Inflationomics

2012 Forecasts

A new wave of foreclosures is on its way.  This is a continuation of the old problem stemming from the GNMA, FNMA, and FDMC mortgage subsidies.  Of course, The Fed’s attempt to keep interest rates artificially low (below market rates) will not help the economy recover any time soon.  In fact, the Fed is standing by, ready to bail-out debtors around the world—including foreign governments, major U.S. corporations, and banks.  To the extent that it does so, it will only encourage more of the same—irresponsible behavior and profligate ways.  In turn, this will lead to more banking crises, greater counter-party risks, reduced bank lending, and more money printing.

On the other hand, even if one thinks the Fed can bail out all the needy parties, it certainly cannot bail them all out quickly enough to prevent a slowdown in the world economy.  Things will continue to be sluggish (stagflation) during 2012.  The stock markets will probably decline.  As stock prices decline, social unrest will grow, bankruptcies will rise, and another war might even break out as a way to distract the world from the economic malaise.

If another war breaks out, of course, precious metals prices and oil prices will jump up, along with most goods prices.  Without war, commodity prices could drift lower as well.

Food will be in short supply, especially in third world countries.  Farming will continue to grow in importance.

Unemployment will rise, but that doesn’t necessarily mean that unemployment figures will rise.  Government statistics will continue to cover up the true situation, finding new and interesting ways to “adjust” the statistics so that the depth of the problems is not apparent to the analysts and news media.  After all, it’s an election year!

Thinking of elections…it’s looking like Ron Paul will do well in the primaries at this time, but I doubt that he will be the Republican candidate—he’s too threatening to the status quo!  The better he does, the more resistance he will meet.  I suspect that Obama will be re-elected.  After all, there’s really no difference between Obama and any of the Republican candidates, other than Ron Paul.  They are all equally ignorant when it comes to economics, and they are all happy to play along with the Keynesian remedy of more government spending (it gives them more power in the short run).

The withdrawal of troops from Iraq is mere posturing for the upcoming election.  We’ll be ready, at a moment’s notice, to jump back into a war (undeclared, of course) with Iran with the least amount of provocation.

The BRIC countries (among others) will continue to drift away from using the U.S. dollar as a reserve currency and purchase fewer U.S. Treasury Bonds, Notes, and Bills.  They will continue to liquidate their U.S. dollar reserves and purchase tangible goods, invest in infrastructure, and purchase land around the world on which to grow food.

So, for 2012, I see more of the same; i.e., governments pretending that they know more about "running an economy" than the free market does, more government sleight of hand in its communications with the public, more bailing out, more political posturing, more money printing, and perhaps more war. In short, governments around the world will get more of what they are subsidizing…unemployment, debts, debtors, military buildups, failing companies and banks, and fiat money.

Have a Happy and prosperous New Year!

Robert Jackson Smith

 

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