventually what's going to happen is if enough dollars are chasing that iPod, there's going to be new competition coming out there that's going to be making either more iPods or you know, [...] capacity making more iPods or there's going to be competitors coming out there to flood the market with iPod lookalikes and, or mp3 type players. So, eventually the market is saturated with competing products or the same product, and the demand driven inflation that caused the price to go up, where anybody would pay anything for that iPod, or you know, you go back to Christmases past where, God I remember as a kid when Cabbage Patch dolls were all the rage in the 80's, and people were willing to pay anything to get a Cabbage Patch doll for their kid for Christmas. And, we've seen that time and time again where the store shelves are empty and people will do anything. Well, that's just a temporary phenomenon. Six months later, you know, two weeks after Christmas, that demand inflation vanishes. Monetary inflation, money side inflation does not disappear in the same way. Because what you've done is you've permanently adjusted the money supply and when you increase the supply of something, you know, I don't care what it is, generally speaking it's going to be worth less. You know, sand is as common as sand, and therefore you know, sand you can buy for a few dollars, you can get a ton of sand compared to other things from the earth, you know, like copper or for that matter precious metals like gold and silver. Now you're going to pay a lot more per ounce for those than you will for sand. And that's just simply a matter of how much is out there in circulation. And how much more you can trade. And we'll be talking a lot more about precious metals relative to this inflationary concept. But, getting back to the Federal Reserve and what's going on in the economy today, one of the key things that we see happening at the moment is a lot of money supply getting cranked up into the system. [...] published, if you were to go to our web site vigilantinvestor.com there our post yesterday on July 18th we have a money supply chart if you look into that particular post. And that money supply chart basically comes from the Federal Reserve itself and measures M3 which is the broadest base of money supply. We take a look at that and we can see from way back to 1980, there were only 2 trillion dollars roughly in circulation in currency. Today, M3, actually the Federal Reserve just stopped publishing it in March, close to, about last figures probably around 10 [...] but we look at that from the standpoint of [...] nearly tripled the money supply [...] that's a pretty rapid increase in money supply [...] especially since [...] What that's going to do, generally speaking, going back to our [...] the more you print that money, the less purchasing power you're technically going to have. Now, that's on a very simple model, you know, is easy enough to understand, but a lot of people will say, "well, look what's been going on over the past 10 years, all we've seen is largely prices coming down for all sorts of goods and services." Primarily goods especially, we talk about technology. Plasma TV's five years ago was going to cost you 7, 8, 10 thousand dollars and today you can get one for, you know, a big screen anywhere from $1,500 to $3,000 depending on the size, you pay more for that. But generally, the prices come down dramatically or you look at computer chips or we look at big screen TV's generally, the prices have you know, just really become a lot more affordable. So people think, where' s that inflation? Are you telling me that inflation, you know, is going to [...] subject here for that matter is inflationary recession. stagflationary recession. What is the, you know, well that's not being reflected in prices. And I would say well, you've got to understand what's going on here. [...] right into our deficit at the moment. We have been printing money largely since the mid 80's. Go back to the 1970's we had a pretty bad inflationary environment, the Nixon policies and you know, the follow through of the Vietnam war, Johnson's policies between the Vietnam [...] a lot of spending a lot of deficit spending, a lot of money printing from the Federal Reserve which works in cahoots, and that money all got out there and it sort of was causing distortions in the market and prices started really, you know cranking [...] inflation was in double digits, and prices. And that's the official inflation, CPI [...] largely reflecting the money supply circulating out there [...] governor that came in, in the early 80's, Paul Volker, really tough decisions that basically caused the economy to grind to a halt [...] recession and [...] interest rates really high And, what he was really doing when he did a all that was trying to slow down the pace of money supply. The reason he was doing that was because without getting overly complicated, one of the primary ways we increase money [...] Federal Reserve enables the banks to go out there and [...] reserve system, and I'll save that for another day. But, this [...] suffice to say that the banking system and interest rates are largely [...] primary tools. So when you have low interest rates, the money supply increases rapidly though lending, as lending is a [...] increase, they tend to borrow less and less and therefore the money supply [...] as people [...] that's basically what happened in the 80's, the early 80's with that severe recession. A lot of people blamed Ronald Regan for it; he made some tough policy decisions himself, [...] he had a lot less to do with that recession than did the Federal Reserve and the Federal reserve only had to do that because of their buyer policies in cahoots with you know, the previous two or three administrations where things just got kind of [...] and fiscal sanity needed to be restored. Fast forward to today, through Greenspan's legacy and [...] Alan Greenspan, a lot of people use him as a big hero, having perfectly guided the economy though all sorts of issues to the perfect sweet spot. They've referred to it largely as the Goldielocks type of economy, [...] follows the riddle of how to prevent booms and busts and so forth. [...] Goldielocks being not too [...] and fired after a pretty long tenure handing it off to Ben Bernanke. But, what people don't realize is that under Greenspan [...] during his reign the money supply increased more in it's one single reign than all previous Fed. Governors combined. Now that is just a massive increase of money supply and getting back into the late 90's you're [...] if you go to a web site [...] after you'll see that [...] gradually from the early 80's kind of plateaud off in the early 90's and all the sudden this thing just goes [...] goes to a 45 degree angle off of a more gentle, probably a 20 degree angle and [...] double and nearly triple the money supply in just a few short [...] causing potential problems. But, again back to the questions that everybody has, why are we not seeing it in prices? And I would say well, actually we have, we've just been seeing it [...] that we [....] find more pleasant and also we have a tendency not to understand