The Economic Rebauchery

In a previous comment, I reiterated a headline I had seen which claimed the Dow was near a 4-yr high. Be assured that soon headlines will read that the market is near 5-yr highs; then 6-yr highs; and soon even 10-yr highs. Soon headlines will read that the market is higher than it's ever been! Sounds like good news right? It sure does! Unfortunately, it isn't real news. It's manufactured news created for one purpose: to keep you buying, spending, and borrowing as much as you can and not doing exactly what you should be doing: SAVING.

The real truth is that markets are not really increasing in value to all-time highs. Rather, dollars values are depreciating to all-time lows. Consider that even this most recent market high is still almost 10% less than the DJIA (the Dow) was five years ago.

Question: What happens when the dollar annually loses more purchasing power than the average job or stock/security gains in value? For example, while the market struggles to falsely appear to have increasing value, the result has been only huge price increases (as opposed to value increases). 

The reason again is simply dollar value depreciation and not stock value appreciation. This price increase is also seen in the cost of almost every consumer product (bread, milk, eggs, wheat, gas, gold, cars, utilities, etc.). To make matters worse (as if the loss in purchasing power wasn't enough), the resulting price inflation has increased budget deficits - not just for households but federal, state, and local governments as well. Many of which are now struggling and some even failing against huge inflation-created cost. 

Who is being called upon to cope with this struggle? The lowest common denominator of course; the taxpayer! The average taxpayer is being called upon to come to the rescue and taxes are skyrocketing to unprecedented levels.

So where does the economy come in to all of this? When real value (value created by supply and demand) does not equal or exceed price inflation caused by dollar value depreciation, the prognosis for the economy becomes increasingly bleak. It is clear we cannot expect the economy to come to the rescue. The state of the economy will only become worse as consumers purchase less and businesses begin to fail once again - decreasing their value to all-time lows even while their prices increase to all-time highs.

As time moves on, more of the trillions of fake "bailout dollars" (and other conjured-up forms of money) will begin to flood the marketplace. Dollars will decrease in value further and the resulting inflation will become even more rapid. The reason we haven't seen even more dramatic inflation is that much of the bailout money hasn't even entered circulation yet. Much of the money created out of thin air is being held in accounts so that banks and businesses have huge amounts of cash reserves. The reason for this is that banks and businesses are still heavily leveraged and are desperately trying to avoid becoming insolvent should a pullback in the economy become reality.

(Hint: The pullback is already a reality.)

Don't be surprised to see the Dow at 20,000 or the S&P at 3000. It doesn't mean securities are worth more. It just simply takes more dollars to purchase them. This creates the false appearance of a recovery or increase in value. Do not be fooled by this increase on paper. If you see the markets at these levels you will likely also see bread at eight dollars a loaf and gold at $3000/oz. The intrinsic value of the bread or gold hasn't increased in a thousand years but rather, the value of your paper money has decreased.

I should also mention that there may be some secondary increase in cost due to increasing demand but that increase, at least for now, is mostly negligible when compared to inflation. I mention it now because this will not remain the case when shortened supply is factored in to the price. At that critical time, goods will have both a short supply and simultaneously, dollars will have little purchasing power. It will be far too late in the game for the average person to afford them.

However, though matters appear grim, there are a myriad of steps you can take to help preserve, at least to some extent, what you have earned. With some effort you can also preserve, to the maximum extent possible, your way of life. As just one example, a person can buy and store easily transferable items of a non-perishable nature; items whose value and demand remain stable or possibly even increase, no matter what the state of the economy may be. Some personal research in this area will yield many tips and plays where you, as an individual, household, or even a small business can weather this storm. Take the necessary steps to educate yourself and it will pay off in the long run.

CEOjr