Thoughts on the Current Economy

MissingMoney.comIt appears from what we hear in the media that everything is falling apart and that we are heading towards the worst depression we’ve ever had.

It seems like only a month or two ago, the economy was fine… about a year and half ago the economy was the greatest it’s ever been. How things change, or should I say perceptions. I believe that the reality is somewhere in between. I think that the media has played a very big part in how people feel towards the economy and their own finances.

I think that a month or so ago the economy wasn’t as bad as the media made it out to be. There were a small number of people that had really over leveraged themselves into debt to buy homes they could not afford. The banks leveraged themselves to loan money to these people due to pressure from the federal government, to make it easier for more people to be home owners. While it may seem like a nice idea, its not practical for many people at their current financial condition.

However, the media made it seem like EVERYONE was in trouble, thus causing panic and people to sell the stock of any financial company, causing more problems for the banks causing ripples through the whole market.

Then the news of this caused many who have retirement money at stake to get scared and sell their shares, causing more panic and more selling and now you have people so scared that they are sharply cutting back on spending, which is then in turn causing the potential for the panic to actually cause a real economic crisis. It has the possibility of becoming a self-fulfilling prophecy.

The government feels the solution is to print more money, which could work in the short term, but it doesn’t appear to be. If banks are not confident enough to loan it, it doesn’t matter how low the interest rate is. If business people are not confident enough, they will not invest time and money into expanding their businesses, creating new products and services. People need to be assured that things will be ok.

The point is that if enough people really believe that everything is going to hell, it will… if people think that we are strong enough to get through it, we will.  It’s up to the people.

However, what happens when people are confident again, when all this new money has been put into the market. When people sold all their stocks and commodities contracts prices of everything dropped dramatically, everything from the price of a company’s stock, corn, and oil. This has recently made the dollar appear to be strong again. Once people are confident again, all that money will flood back into the market causing all these things to go up in value once again and most likely surpase the highs we had earlier this year resulting in massive inflation.

Essentially, the government is offering all this easy credit/ free money to solve a problem that was caused by the very same easy credit/ free money that caused the problem in the first place.

I suggest that people make the best of this situation. When you get your tax refunds, bailouts, tax rebates, etc., put the money to good use. Make your own finances stronger by paying off your debt, put as much money away that you can for your future, cut back where you can, and make sure that your finances are sustainable.

I personally feel that the weakness in the economy is temporary. I think that pessimism has been over done and we will recover as a country just as we have from all our other economic crises’.

However, I do believe that due to way the federal government/ federal reserve manages our money supply, inflation is with us for good… it will always rise over the long run.

I also believe that our country is full of really great companies that will survive short term problems and will emerge stronger than ever and thrive again. Therefore, I believe that in the long run keeping some money invested with high quality companies is a great idea, especially at current prices. While difficult to predict a bottom, I am confident that 10 years from now, people will be much better off being invested in something solid such as a high quality business or other asset is better than having everything in cash, which has no real inherent value.

Everyone be strong, have faith in yourself and others, and keep safe.

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