WHAT NOW?
There is an old stock market mantra, “Sell in May and go away.” It could not be more true this year. In the last 2 months, the Dow is down more than ten per cent, or $1,200. Volatility is increasing, up or down over $200 in a given day. The stock market is saying, look out below. If it goes as low as $9,600; look out below ‘til we reach $9,000 and possibly $8,700.
These are the reasons why. One, the recent recovery was paid for with borrowed stimulus money, over $2 trillion in government spending. Now the money is running out.
Two, despite everything Washington has tried to do, about ten per cent of normal workers are trying to get by without a paycheck. And our conservative Republican friends, who let Wall Street out of the corral without a whimper, causing a housing debacle; are reluctant to extend any unemployment benefits, saying we cannot afford it. What can we afford? And John Boehner, House Minority leader, says retirement age should go up to seventy, and means testing should prohibit Social Security checks to those who have been wise enough to set aside their own capital.
Three, while we were once the world’s largest producer, we are now the world’s largest consumer. And now we are failing in that, too. Our economy is now seventy per cent consumer spending, and they are becoming scared again and cutting back purchases.
Four, the housing debacle, first home values fall since the great depression, was helped somewhat by the promised $8,000 government check for buying. Now its over, and sales are down and foreclosures are going up.
Five, many states are drowning in fiscal deficits, and unlike the US government, they can’t print money. The fifty state cumulative deficit is about $127 billion. New York, California and a few others are about to sink. Not to mention the underfunding of their defined benefit guaranteed employee pension plans.
Six, the sovereign debt crisis of individual nations; beginning in Europe with Greece, is just a harbinger of what will happen when it finally reaches us. The dollar will lose its status as the world reserve currency, eventually to be replaced with the Chinese yuan. China has the world’s largest natural gold reserves, and yet has just made a deal to buy most of an American company’s gold production.
The only way I see the US is going to be able to repay our debts is devalue the dollar and repay with cheaper dollars. This means eventually, inflation is going to raise its ugly head with a vengeance.
What can you do to fight it? While it won’t help the economy, try to set aside some savings. Consider a purchase of gold or silver. If you have any long term loans, consider refinancing them now while interest rates are at a pretty good low. Send John Boehner a first class letter telling him what you think about his Social Security proposal. And be careful for whom you vote in July and November.