Great Depression II & Devaluation of the Dollar

This term "Great Depression II" is getting more publicity in the general media.  It would appear that the U.S. Government is falling into the same trap as they did in the 1929-1933 time frame.  The U.S. is teetering on what might be called the "Great, Great Depression".  The reason is that the U.S. is a different country now.  Contraction is ahead!

Back in 1929 we were a creditor nation, not a debtor nation, and this allowed us to buy gold and prop up our Dollar.  Until the early 70’s we were an exporter of energy whereas now we are the largest importer of energy with a coming energy crisis on the horizon.  In 1929 we were a manufacturing/agricultural based economy and now we are a services oriented economy.

In the last six weeks, the Federal Reserve has doubled its balance sheet.  This is hyper-inflationary.  Eventually, the result of this dramatic increase in money supply will result in higher prices.

Tax increases will occur.  Federal, State, and Local governments will see a shortfall of tax receipts with the decline in the Gross Domestic Product (GDP).  Housing price declines will lower real estate tax receipts and the downward spiral will cause the various agencies to request higher tax rates.

Loose Credit has ended.  Banks will return to historic lending practices requiring cash flow, good credit, and good character, the 3 C’S.  These lending practices were sidelined in recent years.  What were they thinking???

The consumer is re-trenching and the sentiment will promote reduced credit requests.  As consumers get increasingly pessimistic about the economy, their jobs, their retirement, their ability to generate cash, they will move into "protect mode".  Only conservative and necessary purchases will be made.  The good times are over for most consumers.

Investors will seek out "insurance" to park their money.  It is becoming increasingly difficult to retain value.  The Federal Reserve has double its balance sheet in record time.  This will ultimately lead to a devaluation of the U.S. Dollar within 12 – 18 months.  Where do you park your money, the storehouse of value?  They keep attempting to "fix" the problem by throwing more U.S. Dollars at it.  As the world’s reserve currency, the U.S. inflationary measures affect the entire globe. 

In my opinion, gold is the only viable insurance. There are too many dollars being created for the US dollar to be a viable insurance option.  Clearly equities (with the exception of precious metals shares) are not a viable option especially with all the volatility.  Am I saying to sell your equity positions? No.  You must decide if your stocks fit your long term plan.  US Treasury bills are not viable insurance because they might get downgraded due to this huge influx mentioned above.  General commodities have been viable, but they are too volatile.  Banks cannot offer insurance as they are insolvent in some cases.  Insurance companies cannot offer sound insurance as AIG has proven.  Money market funds are not insurance. They are being propped up by the U.S. Government on a temporary basis.  Retirement programs are no longer insurance, corporations are attempting to remove any and all responsibility to retirees.  Jobs are no longer insurance since many companies are run by lawyers and accountants who have no interest in the individual employees, only the bottom line.  Equity in your home is not insurance because in many cases, it simply does not exist.

Once the masses figure this out, gold and silver will move up in notable fashion.  In the meantime, I expect consumer credit to contract and major purchases will be delayed to protect cashflow.

On the lighter side, New Stock Market Terms:

CEO –Chief Embezzlement Officer.

CFO– Corporate  Fraud Officer.

BULL  MARKET — A random  market movement causing an investor to mistake himself for a financial  genius.

BEAR  MARKET — A 6 to 18  month period when the kids get no allowance, the wife gets no  jewelry, and the husband gets no sex.

VALUE  INVESTING — The art  of buying low and selling lower.

P/E  RATIO — The  percentage of investors wetting their pants as the market keeps  crashing.

BROKER — What my  broker has made me.

STANDARD &  POOR — Your life  in a nutshell.

STOCK  ANALYST — Idiot who  just downgraded your stock.

STOCK  SPLIT — When your  ex-wife and her lawyer split your assets equally between  themselves.

FINANCIAL  PLANNER — A guy  whose phone has been disconnected.

MARKET  CORRECTION — The day  after you buy stocks.

CASH  FLOW– The  movement your money makes as it disappears down the  toilet.

YAHOO — What you  yell after selling it to some poor sucker for $240 per  share.

WINDOWS — What you  jump out of when you’re the sucker who bought Yahoo @ $240 per  share.

INSTITUTIONAL  INVESTOR — Past year  investor who’s now locked up in a nuthouse.

PROFIT — An archaic word no longer in  use.

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