The Federal Reserve has added yet another bubble to the current list of bubbles: the Current Assumption Bubble. This one is based on several other bubbles staying inflated. Let me explain. Historically, a corporate financial officer needed about a 15% return on investment (ROI) to agree to a capital expenditure. This ROI had underlying assumptions of revenue flows, cost of money (interest rates), future cost of materials, etc. Now enters the Fed who manipulates the cost of money, props up the revenue flows, and inflates the cost of materials. The CFO is now basing his decision on assumptions that have been manipulated by the Fed. Once the Fed quits stimulating the economy, the current decision is no longer valid. If the assumptions change rapidly then the CFO not only scraps the project but then moves into a full defensive posture and shrinks all cash outflow to cover the costs of the bad decision. By extending the Quantitative Easing (in its fifth year), the business cycle has been totally distorted.
This is true for individuals as well. As we are lulled into believing all is okay, there awaits a day of reckoning. My goal is not to induce fear but to warn of potential harm that may come to the brethren if we do not remain vigilant. The financial institutions managed to virtually eliminate the jubilee of bankruptcy of individuals in the U.S. Why did they do this? The saw what was coming and wanted to protect their interests by changing the laws to hurt the average borrower. This change in the law resulted in further enslavement of the masses to the financial institutions. Could this be one of the reasons for an overall increase in the suicide rate versus the Great Depression?
People continue to feel the pinch of the current economic environment while being told that the nation is in a recovery. The numbers don’t confirm the recovery. Live simpler, be careful of additional debt, and ask Our Heavenly Father for guidance in your expenditures.