inflation very well and that [...] certain prices and totally miss [...] if CPI is at 3 percent it does not mean that all prices of all goods rise at 3 percent steadily. So, if we take a look at [...] inflation actually [...] prices rising when we talk about [...] stocks were going up at a [...] especially going parabolic in the late 90's. Of course, coincidentally as a lot of that money was getting cranked out from 95 to [...] bubbled out and then we had the bubble break there. In 2000, 2001 when with the little dip of a recession, hardly even a recession in broader terms when we talk about past recessions in severity and so forth, interest rates were dropped dramatically by the Federal Reserve in order to stave off a deeper recession. And again, and the idea there was that, okay, by dropping interest rates we will get people to borrow, people will then spend in the economy and that in turn will cause economic growth and we'll avoid the recession. And that's pretty much what happened, is that people borrowed and they went out and took advantage of lower interest rates. But what people aren't realizing is that, you know, those interest rates dropped to emergency levels. 1 percent for your Federal Reserve, Fed. Funds rate is pretty darn low. So if you go back in history and take a look, that's not a common thing, that's actually an emergency type of investment where you need to get the rates so low, so that everybody will borrow to avoid the consequences of a deeper recession. And it raises the question, why does it have to go so low, we'll save that for a little bit later. Because in the past we have not had to be as severe with interest rate adjustments. But, the bottom line is that while those lower interest rates came out, people began borrowing and, especially in [...] with mortgage rates and so forth, people started borrowing for [...] we'll get into that in a little more detail because it's not as clean, the Fed. does not control open market rates from the standpoint of mortgage rates and so forth. But it is somewhat related. Bottom line is that we've seen inflation since then, in prices going up, I should say, the proper definition is rising prices in homes, in houses, relating to the people being able to borrow suddenly at well below average market rates. So, back to the original reason for that particular tangent, you know everybody says, "well, we haven't seen any inflation." And I say well, what about stocks in the late 90's, financial assets and homes? So home prices have gone up and in some regions in just 3 years, about 150 percent. You get into L.A. the average home price is about 350, getting, you know, pushing 400 thousand dollars in some areas. Other areas, Florida and so forth. The prices have just been going all like relative to their typical average and far, far, far outpacing the official CPI figure, the historical average for home price increases. And most importantly, and this is a subject we'll touch on a little bit, wages. People's wages have been not growing very fast and that is really [...] and let's get back to that point because that's a point I touched on previously. Price inflation we haven't seen as much, the rising prices. And, I mentioned earlier, that has been related to our deficit. And this is the important thing to understand is that [...] while it is increasing in the U.S. consumers have a choice what to do with those dollars, is they get them in their hands [...] and that consumer can also be the U.S. government, because largely the government is getting a lot of money as a direct beneficiary of the Federal Reserve printing billions and billions of dollars and it turns around and spends it into the economy as a [...] stimulus, or doing deliberate economic stimulus package that's an actual policy. Or, it can be simply through government spending, on benefits, or military or whatever, pork barrel projects and so forth. All that deficit spending that goes on, you know a good bit of it is actually aided and abetted by the Federal Reserve simply monetizing debt, buying U.S treasuries. And, again the Federal Reserve doesn't have any money; it simply prints it and injects it into the economy through its intermediaries. That money gets out there and the consumers, basically, eventually get a hold of it in their hands. Because if you work for an events contractor and in the end it's paying out wages and I mean that money in the economy. And what's happened is that prices of goods manufacturing in the U.S. because of the inflation and also because the U.S. is becoming a less attractive environment regulatory-wise, with the complexity of regulations and the tax code and so forth; just to open a business you need to have [...] just to open a pizza parlor these days. It's makes it less attractive and more costly to do business. So, goods manufactured in the U.S. suddenly are non-competitive relative to the manufacturers abroad. And that's the beginning of the deficit right there. We talk of the trade deficit as opposed to the federal deficit as the consumers begin buying cheaper goods made abroad, and as the dollars go abroad, foreigners use those dollars, and the wealth contained in those dollars, they invest into their countries, they build [...] capacity manufacturing. And in turn, start turning out more goods, more cheaply, and in turn sell them to the U.S. And as this cycle starts going around, prices would continue to rise in the U.S. if it was a closed economy and would've gone much, much, much higher, and raise the inflation in the U.S. if it was not for that global trade pressure release. We vented a lot of those dollars through the trade deficit, and we don't have anything up on our site right now but if you were to look at a graph of the trade deficit, it just keeps going worse and worse and worse, and getting bigger and bigger and bigger. Now, some people say we don't have to worry about that trade deficit, and we'll touch on that a little bit later. You know, in some cases you don't, in some cases you do. All trade deficits are not the same. But, the bottom line, getting back to the inflationary environment is that we have for a lot of years hidden our inflation, and [...] by inflation, the money supply increasing through the federal, or, excuse me, the trade deficit. People being able to go abroad with their purchasing power. And that might be though an intermediary like a Wal-Mart, where they go and they buy ever cheaper and cheaper goods [...] and that's because China and Indonesia and the other areas over in the far East have been able to come online with all this production capacity, they're cheaper labor and their apparent efficiency at doing business compared to the U.S. And you know, some of that is lower environmental regulations and so forth. But in turn, those goods come back into the U.S. and the spiral continues and continues. What happens though is that, that is getting to a point now at [...] in the cycle. We were for a long time been the beneficiary of cheaper and cheaper goods. And keep in mind also that the official CPI figure has been going up at 3 percent a year in spite of all this new Chinese capacity coming along, all that production that they have