Friday, January 09, 2009

Economic House of Cards

Are you ready for it all to come falling down?  The USA economy is nothing more  than a house of cards in a drafty room.  I know that some of you out there are a little more optimistic about the economy than I am, but is America really “too big to fail”?  What I see is an unemployment rate as high as it was in 1945 and a budget deficit of $1.2 trillion dollars in 2009, not including Mr. Obama’s resuscitation plan or the supplemental for the Iraq war, which could easily push the deficit over $2 trillion.  I personally think that going into the red for $2T in a single year is a bad omen of things to come.  What business could survive with such practices? 

The only thing keeping us afloat right now is that foreigners are still buying our debt.  What will happen when foreign investors figure out that their investments in America are not as secure as they thought?  They’ll pull out.  The money will stop flowing into America, although it will certainly keep flowing out.  We won’t be able to sustain our rate of spending!  That will leave us two options… either cut spending dramatically or increase taxes (most likely through an inflation tax because people are more oblivious that way).  I don’t see Obama cutting spending, which leaves only one real foreseeable course of action… the route of inflation.  The problem with inflation is that it can get out of hand very quickly and then everybody suffers.

As America goes, so goes the rest of the world.  Could it be possible that international experts already know that?  Maybe they continue to fund USA debt because if the USA fails then other nations will topple like dominoes?  Can you imagine the world chaos that would ensue if the dollar became completely devalued thereby causing other nations’ economies to destabilize as well?  It’ll be one for the history books!  I think at this point the best-case scenario is a long recession.  But I want to plan for the worst-case scenario.  What can I do now to prepare for and survive a hyperinflation scenario?  A scenario where the entire USA economy comes crashing down, and great shall be the fall thereof.  I hate sounding all gloom-and-doom, which is completely out of my nature, but I think it’s a good idea to start preparing just in case.