When diesel is $6.00pg your loaf of bread at safeway will be $7.00 if there is any on the shelf. The sky isn't falling, but we're in for some rough years.
"The Great Depression which began in late 1929 and lasted for about a decade was the worst economic downturn in U.S. history, and one which spread to virtually all of the industrialized world. The coming Grand Depression will be no less far-reaching. The "roaring twenties" was an era when our country prospered tremendously, much like we have done over the last few years. And, like then, it was all due to wild speculation and inflated assets. In the 1920's, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich. Same thing today. Our consumer spending is not funded by an increase in income wages, but by an illusionary equity in our homes. In other words, all the inflation has gone into real estate prices. Prices have reached levels that make no sense in terms of traditional patterns and rules of thumb for valuation. A range of evidence suggests that at the market peak in September 1929, something like forty percent of stock market values were pure air: prices above fundamental values for no reason other than that a wide cross-section of investors thought that the stock market would go up because it had gone up. Now, real estate investors think the same thing of the housing market.
In particular, the FED's efforts to lower interest rates have caused an asset bubble to form around real estate. People tend to over-invest when interest rates are low and when interest rates are raised to stave off the inevitable inflation, the bubble pops. That process is under way as I write this. Throughout the years preceding the Stock Market crash of 1929, the Fed did just that. The Fed set below market interest rates and low reserve requirements that all favored easy credit. The money supply actual increased by about 60% during this time. The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market. Today, it is the housing market, and to some extent the stock market again. It was in 1929 that the Fed realized that it could not sustain its current policy. When it started to raise interest rates, the whole house of cards collapsed. The FED is starting to raise interest rates now for the same reason--to cool off consumer spending/speculation and reel in the trade deficit. " MQ
Rogo
"The Great Depression which began in late 1929 and lasted for about a decade was the worst economic downturn in U.S. history, and one which spread to virtually all of the industrialized world. The coming Grand Depression will be no less far-reaching. The "roaring twenties" was an era when our country prospered tremendously, much like we have done over the last few years. And, like then, it was all due to wild speculation and inflated assets. In the 1920's, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich. Same thing today. Our consumer spending is not funded by an increase in income wages, but by an illusionary equity in our homes. In other words, all the inflation has gone into real estate prices. Prices have reached levels that make no sense in terms of traditional patterns and rules of thumb for valuation. A range of evidence suggests that at the market peak in September 1929, something like forty percent of stock market values were pure air: prices above fundamental values for no reason other than that a wide cross-section of investors thought that the stock market would go up because it had gone up. Now, real estate investors think the same thing of the housing market.
In particular, the FED's efforts to lower interest rates have caused an asset bubble to form around real estate. People tend to over-invest when interest rates are low and when interest rates are raised to stave off the inevitable inflation, the bubble pops. That process is under way as I write this. Throughout the years preceding the Stock Market crash of 1929, the Fed did just that. The Fed set below market interest rates and low reserve requirements that all favored easy credit. The money supply actual increased by about 60% during this time. The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market. Today, it is the housing market, and to some extent the stock market again. It was in 1929 that the Fed realized that it could not sustain its current policy. When it started to raise interest rates, the whole house of cards collapsed. The FED is starting to raise interest rates now for the same reason--to cool off consumer spending/speculation and reel in the trade deficit. " MQ
Rogo