where they're making it so cheaply compared to what we've been able to do. And we still have that 3 percent inflation [...] official number. That money though, that has gone abroad has basically built up competition and has created a middle class, a growing middle class in China. And granted it's small compared percentage-wise to the total population of China. I mean it's well over [...] there compared to our 300 million here in the U.S. But, you know, small percentage of that number is still a lot of people, and those people are now driving cars and they are working at different businesses that are consuming energy. Well, on the whole we look at inflation in over the last [...] years, or I should say prices going up [...] oil, you know, why is oil at 70 dollars a barrel, 75 dollars a barrel pretty much steadily over the past couple of months. Initially people were saying, "oh, that's just hurricane Katrina," yet, that trend started long ago. And largely that's because there are so many U.S. dollars out there in circulation chasing a limited supply of oil. [...] manufacturers, the drillers, the oil industry can only yank so much oil out fast enough to meet that demand, and there are of course other issues related to how much supply is there in the end, of oil. It is a finite resource ultimately in the long run. We'll save that discussion for a different day as well. But the bottom line is the demand clearly is exceeding supply and the price is going up. And, people, and again some of that's demand oriented, but also some of it is just simply you know what, you know that's the first ordered good, and the things that are highest in demand always suffer the highest inflation first. And we can come back in the U.S. and get people to say inflation is under control. CPI, the official number is only at 3, 3.5 percent. Well I say what about health care? Well people don't want to die very often so they're willing to spend whatever it takes to get health care. Now, some of that is that the technology is going up. And some of the prices also that we have, you know, a lot of mandatory requirements where health care is given away, so people who are paying for health insurance have to pay for other people. And you know the reason you have a seven dollar aspirin at the hospital is because a lot of that is subsidizing other services that are free and so forth. Again, people are willing to pay whatever it takes to live, and to get well, and therefore you're going to have more dollars chasing what is a finite resource. Education is another great example. Higher education, we look at college in the U.S. College costs have been going up steadily at 8,9, percent. Especially when you look at the better universities and the top tier ones that are ranked to have the highest academic standards, and you're looking at inflation that's even higher than that. There are schools out there that are getting close to 50 thousand dollars a year. And that's, well you know, people are willing to pay it, and then the price will go up. And the more dollars in circulation that are out there, people will through them at that. And, also remember what I said about the borrowing, having, being one of the ways that the money supply increases, education is tied to credit heavily. Most consumers of education for college and so forth, a lot of parents are more than happy to borrow and pay down a college education for their children. So when you have the money supply increasing though the banking environment, where people borrow and get loans, these loans are getting cheaper and cheaper in terms of the interest you have to pay on them. Their monthly payment goes down from the same dollar amount, more dollars are being thrown at that particular good or service. And therefore, education is inflating a lot more rapidly. You know, again, I get into these examples, lets try to tie this up a little bit here because I'm trying to explain to you, what is inflation, okay? Inflation is more money supply out there chasing a limited number of goods and resources. [...] have that especially with the most in demand goods and services and so forth, you are going to find that those prices will go up faster than in other areas. That which is least in demand you are going to find lower in inflation in those areas. All that said, when we take a look at the current economic environment, we're covering a lot of ground here, relative to inflation, what happens, why are we getting into a recession at this point? We're starting to see the initial indicators; we've been pointing out that we've been in a recession for a while. Let me hit on a one on one thing, and that's a relative reliability of the official numbers coming out. We have a couple of services that do that, the treasury has it's [...] you have the bureau of economic analysis, it goes out there and publishes numbers. But the bottom line is, and even the Federal Reserve does it as well, depending on whose numbers you're looking at, which government entities are churning them out, quasi government as the Fed. may be, you're going to see the CPI coming out, you're going to see what is the Growth Domestic Product, GDP, you know economic growth measurement [...] how is employment doing? Do we have more unemployment, do we have less unemployment [...] but let's focus in on CPI. CPI is a number that is supposed to tell us what a basket, a static basket of goods costs. So, [...] the costs of living, the consumer price index. So, if we were to take a look a the simplified version of the CPI basket of goods we should see in there, various groceries, you know, chicken, maybe some hamburger or some steak, we'll see boxes of cereal, we'll see orange juice, milk, whatever else, fruits and vegetables and that covers the grocery side of things, and we'll get into other, you know, consumer required goods and so forth. And that, you know will comprise, the basket is comprised of. In the old days, and when I say the old days I mean prior to the1970's, that basket of goods was merely the average and when the prices went up in any one of those goods, the average went up inside that [...] weighted average went up and [...] so, if more prices went up than went down in that basket and inflation was up and if more prices went down than up, inflation was down. But you can imagine the late 1970's when inflation was in the double digit stratosphere, a lot of politicians got a lot of grief, you can't say that there is a quick pro quo, and that the politicians decided to pressure, but we can say, or I should say pressure for a change and how CPI is calculated. But, the bottom line is CPI is not calculated the same way today. Today's CPI is not the same as our grandfather's CPI. And, what they've done is they've totally changed the dynamic of that basket of goods and they do things like substitution, where if the price of steak goes up, okay we'll weight it more heavily with hamburger or we'll replace it with chicken. Because consumers, they argue, won't buy the steak when the price goes up, they'll instead buy chicken or something else. Well, look at it this way, that' s more a standard of survival than it is a standard of living. Inflation is supposed