Where QE2 Could Lead the Economy
Unlike most mainstream financial analysts and pundits, I don't believe that the Federal Reserve's latest actions to revive and stimulate the economy will have positive results. When you think about what the Fed is doing (printing money out of thin air, to purchase Treasury debt because foreign demand is drying up), the longer-term consequences don't appear to be good.
By increasing the money supply, the value and purchasing power of the U.S. Dollar will eventually decline. Prices of food and energy are bound to increase - and conversely, I see real estate, automobile and other big ticket items going down. Why?
If Americans spend more of their income on the necessities of life, there won't be as much disposable income to pay for (or invest in) boats, cars or real estate. Commercial real estate is faced with the double-whammy of recovering from an over-inflated real estate bubble... and entering an era where more businesses can be operated from a home office or basement.
Consider this: If you can setup a website that will take payments, fulfill a product or service - and it's not location or employee-dependent - why should a savvy business owner invest in leasing or buying a brick-and-mortar facility? Not to mention paying utilities, insurance and overhead.
QE2 will have the same effect as a bartender giving a drunk 3 more shots of Vodka and Red Bull at last call - when instead, our inebriated friend should stop drinking so the detoxification process (also known as the hangover) can start as quickly as possible.
Unfortunately, most Americans are like the late-night drunk, not wanting to admit that the credit party should be over and they should get off the sauce ASAP. The 2008 stock market and real estate crashes were the start of the hangover. The Fed should take away the punch bowl, let the economy go into "detox" mode, and a quicker financial recovery will ensue.
However, it doesn't look like Benny and the Feds will do the right thing - and instead, these financial bartenders are trying to keep the party going as long as possible. This could provide some short-term benefit, but it'll delay a longer-term economic recovery. While there are still opportunities to make money and prosper in any economy, I see the overall American economy as sluggish for the short to medium-term, maybe even a decade or longer.
It all depends on how quickly the massive amount of debt Americans have at the federal, state, corporate and household level is repaid or defaulted on (probably more of the latter than the former). QE2 does nothing more than increases debt and money supply, which is what ultimately caused our current recession/depression in the first place.
By increasing the money supply, the value and purchasing power of the U.S. Dollar will eventually decline. Prices of food and energy are bound to increase - and conversely, I see real estate, automobile and other big ticket items going down. Why?
If Americans spend more of their income on the necessities of life, there won't be as much disposable income to pay for (or invest in) boats, cars or real estate. Commercial real estate is faced with the double-whammy of recovering from an over-inflated real estate bubble... and entering an era where more businesses can be operated from a home office or basement.
Consider this: If you can setup a website that will take payments, fulfill a product or service - and it's not location or employee-dependent - why should a savvy business owner invest in leasing or buying a brick-and-mortar facility? Not to mention paying utilities, insurance and overhead.
QE2 will have the same effect as a bartender giving a drunk 3 more shots of Vodka and Red Bull at last call - when instead, our inebriated friend should stop drinking so the detoxification process (also known as the hangover) can start as quickly as possible.
Unfortunately, most Americans are like the late-night drunk, not wanting to admit that the credit party should be over and they should get off the sauce ASAP. The 2008 stock market and real estate crashes were the start of the hangover. The Fed should take away the punch bowl, let the economy go into "detox" mode, and a quicker financial recovery will ensue.
However, it doesn't look like Benny and the Feds will do the right thing - and instead, these financial bartenders are trying to keep the party going as long as possible. This could provide some short-term benefit, but it'll delay a longer-term economic recovery. While there are still opportunities to make money and prosper in any economy, I see the overall American economy as sluggish for the short to medium-term, maybe even a decade or longer.
It all depends on how quickly the massive amount of debt Americans have at the federal, state, corporate and household level is repaid or defaulted on (probably more of the latter than the former). QE2 does nothing more than increases debt and money supply, which is what ultimately caused our current recession/depression in the first place.
posted by Brian Ochsner | 7:00 PM
0 Comments:
Post a Comment
<< Home