How to Stay Afloat In This Bubble Economy

The headlines look appealing. Unemployment is falling, confidence is returning, and the stock market is reaching new heights. However, there are some major underlying events that could make those optimistic headlines do an abrupt about face—when one or more bubbles goes “pop.”

I write this with some trepidation. As a sales professional and small business owner, I try to be as positive and uplifting as possible. What concerns me enough to share my opinion is the fact that a portion of the mainstream media has been shaping elections, and economic policy. For whatever the reasons, and we don’t need to go into those details here, the popular media including the Associated Press, refuses to inform the public about some of the underlying scenarios currently taking place. The focus seems to be on the so-called booming stock market, which at this time is the only viable place to invest.

I am not an economist, or an expert in finance or politics. However, I am a head of household, a small business owner, a taxpayer, and an MBA. I do my share of reading and listening from a variety of sources. Anyone who claims they can predict the future is not being truthful. For anyone interested in learning how so called experts predict the stock market, I recommend the book, “A Random Walk Down Wall Street” written by Princeton economics professor Burton Malkiel. Today, I would even argue that the stock market's success is no longer tied to the real economy--the economy where working folks and families feel the pinch.

Business Confidence

With Obamacare and its potential repercussions looming overhead, business owners are frightened about what they may have to fork over. Will the rules continue to change? When I take a look back at the prior recession around 2008, one particular event seems to have started that downward spiral: The GM Bailout. Prior to that, the rule of law stated that the folks who invested their money, those who took a risk, the stockholders and bondholders, would be paid first in case of a default. In the case of the GM bailout the investors were left holding the bag, regaining only a partial payback. This single event has placed the brakes on what could quickly and easily become, once again, the most vibrant economy in the world. Rules and a consistent rule of law are what have enabled the US to accelerate its growth over our fairly short existence. When the rule of law and proper justice ceases to exist, the end result is corruption and poverty.

Real Unemployment

While the falling unemployment rate looks good as a headline, is this really the case? How many people have given up looking for work? Take a look at the article:What Is the REAL National U.S. Unemployment Rate – Why the Numbers Can Be Misleading. The author provides six reasons why unemployment calculations are not completely accurate.

Real Inflation

As the stock market continues its climb, the headlines make this seem like the economy is in good shape. But with the Fed holding interest rates near 0, as they continue to print and pump $85 billion into the economy, where else can people save or hold their money? What about the poor folks who may have a savings account, earning 0% interest, while at the same time they are paying nearly double for gas and food over the past few years? But wait, the gov’t excludes food prices when calculating inflation. Let me tell you, the current inflation rate is a lot more than the reported 3%. In fact,AIER has the real inflation rate pegged at over 7%. Having money residing in certain accounts is actually losing money on a daily basis.

Value of The Dollar

Economics 101 teaches us that as more money is printed and released into the economy, the purchasing or buying power of existing dollars falls. Currently the Fed continues to pump $85 billion a month into our money supply. This can't continue forever, and the longer it does, the longer the true recovery will take. My advice? If you need to make a purchase, and you have the funds, buy it now!

How To Stay Afloat

Here are some of my suggestions to help shield you from the bubbles. I’ve still been adhering to the old rules—hopefully they won’t change too much:

  • Live within your means. No credit card debt!
  • Diversify investments—consider mutual funds rather than direct stocks
  • Pay attention to the Fed. Once they stop printing money things will probably get rocky--including stock prices
  • Own some gold and precious metals
  • Don’t hold excess assets, including real estate
  • Consider 30 year fixed rate mortgages only—this is the last haven for a deal
  • Have a 9 month cash reserve set-aside if you can
  • Consider offshore accounts for your savings

Hopefully the economy, across the board, will improve. If we can continue to uphold the Rule of Law and allow the free market to stop being manipulated, the US has everything in else in place to achieve greatness once again. In the meantime, be wary of what economic information you are being fed, and pay attention to the sources.

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