to be measuring our prices going up or are they not? And if prices continue to go up they go up and if they go down they go down. Meanwhile, the statisticians are basically selecting what goes in that basket and what doesn't, and adjusting the weightings. They also do something, they call it addonics, and I'm not going to hit on everything that they do, but let's say these numbers are getting manipulated. addonics basically says, you know, look if a particular good or service that we're measuring with CPI happens to have a substantial improvement in it's quality, the consumer is benefiting and therefore that serves as actually a deflator, or a negative on the actual inflation number. So even if the price goes up or even if the price goes down you might have an additional negative added to that price declining to help, basically make that number seem lower. And a great example of that was in the 1990's when a fuel additive was added to gasoline in order to improve the environmental emissions. And, all that increased the cost of gasoline by 10 cents a gallon, I think it was. The CPI number it was argued for that particular item, for gasoline, didn't go up. Because the consumer benefited in having an improvement in the environment. So, therefore even though the price went up 10 cents, according to that improvement, it didn't go up 10 cents, that was basically being smoothed out as even being an inflationary event. Now, they do that is all sorts of different areas with addonics. And that just simply says, you know, well wait a second, the price went up 10 cents, how can that not be a price increase? Well statisticians, while they're saying all those damn lies and statistics have been manipulating the number. Let it suffice to say, we go back and utilize the same methodology they used in the early 1970's before they really started [...] it and it started getting [monkied] with in the late 70's, Bill Clinton did a substantial revision which further monkied it downward to under-report inflation. But we'd see inflationary numbers right now, officially being, probably being closer to 7, 7.5, maybe even 8 percent if we were to calculate it by the old methods. Now, that is a huge difference, than if we're saying inflation is under control at 3 percent. We've got a fudged number there. It also affects other statistics like GCP, Gross Domestic Product. And, I'm going to get into this only because we're talking about a recession, and again recession is when GDP drops below a certain level. Well, for starters, GDP has an inflationary factor on it which [...] at a certain level, they take inflation, they reduce that gross number into a net number, net of inflation. Well if you're underreporting and underreporting inflation your net number is going to be a lot higher than if you were fully reporting it. In addition to that they do things with the GDP number that are similar that CPI number. For example, if, and I'm going to oversimplify this for the sake of explaining it. But generally speaking it's a valid comparison. If you were to buy a computer this year at a cost of a thousand dollars, what the statisticians will do is say, "well that computer you bought for a thousand dollars this year is 10 percent faster than a computer you bought for a thousand dollars last year." Therefore, you spent a thousand dollars but really, because of that performance improvement, you spend one thousand, one hundred dollars. That extra one hundred dollars is added to the GDP. Again, that's oversimplifying it, but that's generally what they are doing to pad that number. And again, there's other areas where you can figure that that number is being overly generous in growth, but if we were to go back and again, our services that do that out there, calculate GDP by its older, less manipulated figure, a little methodology I should say, you'll find that GDP probably has been in recessionary levels going on 6 months to 9 months now. And only now are we starting to see indicators with the official numbers showing through, getting into a recession or heading for a recession with a, with what's been going on. We did the same thing with things like employment and so forth. This began under JFK where they created the 'discouraged worker' title for a portion of the unemployed members of society. And a discouraged worker is simply somebody who is no longer willing to go out and look for work. They're as unemployed as anyone else sitting on their butt who is capable of working, but because they are discouraged they are statistically manipulated and removed from the official unemployment numbers. They've also done things since then where, for example I think it was under Clinton they began to say, "ah well, you know the urban areas of America are statistically biased and therefore we're going to statistically smooth out that aberration to the data," and effectively what they're doing is removing huge pockets of unemployment from the number, by removing city areas and under, and statistically under representing them verses other areas of the country. When you start doing that to the number, you're going to start to get a completely different figure. If we were to go back and look at how you calculate unemployment you know, 50 years ago for example during the depression when they simply counted unemployed people, and unemployed people, back then it was around 25 percent and today we're probably close to around 12 percent. And yet the official numbers, they're going down, they're telling us they're at about 4.5 percent unemployment. And so, it sounds all kind of like crazy and everything, but this stuff is out there if you take a look at it. And one of the thing that, and I'll just go of on a little tangent here, we started doing after the 2000 market fiasco within our own firm, we were starting to look for alternative explanations of what was happening. I got sick and tired of hearing from Wall Street official publications and things that we had relied on for our own research, said oh, the, you know, this downturn is going to be just around the corner, it's going to be zipping on up, and two years later the market, you know, basically what was supposedly confined to just the dot coms and the tech started bleeding into everything and we were in a recession. And the equities that dropped 30 percent to 70 percent, depending on which [...] you're measuring and so forth. And we started looking for other explanations because obviously the people who supposedly had the explanations could not explain what was going on. And they kept saying, "ah, this is just a temporary thing and right around the next corner..." and this and that [...] Digging around we found some of these other things going on and we think a pretty good explanation is to why this is all happening. So, back into the stagflationary recession, or I should say the inflationary recession. Where are we relative to a recession? I think that the thing you need to focus on is what's been happening over the past 5 years. We had a recession in 2001, very short. Ordinarily during a recession, consumers tend to slow down their purchasing habits and they want to clean up their balance sheets to be more conservative. So, in