Like many things in life, trends can lend a view into the future, and this is true when analyzing economic data. Nobody is able to predict exactly what the economy will be like in the future. Anyone that tells you differently is lying or some kind of wizard. In order to frame my argument properly, it is important to disclose that I am not a trained economist. Like so many other Americans I am horrified about the national debt, Federal Reserve, and our government’s unawareness of the national security issues our country’s financial problems could deliver.
|The above chart shows the more than tripling of the monetary base between 2008 – Present.|
All this newly created money eventually will make it’s way into the market place. In the past, legislation, regulations, and manipulated interest rates have assisted with pushing newly created dollars into desirable areas such as housing and the stock market. This malinvestment of capital resulted in huge bubbles in real estate and internet start-ups. The resulting long depression that followed these crashes was prolonged by government policies which hindered the liquidation of bad debt. In essence, this is the business cycle. Centrally planned growth, followed by a crash, that is extended by bad policy. Based on positive trends in the economy, we could be entering the early phases of a new bubble.
We aren’t seeing dramatic signs of impending bubbles yet, but the economic outlook is improving. Just this week McDonald’s announced a record annual turnover for 2011. McDonald’s has performed well throughout the recession, but the latest numbers are turning heads. There’s even good economic news coming out of debt ridden California. Unemployment in the golden state has reached it’s lowest level in 3 years. As unemployment numbers drop around the country and more people return to work which sector of the economy will attract dollars? For obvious reasons, many people would love to see the value return to their house or 401K. Unfortunately, you cannot pick and choose where inflation will rear its head. There is a very good chance that we could see massive inflation in the commodity and energy markets in the coming months. If you think the housing crash was painful, you ain’t seen nothing yet.
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