Bush’s Depression

In business, there is always a need for proper planning. Toyota does this well, while US automakers don’t plan nearly as well. Toyota introduced high mileage hybrids just as the price of gasoline was begining to rise rapidly. Proper planning paves the way to greater success.

Personal planning is similar to business planning. Properly plan for the future and you’ll be much more successful. When planning a personal budget, future expenditures, or choosing investments, proper planning is essential for maximum success.

As of today, the US is engaging in a hyperinflationary path. The Federal Reserve is creating billions of dollars to loan to ailing banks. Remember, inflation is not rising prices. Inflation is the dilution of the value of money. And when Ben Bernanke, in his famous helicopter speech, says that the Federal Reserve can dilute the value of this country’s money at will, I’ll take him at his word. That’s no empty bluff.

I added a rather lengthy article explaining the Subprime Mortgage Crisis to the main website today. It is worth a read. This illustrates the choice between inflation and deflation. Either all these Wall street firms are going to get bailed out with newly created money (hyperinflationary path) or they are not and we’ll all experience cascading cross defaults and personal and business bankruptcies on a truly massive scale (deflationary path).

Currently, we are on a hyperinflatioary path. But do we have to follow that path to its ultimate end like happened to Weimar Germany in the early 1920’s? The answer is no. That was an example of a hyperinflation that continued to the point of the currency becoming totally worthless. In 1914 it took about 4.2 German Marks to eaqual one US Dollar. By 1920 it too about 39.5 Marks to equal the value of one US Dollar. By July, 1921, it took a little more than 76 Marks to equal one US Dollar. July 1922, 493 Mark to One US Dollar. July 1923, 353,412 Marks to equal one US Dollar. October of the same year, 25.26 billion Marks to equal one US Dollar. By November of that same year, 2.4 trillion Marks to equal one US Dollar!

By December the Mark was worthless and had to be replaced. This is a texbook example of a currency that was hyperinflated to the point of being worthless. More and more money just kept being created. More and more zeros were added to the paper money.

The question arises, do hyperinflations always have to continue until prices effectively reach infinity? The answer is no. The US was headed on an inflationary path back in the late 1970’s. The situation could have continued with ever increasing amounts of newly created money. However, the public mood was focused on the rapidly rising prices. Paul Volcker, the man before Greenspan, changed course from the hyperinflationary path this country was on.

Well, here we are, 28 years later, and again this country is going down a hypreinflationary path. Where will it stop this time? Will it continue to the ultimate end like Weimer Germany in the 1920’s, or will it be halted like it was in 1980? If it is halted, at what point will that be?

Those are very good questions that I wish I had the answer to. I read a news story today about riots in Haiti over rapidly rising food prices. Already, five people have been killed. Sometimes the public gets very upset with rising prices. Sometimes the public doesn’t. Sometimes hyperinflations are halted. Sometimes they aren’t.

At what point will the current hyperinflationary path change course? I wish I knew the exact answer. The public wasn’t complaining when home prices were rising rapidly (at least those that owned a home and could see its price rise).

A rising tide raises all ships. It is almost impossible to have rising home prices, with the price of food, gasoline, clothing, insurance, education, electronics, furniture, and everything else falling. Right now, my best guess is that hyperinflation will continue for a while. When the prices of homes start rising again, the public will likely view this as a good thing.

When there is rioting and deaths due to rising prices of food and gasoline, then the days of hyperinflation may be nearing an end. Stay tuned…

Last week General Electric reported disappointing earnings to its shareholders. The disappoint caused a slide in the Dow Jones index of over 250 points. Now, GE was one of the original 12 companies that was included in the newly-formed Dow Jones Industrial index way back in the year 1896. Here we are 112 years later, and GE is the only original company still left in the index. That’s a rather impressive feat.

I don’t know if there is a company that has more respect. Google might be big, but we’ll see if Google still dominates the cyber world 112 years from now. Any company can be a shotting star and gain favor for a couple of years. Does the name Enron bring back any memories? But remaining succesful and being at the top of your gain for 112 years is not just some short-lived fluke. If a company can do that, I am going to pay attention to what that company says and does. Obviously, that company knows what’s going on in the world.

So, even though GE reported disappointing earnings, that’s not the real story. The real story is what the company’s CEO, Jeffrey Immelt, said,

“We are not counting on the business getting any better, vis-à-vis … the U.S. consumer. We have actually allowed for a worsening of the U.S. consumer in our GE Money business. So I think that is the way to think about the U.S. and the U.S. economy.”

The bold emphasis was added by me. The head of GE, the company with the best track record in the world for business success, expects “worsening of the U.S. consumer.”

I can’t argue with that. This little country bumpkin sees the same.

And in case you’re wondering, no, Jeffrey Immelt didn’t call and ask my opinion about the economy before he made his statement to the press. He did that without my help.

This blog is part of a bigger site. Here in the blog I check in nearly every day to provide a brief update on current economic news. This site was started in April of 2008, and the news continues to deteriorate. However, the financial info that is reaching the public by traditional, mainstream news sources barely scratches the surface of how dire the economic situation in the USA really is. Thus, the need for this site. Americans are not going to be told what is coming. The true size and nature of the problems are kept from public view.

As of the inception of this website, the US is not currently in an officially-recognized recession, let alone a depression. Time will tell.

In fairness, the root of the problem starts long before our current prez took office. However, he could have changed courses. But rather than face economic reality and do something about the dire economic path that the United States was traveling along, he choose to steer the ship of state squarely along the road that leads to its ultimate downfall.

It is not my desire to place blame on any one person, group or political party. Far too many are responsible for the financial mess to do that. Nor do I want the current administration to be associated with the tag of depression. But when putting all the pieces of the economic puzzle together, I conclude that the coming depression will be linked to the present adminstration.

Please remember one thing if you choose to read any further. I am just reporting on the financial mess, I certainly didn’t create it. So please don’t shoot the messenger!