other words, they have some credit card debt, what have you, what they will do is they will stop adding to it, number one, and begin paying it down. So usually what you will see is the national balance sheet, the consumer personal savings go up, we see the economy actually getting into a more severe recession, because what that ends up doing is helping people spend less money, which in turn means businesses earn less money and some people lose their jobs and so forth. And it's a cycle that kind of reverberates for a while, but it tends to happen fairly quickly. And like in the early 80's, the economy cleans out a lot of things that weren't working, and it starts rebuilding and it picks up from there. And if you look at the mid 80's things were a lot more rosy than they were in 1982. And, granted it was painful for some people - not to say that a recession is just something that we all just sort of click our heels and whistle [...] polyanic tunes and say it's not painful. It involves some people having to adjust what they were doing that is no longer affordable, no longer sustainable in the previous environment. But the bottom line is the recession in 2001 rather was a very short dip. A lot of that was because of all that credit that was being pushed by the Federal Reserve and the banking system, people were borrowing. But we didn't see the balance sheet get cleaned up. Consequently, instead what we saw was people in fact getting their balance sheet in worse order. People spending more money, people basing their credit purchases, people converting their debt into home equity debt. And as home prices began rising, mind you with all that borrowing with mortgage rates getting down to 50 year lows, people were more willing to pay more for a higher priced home because maybe they are, they might be getting a home that is worth 500 thousand dollars whereas they could only afford previously something that was 300. So they were willing to pay that money because their monthly payment in a lower rate mortgage was [...] and it was purely a monthly payment decision. And when interest rates are lower, and all that did was focus more money towards housing. And as housing started going up, people started finding that the house they bought, you know, years ago if they were to refinance their home equity, they were encouraged to why not yank out some of that home equity and use it to do other things with it. So, take a look at what happened there, massive amounts of home equity have been getting in [...] again is tied in that money supply issue. And, what we've seen is the balance sheet worsen, where now today here we are in 2006, people yanked out what was it, 670 billion I think it was with home equity in 2004, and about 650 billion in 2005. All that money is now spent, it's now vented largely into the deficit. And, what we have now to show for it is a worse off balance sheet. We have the highest ratio of debt overall in the U.S. verses the economic growth verses GDP that we've ever seen, I think it was 311 percent [...] way above average. And, I think the highest it ever got even during the depression was at about 200 [...] far exceeded that, the debt to GDP ratio. So, we've basically gotten ourselves to a point now where we're seeing interest rates rising, not sure why that's happening and that's related directly to that deficit and that money supply again. And with the interest rates rising, suddenly the mortgage rates aren't so attractive, people aren't refinancing them like they did before and suddenly the housing market is beginning to slow down. So, that begs the question, if we had, you know, about 1.2 trillion, almost 1.3 trillion dollars of home equity getting yanked out in the last two fiscal or calendar years, you know where's that next available equity going to come from to keep the economy going as it was? It raises a huge question. Before I answer that, because that's going to be the wrap up here, sort of the punch line of today's show. And I see a couple of listeners in here if they want to ask some questions [...] take them but, if you want to ask questions dial in to 724-444-7444 and talk cast id # 982. You should see that on your screen if you're logged in watching. But, lets hit on the, why we are, well the deficit, is the best way to phrase this is the deficit issue is not, why it's not benign and why it's setting us up for a worse recessionary environment. [...] otherwise, and why we could see this inflationary environment and push into, basically stagflationary recession. The first issue, as I mentioned before we have been spending billions and billions of dollars a day more than we're earning via the deficit. Well, I actually didn't phrase it that way, I actually said that, you know, the U.S. consumer's are spending a ton of money abroad because it's cheaper to buy goods made elsewhere than in the U.S. And what that has ended up doing is put a lot of dollars into foreigners' hands. And if we spend a dollar in China for example, a Chinese company now has those dollars and now they have to scratch their heads, "what are we going to do with this money?" And ordinarily what they're going to do, is they're going to go through their local banking system and exchange it into the local currency. Now, they can do that or if they're at a more international standpoint, and I don't know the dynamics with Communist China and how many restrictions there are on this kind of thing - but the bottom line is, certain goods and services out there can be purchased in U.S. dollars if they have them. So, for example, a lot of people don't realize this, oil is traded in U.S. dollars exclusively on the global oil exchanges. A separate show for this as to the whole premise of what would happen, for example, countries decided to trade in Euros for their oil instead of the dollar, we might have some issues there, but we'll save that for later. But the bottom line is, lets say that these Chines business people now have all these dollars, what are they going to do with them. One thing they can do is they can buy oil, because it's readily exchangeable on the dollar. So, again when I say all these dollars are out there in circulation well we can convert them into a natural resource called oil, isn't that fine? The other thing that has been happening a lot, in late 90's and this was coming from areas like Japan, which at that point was a lot bigger, a export partner, although China was coming online as well, is that foreigners began investing into U.S. assets and converting them into U.S. equities. And pretty much since 2000 with the breakdown of that bubble we've seen a lot of that money going into U.S. bonds and U.S. debt, being lent back to the U.S. Functionally, that is the complete circle of the trade deficit. Because the trade deficit, when we talk about a U.S. trade deficit is really nothing more than the U.S. as a household spending more than it earns. If you or I spend more than we earn in our family, we've got to figure out how to make up the difference. Put it on a credit card, or something. And that's functionally what the U.S. is doing is basically borrowing that money to make up for it's shortfalls. [...] I think it's up