Living Economic History

The biggest head and shoulders top of all time is still forming. Right shoulder almost complete? Only time will tell...

I have talked about this before. Right shoulder could take another year to form before big crash...or it could happen any day.
http://econmom.blogspot.com/2010/02/15-year-head-and-shoulders-top.html

Read this if you want to know where we are headed:

http://www.marketwatch.com/story/the-housing-crisis-in-1933-and-today-2010-10-15

Squeezed

Middle class America is in an economic vice. Are you feeling squeezed? Virtually everyone I know is.

The Federal Reserve Banks attempts to stop deflation are not working. Deflation is still rampant. Almost any asset regular people own is falling in value. Your house, your cars, your 401k plan have all fallen dramatically in value over the past two and one half years. (If you own gold, you have done well, but what middle class family do you know that owns gold?)

So, your assets are falling in value. This is painful, unsettling and anxiety producing. Nearly one in five of us middle class has lost a job, or is underemployed. Even if you still have a job, your wages have likely been frozen, bonuses reduced or eliminated altogether, and your spouse may have had to take a low paying job to make up for lost income.

Simultaneously, thanks to our friends at the FED, food and energy costs are up. Your grocery store trip that used to cost $170 for two weeks for a family of four in now over $200. You spend $200 per month on gas instead of $120. Your heating and cooling bills are going up. So are your taxes, if the Bush tax cuts are not extended. The things you must pay for: food, heat, taxes, etc are getting more expensive.
http://www.cnbc.com/id/40132000

Maybe, after losing a job, you started shopping at WalMart instead of Target or Byerly's. Well, this is what you get for trying to be responsible:
http://www.cnbc.com/id/40135092

We are being squeezed. No wonder it hurts. The FED has decided to try to "fix" the economy at the expense of the middle class. Wall Street bankers and commodities traders are getting richer speculating with free cash from the government. Their irresponsible speculation is making it harder to feed your kids.

The middle class is this country is being robbed by the FED and by our government. We are paying for the bankers tax breaks and the loafers welfare.

We have both inflation and deflation, and the middle class is suffering the downsides of both.

So if you are feeling squeezed, there is a rational explanation. The powers that be just don't want you to understand it, because you may start a revolution.

I mean what if we all just stopped paying our mortgages at once? What if there was a movement to have the money spent on TARP and the auto company bailouts distributed evenly amongst every American taxpayer? (No, if you didn't have a tax liability, you wouldn't get any!) What if we all just refused to pay our mortgages until our principal was reduced by the lender to give us 20% of the equity back in our homes? (based on today's appraisal numbers)

I tell you what would happen...almost all the large financial institutions would fail. Many companies would fail. Things would get worse. Unemployment would rise dramatically. It would be very ugly. There might even be politcal upheaval and social unrest.

I am afraid that course of action is not wise. So, we will toil away. We will endure the squeeze. We will bail out the greedy and the lazy.

It would be sweet though, if just for a second, to see the look of panic on the faces of politicians and central bankers when they realized the American middle class had figured out the game and decided they didn't want to play any more.

Grantham On The Market

I concur, but I think the next crash will come sooner than he does. In addition, note his view on bonds. He believes they are more overvalued than stocks. If you are retired you should not own stocks or bonds right now. Especially bonds. They are in a huge bubble. Stick to cash, so you will have money to take advantage of falling asset prices. If you don't have cash when the implosion happens, you will not be able to take advantage.



http://www.cnbc.com/id/40115265

Hyperinflationary Depression?

I fear I may have underestimated Ben Bernanke's willingness to destroy the dollar. Ever since I started blogging, I have said we are facing a deflationary depression, rather than a deep recession, followed by a period of inflation. The debt hole is just so big, and the velocity of money so low, that I figured the Fed would have time to change course once a recovery began.

I still lean toward the above view. However, recent events, namely QE2, and China's poor reponse to it, have raised doubts in my mind.

You see, if China starts dumping US Treasuries, we may be in trouble. We may be headed for a Weimar Germany type situation, where we have hyperinflation in the midst a depression.

This scenario will still be terrible for stocks, perhaps worse. The thing that would change would be interest rates. They would skyrocket.

I need to do more research on the subject.

I will post more on this later, and provide greater analysis and detail.