On New Years Eve, I promised that in my next post I would spell out why we face deflation. I’ll even throw in a few free comments on Treasury Nominee Tim Geithner!
According to figures from the Federal Reserve Flow of Funds analysis (above), the wealth loss in U.S. real estate, stocks, mutual funds,insurance reserves, and unincorporated business equity totaled approximately Seven Trillion Dollars in the fifteen months that ended on September 30, 2008. When that report was compiled, the Standard & Poors 500 Index stood at roughly 1160. Today, (January 14, 2009) it closed at 832.5. And home prices fell further in the final three months of 2008 as well, so total wealth loss is even higher today.
That loss of wealth is more than ten times the size of the TARP bankster bailout bill enacted by your friends and mine in Congress. Wealth destruction dwarfs the government’s attempts to guarantee all of our debts. And remember, job losses really only began in large numbers in September. When job losses result in more mortgage, auto loan, and credit card defaults, wealth destruction and its deflationary impact is likely to accelerate.
The deflationary impact is the result of the forced sale, (or non-purchase in the case of things like autos and appliances) of assets. Deflation is simply outstripping the ability of government to keep the consumer driven economy going at full pace. Debt destruction is running far faster than bankster bailouts.
In many respects, this is a replay of the 1930’s. The boom and excessive debt of the 1920’s collapsed. Government intervened but could not stop deflation. Now, the 1990’s boom and the excessive debt creation of the last thirty years have reached the point of unsustainability. Lower prices will be the result of consumers inability to borrow and buy.
Now, lets consider Tim Geithner.
Mr. Geithner has problems. That makes him the perfect nominee to run the Treasury Department! Why, because a guy who should be prosecuted for tax evasion and instead is given one of the most powerful positions in Washington will do anything the Obama Administration want him to do. He is being given a get-out-of-jail-free card and he will owe President Obama big-time! You can be sure he will not stand up for free enterprise and the the American Way. No way! He will be putty in the hands of the most socialist president in American history. This is not good news.
I have contacted my senators along with Senator Grassley, the ranking Republican on the Finance Committee, but it seems Geithner is likely to be confirmed. Go figure.
In my next post, I plan to talk about the comeback of gold as money. Weird idea, huh.