to 7 billion dollars a day. The trade deficit is really a massive number. And so the foreigners in turn lend that back to us and they get, largely what they've been doing is buying a lot of U.S. treasuries, 30 year, 10 year treasuries and different things. What that ends up doing in the cycle of things, we wonder why our mortgage rates have dropped so dramatically. Not because the Federal Reserve has lowered rates, although, that has increased the money supply to the banking system. That money supply circulated through the U.S. went abroad and then foreigners have bought treasuries. And the treasury market in the U.S., the U.S. bond market determines what our mortgage rates are in the U.S., and turn determines what our lending rates are in the U.S. Bottom line is, people don't borrow money for a higher interest rate than they are required to borrow. If someone is going to give you a zero percent interest rate, by all means you'll take it. And we see that with the automobile [...] If foreigners are not going to demand higher than 50 year low rates for their U.S. treasuries, then by all means we'll be able to borrow at those rates. What's happened is that's gone on for a number of years progressively where interest rates have dropped, foreigners keep getting more and more U.S. dollars and what they've been doing it shoring up their reserves. Part of that is for economic reasons, being safe and secure. They've had problems in the past by not having enough reserves in their own currency, they've had issues and they've had their own crises. But, we don't need to get into that more than just to mention it. The bottom line is they have all these dollars denominated and, I should say U.S. bonds denominated in U.S. dollars. They're getting to a point now where you know, boy, when you have 600 billion, 700 billion dollars of U.S. treasuries, U.S. debt, at what point are you going to tire of having a large portion of that over the last five years, but at rates that are pretty much well below the average rate for U.S. treasury. They start getting to a point where you're sort of saturated at that particular rate, as you're taking on too much risk. And what's happened is that these foreign governments recognize that the U.S. government has a deficit, and that they need to borrow in order to continue buying. So, they have more or less turned into a vendor financing operation. Not too dissimilar as if you were to go to a major supplier, they'll set up credit for you so that you can borrow and you can turn around and build whatever it is you're building and pay interest to them and buy their goods at the same time, then you earn your profit and you pay off your loan. That's vendor financing. And that's kind of what's going on with the U.S. as a whole is that foreign nations have been lending to the U.S. aiding the deficit and with the expectation that it gets paid down later on. And they're getting this to a point where now you know, they're filling up. And that's why we're seeing interest rates over the past 3 or 4 months starting to rise. And we track who has been buying U.S. bonds. A while back the private purchasers that were foreign have really dried up. It's been almost exclusively central banks of foreign countries doing it for reasons of their own economic environment in their own countries to try to keep the U.S. consumer buying from them, to help that cycle continue. But that is a finite trend. You just can't go on indefinitely increasing your debt levels in the U.S.; or the financier of that being a foreigner, at what point do you say, okay, these U.S. consumers, how much debt can they hold before we start scratching our heads and wondering you know, maybe their credit risk is going up and we need to charge them more for their debt. And that point we think is on the horizon. Which is one of those inflationary issues on one level, but it's also a recessionary pivot point. And, as those rates go up, U.S. consumers have become very dependent on that borrowing and that financing to maintain their lifestyles, and to maintain consumption; and our economy is so heavily dependent on consumption, that if those rates start going up, you're going to see consumers slowing down their purchasing and as consumers slow down, that means our economy starts slowing down and then we get into a recession, more officially that we are right now. And it also has the effect of encouraging people to do some saving. And one thing that statistics were noting over the past year has been that the savings rate of U.S. personal savings has gone into negative territory. In other words people are spending more than they are earning, they are tapping into savings in order to continue purchasing. Consider their consumption at a pace that is well above average. I can't stress that enough, I just mentioned it, but our consumption pace is far exceeding anything that we've had before in terms of the average U.S. consumption, percentage of the entire GDP. I want to say we're close to 70 percent if our GDP is consumption based. Which is very, very, very high relative to the norm. So all that basically sets up is a very precarious situation. Again the inflationary response, where does this all tie in, where does inflation tie in, rather. Well looking at what's happened over the past couple of years. We know that the Federal Reserve was very worried about us dipping into recession. And this is - one more point to make, and then we'll get to the wrap up here, and that is, what is causing, what is the effect of all this money supply and inflation getting into the system? And it's important to understand this because this is where, what a recession functionally serves to do is to clean up the consequences of all that money supply out there [...] When we get a bubble, a lot of people say, oh boy the stock bubble just kind of happened, people got reckless and this is just a natural phenomenon that happens now and then. The reality is it doesn't happen on its own to that severity without the aiding and abetting of the Federal Reserve and the increasing of the money supply. If we take a look at how much money made its way into the U.S. equity markets, and in particular, the dot com, money was so available, and so easily, and you know we look at the money supply numbers circulating in the mid-late 90's and how much was getting pushed into the economy suddenly, people actually come to believe that when money supply generated economic activity is going on, they believe it's genuine. They actually think that there is actual growth taking place. But, money, or I should say wealth that is generated organically from somebody taking the time to sit down and in a basic sense maybe plant fields and nurture a garden and sell tomatoes, you know that wealth is something that is created, and it's not just you know, you can't just make that appear out of thin air, you have to put time and effort and resources into it in order to generate more wealth. Money supply all it does, is it fractionalizes wealth; it just simply takes existing wealth and divvies it up into smaller units. Yet, it gives the impression that people who are spending those dollars who don't understand this, and this