Wednesday, October 15, 2008

My economic fears and what to do about it

I was reading this post, about what you can do to prepare for what may be ahead (Please take a couple of minutes and read it), and was presented with some numbers which triggered my worst economic fears. Allow me to do illustrate with some sloppy arithmetic:

$152 billion for the summer stimulus package + $123 billion bailout of AIG + $700 billion bailout bill + $250 billion into several large banks (I told you they didn't even consider the smaller option) = $1,225 billion or $1.225 trillion. (Not to mention the money the Federal Reserve has been funneling into the financial system)

Now add to that some sloppy history: I may have missed the news, but I don't remember hearing that GDP expanded by $1.225 trillion since last summer. In fact, if my memory serves me correctly I remember talk about a slowdown in the economy, bordering on recession.

Finally apply some sloppy thinking: Goods slowing down...Huge spending increase...Businesses hurting...Huge spending increase...No growth in tax base...Huge spending increase...It can't be funded by taxation...Huge spending increase funded by money that isn't there.

To come to my conclusion: Money Supply increasing + Goods are not = Inflation.

Inflation fears worry me more than the threat of a Great Depression because everyone becomes poorer simultaneously which is not a good thing. Did you know that Hitler came to power because Germany was in a period of hyperinflation after World War I. Yep.

I had an econ professor that taught me that my generation didn't know tough economic times. We had grown up in the late 80's and 90's and had it good. So I fear that my generation will get sideswiped by inflation and not be prepared to deal with its consequences. So once again I would encourage you to read this post, and get things in order. I know we will.

1 comment:

A Good Husband said...

The advice that has always applied just applies more now than ever.

Moderation in all things. Do your research. Spend less than you earn.

If things get really bad, there's not a lot you can do anyway besides tighten your belt. What's the worst that could happen? We could all end up going back to an agrarian society. It could be worse.