Talking to people around around Southeast Volusia like Claudia Torres about the economic slowdown reveals most are sure things are slow, but they are uncertain as to what is really causing it.
Torres, an agent at State Farm, said: “The slowdown is horrible here. There is less money and business. An acquaintance is having a hard time affording gas for his SUV to drive to his job in Orlando”
When asked about what is causing the slowdown, she blamed it on the war and said the president is not handling the money well.
Joyce Hanson also at State Farm said, “we are having hard times.”
Discussing the slowdown with people brings home the fact that we are probably doomed to repeat the recession cycle over and over because few appear to understand what is causing it.
The first thing people need to know is that the basic boom to bust to boom cycle is fueled by the money supply which goes from too much to too little and back to too much over a multi-year cycle.
When the central bank creates too much money and credit, prices rise. This is seen in the cost of everything we buy and especially in houses and stocks.
When the amount of money and credit is restored to their proper levels the price of housing falls, Stock prices fall and some jobs that are no longer viable are eliminated.
Easy credit tempts people into business and ventures which are not feasible without the easy credit. When credit becomes harder these mal-investments must liquidated, jobs lost and investments written off or down. Once the mal-investments are written off the economy starts to recover.
The inflation of our dollar is one of the many causes of our high gasoline prices along with higher prices for everything else.
Local folks ask why the Fed doesn’t just keep the amount of money and credit at the proper level? Then we wouldn’t have this boom and bust cycle which causes everyone such grief.
The quick answer to that is that with a central bank and federal reserve system, there is no way that anyone can tell accurately when there is too much or too little credit. When things get really unbalanced, then we can tell. However, there can be political pressure to keep things unbalanced even when it is obvious that there is too much money.
Right now it is obvious that we have too much money but still we are keeping the interest rates too low for political reasons. This will delay a true recovery
If it seems hard to understand the federal reserve chairmen such as Alan Greenspan, there is a good reason for it.
The chances are overwhelming they themselves don’t understand what they are talking about so they mumble and equivocate.
One question all of us want answered is how long the slowdown will last?
If the government does the right things, the answer is one to two years.
This assumes the government gets the money supply back to its proper level, does not raise taxes, keeps the international trade doors open, does not issue more regulations and finally does not let the lawyers destroy our property rights.
So far the government has been slow to get the interest rates back up to where they belong. That will delay recovery.
Congress looks as if they could let the Bush tax cuts expire in 2010. Such an expiration constitutes a tremendous tax increase and hits directly at investment, our economic growth would be severely slowed down.
In fact, it has already slowed down in anticipation of such an event.
I have heard businessmen here in Volusia County say that they are cashing in some capital gains for fear of what might happen.
Investors are slow to invest in the face of this whopping “tax bomb” they see about to be dropped.
This looming tax increase is already having a serious downside effect on the economy.
So what can we do to protect ourselves from this boom bust cycle? The first thing is to recognize what is happening.
When you see interest rates too low and the housing market and stock market going too high that is a strong signal we are in an inflation period.
This is a signal to be cautious about how you invest your money.
When you hear ads on the radio and TV that you can double your money by buying gold, chances are you can’t.
If you are thinking of buying an extra house so you can “flip” it there is a good chance you can’t. A good percent of foreclosures now involve houses that were bought for “flipping.”
Don’t be buying assets for income production unless the present and projected future income justify the price.
It is too late for this advice to help people with this business cycle but rest assured we will eventually get another chance because the boom to bust cycle will never end as long as we have central banking and a federal reserve system.
The person who recognizes the boom and bust cycle generated by the federal reserve system and acts accordingly will be the one who does the best.