is, I mean, if you're listening to this you probably haven't heard this story before because it is so dang complicated and it's, one of the difficulties I have with, you know, contemplating this show is how do I simplify this kind of stuff? Because it is fairly complicated. And the average listener, you just can't pop this onto CNN let alone onto the ABC news in an environment where people are more into Entertainment Tonight or MTV for their entertainment news if you will. So, but bottom line is what's happening, is when you get an economy that's based on money supply creation, people think it's actual economic growth, and it's genuine production and things are booming they actually come to believe that things are really going well, when a lot of it is actually more of an illusion. It is economic activity, there's no denying it, but it's economic activity that's being basically borrowed from previous economic wealth. It's not being generated. There's nothing backing up those new dollars, it's a simply poof out of thin air, go spend this money. And really when that money is being spent, it's coming at the expense of those people who are existing holders of those dollars. And a lot of times, you know, that money is being held by entrepreneurs, people that know how to grow money, people who know how to build businesses, and people who know how to take a bunch of natural resources, put them together and suddenly you have a computer chip. Those are people who are creating something, they are building something. And, the further you get that money away from people who understand that in a responsible way, that you just don't go burning money to try to grow things, the more likely you're going to get the dot com environment we had in the late 90's where you had sock puppets running around and people willing to borrow 2 million dollars for 15 seconds for you know, worthless advertising on a brand new dot com that had no signs of earnings and was being run by some, granted a very smart person who graduated [...] but these things were, you know, things were crazy. You had companies being valued on the open market and the stock market, where you could by for an Internet company that had no earnings, you could buy, you know Hewlett Packard, a company that had genuine bricks and mortars and actually manufacturing capacity and you'd buy, actual, you know, on amazon.com I think it was you could buy HP, you could buy Barns and Noble you could buy the other largest book seller [...] I think it was you know, these real old hard and fast assets and you could buy with 10 other major companies for the price of one stock that didn't have a dime of earnings yet. Amazon.com, you know is still around, though a lot of companies that you could do something similar in terms of comparison vanished into thin air. And that largely is because people became more detached from that more core entrepreneurial approach of being a lot more conservative with what you're doing. And, you know, that way that was everybody said, "well this is different we're in a brand new economic environment, times have changed, it's all - the rules, the old rules don't apply." And anybody who told them that the old rules applied was considered to be an old fuddy duddy who didn't know what the heck was going on. And the reality was that those fuddy duddies, those old, wise, I think it was Warren Buffett who said, "I just don't understand the dot coms, I'm just going to avoid it, I just don't get it, it doesn't make any sense." And he was right. You know, by and large as an asset class, I mean people got killed. And the consequence there was that, also because that bubble was created, not just the people who were involved in the most egregious and extreme excesses get yanked down and pulls in innocent people as well, people in genuine companies. We saw that even good companies got totally plastered. And a lot of that exuberance bled into them as well and I guess it was the Nasdaq that dropped 70 percent. But then it also bled into the S&P 500, big old stalwart companies. And you know, everybody paid the price and then bled into other areas where, you know, people lost a lot of money. And the overall economy in San Francisco. If you were a supplier of services to the start-up companies, you got killed all of the sudden. And it also dislocated the real-estate market out there temporarily, where people couldn't find any place to live because you know, everybody was getting paid a hundred grand out of college to go write computer programs and do web sites. Same thing is happening today in housing. A lot of people don't realize I've seen a stat. out there that 55 percent of jobs created in the last 5 years since the recession have been in real-estate or are housing related. Mortgage brokers, people who are real-estate agents, people who have been in construction, expanding their businesses there. A lot of that is all tied to those low interest rates. You know, when interest rates go back up to eight percent do you think people are going to be building new homes like it's going out of style? Like they are today? All these condo developments, you know [...] condoflip.com, you know, where people are bidding up, you know, un-built units at the stratospheric prices. You know, all that money that enabled that to happen is going to dry up. They just can't go on indefinitely because you know, everything gets back to the averages, otherwise you wouldn't have the averages and interest rates being so low, that money is going to dry up and suddenly you going to have half of all those jobs are tied in that, and what's going to happen then? We're already seeing, if you go to our site you'll notice a lot of articles on the housing slow-down and foreclosures are picking up, but we're just at the tip of the iceberg on that and [...] it's not, again, is that a modern phenomenon, no. We can go back to the 1920's, the great depression and we can take a look at what happened. The late teens, post world war one, money supply got cranked up again to help bail out our allies and also to pay off war debts and all that kind of stuff. And people though the 20's believed that, you know, the roaring 20's, everybody knows about the roaring 20's if you took high school history. And God, everybody thought this was 'the new era,' all the old rules didn't apply, the definitive end to the Victorian fuddy duddy remnants and everybody believed that the sky was the limit and there was no top to anything. And sure enough, it was based on an illusion. And again, because there was money supply circulating there but nobody was building anything behind it. And a lot of the new activity was being more and more careless and reckless, that was emerging off of that. And of course you get the bubble bursting, and in that case it lead to the depression. Not to say that that's where we're heading, but it's to say that you've got to be careful with what you do with the money supply because it's far from a benign consequence. You know, you just aren't creating economic growth, you're causing people to follow that money. And when that spigot gets turned off of all that new money, and getting back to our housing situation right