Are We In A Depression?

I guess if you have to ask, the answer is no, but if you look around, things are quite a bit different than they were 5 years ago. The government now controls the banking industry, the bond market, and the real estate market. And of course, if it’s too big to fail, the government will manage that also. Not to mention that world currencies are a real mess getting worse by the day.

Interest rates are extremely low and there is no line of people waiting in line to borrow for new investments. There are a large number of companies and government agency’s floating new bonds at these low rates. And with low interest rates, savers are not flocking to banks to take advantage of the interest rates. In fact, the real question asked by the consumer, “Why save at these paltry rates when I can buy it now and enjoy it?” The concept consume later and enjoy the interest rate return is gone.

Real estate took off for a while when the money market funds realized that 20 percent down in distressed markets had a very high rate of return as a rental. That hole has pretty much been plugged. Rents can rise, but if the unit is not occupied 12 months of the year, the owner faces a decrease in rental income. Owners don’t set rental rates, available supply does ( i.e. the house could rent for 1,000 a month and be rented only 4 months out of the year, where the house renting for 800 a month might be rented for the full 12 months).

The stock market is truly the last game in town, and a very hard one to regulate from a government perspective. The money the Fed has been pouring into the real estate market and the Treasury market eventually ends up in the stock market. You sell a T-bill to the Fed at face and you get investment dollars that you can plunk into the stock market “for a real gain.” Faites vos jeux.

The real question not being faced is the misallocation of resources. Spending too much money producing or harvesting resources that are not needed, eventually leads to bankruptcy; is what can be considered a bubble. Are we talking about something tangible like real estate which every now knows was a bubble? Or are we referring to other things that show all signs of a bubble, like retirement benefits, and health care.

The government uses economists to project what the economy is doing. And from my opinion, an economist can explain why something happened in the past, but doesn’t have the foggiest idea of what it portends for the future.

The precious metals market displays the two sides of owning something. You either hold it in your hand, or somebody else is holding it in theirs. You can own the gold or the certificate, or you have ETF’s or street name stocks. At some point when everything gets marked to market for accountability, investors will find out that there are 1,000,000 ETF’s and only 100 actual items held in trust. I’m not sure how this will set with the investment community when it is realized. Common sense suggests that it is being abused on a large scale.

So from a government perspective, do you inform the public or misinform the public as to the status of the economy? I think most will agree, that misinformation is the best route, otherwise real information makes consumers more aware and more cautious in their spending. And in the end, being negative about the economy can project itself and make things even worse.

The question you need to examine very carefully is; “Do you believe what the government is telling you about the economy is truthful?” It really doesn’t matter what your answer is, you could have cared less about what government thought when times were good. Let’s face it, we haven’t experienced times like this in our lifetime and our government claims the economy is doing fine. Go figure!