Thursday, April 23, 2015

Economy

I am supposing that you may be concerned with what is going to happen to your financial future. So am I concerned about mine!

Below is a graph of the Dow Jones Industrial Average highlighting the Dot Com Bubble, Housing Bubble and now the Sovereign Debt Crisis [SDC]. The SDC was born when our government using the power of the Federal Reserve saved the big banks by loaning them huge amounts of dollars.

But the Federal Reserve did not have money to loan. So it just created the money to loan the banks out of thin air, as it had been doing for a long time. When the Federal Reserve did that, a lot of sources for our country's borrowing just dried up. Those sources did not want to throw good money after bad. 

So the Federal Reserve began buying United States Government debt itself. Stuff like US Government Bonds the Fed just bought up. And the Federal Reserve again paid for that debt with money it created out of thin air. 

Now here is the thing. When the Sovereign Debt Crisis got going around 2008, the Public Debt was about $10 trillion dollars. Right now the Public Debt is more than $18 trillion dollars. The Fed has been holding the interest rate that it pays on that Public Debt at just about zero percent, because interest paid on $18 trillion dollars is a LOT of money!

You know something? If I told you that you did not have to pay your credit card debt anymore, would you believe me? All you need to do is get a brand new credit card and transfer the balance from your old card to your new one. And just keep doing that forever. This is pretty close to what the Fed has been doing. Works for them!

By the way. The little graph at the bottom of the Dow Jones chart is the volume of the Dow Jones Industrial Average. Do you see how that volume begins to radically decline after 2008? Looks like a lot of investors are leaving the market. I wonder why?


CLICK ON THE CHART TO MAKE IT BIG
[Use the Back Arrow to make the chart small again]





8 comments:

  1. WOW, this is going to bite all of us, including Canada.

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    1. I am wondering what would happen if I converted my money to gold and stored that gold in a foreign country!

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  2. I'm afraid it is even worse than that. Since March 15, 2015 the Treasury Department has been using "accounting tricks" and publishing false and fictitious financial statements daily so it won't "appear" that we are over our debt limit. They call it "extraordinary measures". The rest of the worlds calls it "cooking the books", It is amazing how low of a level we have sunk to as a country.

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    1. And how much faster it has happened under the current administration.

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  3. No, not really. http://www.nytimes.com/2014/07/21/opinion/Paul-Krugman-An-Imaginary-Budget-and-Debt-Crisis.html

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    1. Hi Eric,

      I often read Paul Krugman. In my opinion, Krugman does not appear to understand the economic climate. And he does not comprehend how the Federal Reserve is screwing up America for the working citizens.

      George


























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  4. Hi George. Thats a fine graph of the Dow showing the crash of the last few years. Here is a chart going a bit farther back showing all three stock market crashes in the last century. Notice that through it all the average stock price rate of return is still 7 percent - its 11 percent if you include dividens. Do you remember from history class? During the great depression everyone thought that America would not last. But it did and those who didn't sell their stock are millionaires today. Remember the 1970's? Riots in the streets, the vietnam war, double digit inflation - remember the misery index? It was the unemployment rate multiplied by the inflation rate. America survived that too and those who didn't sell their stock are millionaires today. So, don't lose heart. America stumbles now and then but it has always come back stronger than before. There is no reason to believe our current troubles will be any different. Here is a link to the Dow history covering all three great crashes. https://40.media.tumblr.com/abdfbe499505c450e517e0d587a24536/tumblr_nnw1niUVtU1t1h2pvo1_540.jpg

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  5. George,
    This is a great post. If people in America think we can stay on top when we are sunk it debit are dreaming. Our debit will mostly likely be near 23 trillion in the next year. We talk about balancing the budget and they can't even do that, so how are we suppose to ever pay off this huge and ever increasing debt. In order to get back to a debit free, balanced budget country, we will have to sacrifice more than Americans can tolerate. We don't know hardships as the world knows them, but I think we will soon enough unfortunately. You have to pay the piper someday, it can't go on forever. It is sad to witness because I love my country and all it has to offer. Pray for good leadership, if it can be found

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