Monday, September 13, 2010

Current State of our National Economy

The Treasury Bill interest rates dropped to an all time low a couple of weeks ago, but then President Obama began talking about giving business a tax break on equipment depreciation, and they, along with some other indicators recovered by 10% to 20%. McCain called it a death bed conversion (but, he said, too little, too late), since Obama was now endorsing a tax cut that the liberals had been fighting against for a couple of years. And even this tax cut is only one small slice of the sweeping tax reforms needed to begin undoing the damage from the Obama administration.

Other good news, solid gains in private sector employment numbers were the opposite of the news that the unemployment rate had climbed again. Let me be clear: the superficial numbers of this week's or this month's unemployment rate are useless. The numbers that count are private sector payroll and manufacturing payroll.

Some banks and credit card companies raised their rates just before the final provisions of the CARD Act went into effect. No big deal, unless you owe a lot on your credit card. The long term effect of the CARD Act will encourage banks and credit card companies to be more open and honest in their dealings. This is a good thing, in spite of what many Republicans say.

The reason the T-Bill interest rates are so low is the same reason Gold prices are so high and oil prices have not gone up. Many of the people controlling large quantities of money are in a holding pattern. By this, I mean investment houses and banks. They are buying T-Bills and gold, instead of putting it back into the economy, where they might not get any return, since business has been at the mercy of coming tax hikes beginning in a few months. They are afraid of a "double dip" recession, and they still might get one. I say this, because I recently heard the markets in Europe are so unstable that now banks are buying up gold as a hedge against a collapse of the Euro.

Is inflation right around the corner? Well, if the European Union doesn't go into collapse, and the US gets its tax cuts (and gets its spending in line), the economy is chomping at the bit to accelerate. And that will bring a round of robust inflation. Some banks are already starting to get the tools in place to handle that round of inflation.

Is it time to buy gold as a hedge? I don't think so, but it is time to begin talking about it. Looking at the third chart (Gold recent with 200 day exponential average), I would begin looking seriously at it when the blue line drops below the red line. In the mean time, I am keeping a closer eye than I probably should, at the November elections. The "right wing" is very sure that they will replace the Leftists in congress, and thereby put the brakes on our slide into liberal despotism. Notice, I said put the brakes on, not stop or reverse. If they are over confident, and don't get the brakes on, it might be time to invest in guns and ammo.

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