Thursday, December 18, 2008

In This Case I Hope I Am Wrong

The World has changed
I feel it in the water
I feel it in the earth
I smell it in the air
Much that once was, is lost...

- The Lord of the Rings

I'm not an economist, I'm a businessman. But I don't think it takes a PhD in the Dismal Science to figure out that things are changing. Permanently. We are not in a hiccup.

We currently have a recessionary situation forcing a cut in manufacturing capacity, in a country that has little manufacturing left and has become dependent on services. In a panic, we have the government running the printing presses 24-7 giving money to all comers, with promises of more to come.

Where's all this money supposed to go?

You'd be stupid to pay off your mortgage or debts - the government is teaching everyone not to pay their debts.

You're not going to invest it in real estate or the stock market.

Your choices are to put it into a zero-yielding bond, give it to a bank that might go broke, or spend it.

So there is an a massive incentive to spend all this government-printed money within an economy of dwindling supply and services. This means inflation, the debasing of the currency.

The only question is how long will it take for those dollars to percolate through the economy and for the spike to start. This week's massive downward spiral of the dollar signals that foreigners are getting it. When will Americans?

And when Americans do figure it out, we are looking, at best, a dramatically different economy, at worst a panic. In either event we are looking straight into paradigm shift.

We're moving into a new age, where the economic assumptions of the past don't work in the present. The only question is what to do about it. And for that I have no concrete answers.

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