now, if we're to slow down that money what's going to happen when all the sudden all of those people who have been servicing the real-estate, servicing the housing market suddenly find that area of the market skidding to a halt? So there's two pinchers on there, you have the whole economy that's been built up somewhat artificially on these low interest rates and that artificial money supply, we've created a new bubble to replace what we did in [...] So, again that's a recessionary variable that we need to consider. So, to wrap this up, we've covered a lot of ground now, we're well over an hour into our show, we want to call it quits. Where are we going? I don't know, I don't have a crystal ball, I don't think anybody does. But I think that if you are an entrepreneur out there and you are a family person, you are considering options with money and what are you going to do, are you going to expand your business and try to build this or that, are you going to do this..? I think you need to very much pay more attention to this particular theme. And with the theme actually, the money supply theme was very, very, very popular in the early 80's. People used to wait for the money supply report and the markets would adjust to it. We've been sort of polled these days, you listen to most people on Wall Street, the money supply add it doesn't really matter, it's irrelevant these days. That's old school and it doesn't apply. I think what we're seeing now is it's going to come back into play. Because even in the face of the tough talk of the inflation coming out of the Federal Reserve, with it raising interest rates pretty much, what is it, 16 or 17 times since 2004, June of 2000-July of 2004? In the face of all that tough talk on inflation, the money supply numbers have continued to go up at a pretty generous clip. And what the dirty old secret of money supply is that it creates economic activity, but it doesn't create growth. And the other dirty little secret about it is that, for each unit of growth that you get from increasing the money supply either directly or through debt, the ratio that is required, it keeps having to go up. If you go back to the 60's you found that every dollar that actually generated one dollar of growth. That ratio, 1:1, changed to about 2:1 in the 80's, was about 3:1 in the 90's and we're now at about 4.4:1, the amount of debt to get the same amount of growth. And that ratio continues, you know you just can't have that endlessly because there's only a couple of things you can do with debt. One is to pay it down. When you start paying down debt, you stop spending, doing other things. It's a tough process. The other thing is you can default on it, that's never good for anybody, except the defaulter I suppose. And the third issue is you could always try to inflate it away. And I think that is a trend of something that people need to begin adjusting to, is that the pace of inflation has been over the past so many years, past 10 years. Faced with an economic slowdown, what are the options for the Federal Reserve? And Paul Volker, that Fed. governor from the 1980's who really was actually commendable in that he defied the political and populous pressure that was coming out of Washington and from the voters who hated what was going on with that recession really just did some tough policy decisions. We have Ben Bernanke today, he said that Ben Bernanke has a much, much more difficult job just recently, I think it was last week, than he had in trying to solve what problems are heading for the future. And we couldn't agree any more. In fact, we think that Ben Bernanke has been really handed off [...] here[...] much worse shape than people [...] we would just say, suggest to everybody that, to exercise caution and certainly don't go out there believing whole heartedly that you know, everything you hear from Washington or from, even from Wall Street is exactly what's going on with the economy. Because you could get burned, and it's not to say we're heading for a depression, but I think that the trend that we're going to see developing and continuing is going to be inflationary trend, and an economic slowdown to say the least. And my big question is going to be, what will they try to do if we start slipping into a recession here that gets a little more wild than the one in 2001. Will they try to crank up that money supply further. I would recommend everybody also is to check out the Vigilant Investor web site because we have some good conversations on there relative to a great analogy between [...] and addiction. I mean, really this economy is addicted to increasing money supply at - and like any addict, the further you go on down the road the harder it is to get to quit. And the reality is you know you have to quit, an addict has to quit. And the last thing you need is the drug dealer saying, "here, take more of the substance as the cure." And, it may be controversial, but I think the analogy here is that the Federal Reserve and working with the treasury, kind of are, you know they've got everybody addicted to what's happening now, and they want to try to balance it without having the severe withdrawal that goes through when somebody finally stops taking whatever substance it is that they're using. It's very painful to go through cleaning up. Anybody that knows anybody who has been an alcoholic, going though that very, very difficult and [...] Same thing is for a deep recession [...] it's not pleasant and [...] consequence when you take the punch bowl away after the long party of all that money supply. With that I'm going to open it up to questions if anybody is there. Feel free to shout out a question at this point. Alright, well with that I'm going to wrap up the show. I see that we have a couple of listeners today which is great, about 5 people, and we'll be building from here hopefully. But in the meantime take care, this is the Vigilant American. I'm Johannes Ernharth and I hope to have more listeners going forward and hopefully this is valuable. And, tune in next time. Take care.

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Before investing in the stocks market place,the investors should have some research based knowledge so that they can learn more about the benefits of the inflationary recession.The current market place is changing due to the tway of communication across the golbe.The financial situation all over the world is not getting well for the recent few years.

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Your post is very informative for all the businessmen out there. It would help them to have an overview on their business profits and how they can control this inflationary recession. As businessmen invest more in their business as compared to a person who is doing the job.

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Even I think a lot of people talk economics or think you know in terms of what's the economy going to do, and about the investments. This is one of the most common debate subjects we hear usually. Watching the Vigilant American helped us know in detail about the topic Inflationary recession. Thanks

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