Great post. I’m actually able to connect the dots now. Thanks!

Could you please expand more on the following statement.
“that’s why you’re paying higher prices at the grocery store, because with more dollars out there, an individual dollar is worth less than it used to be.”

I don’t understand how could my money be worth less just because there is more of the dollars out there…

Thanks.

I’d like to see more posts like this concerning the state of our economy.

http://www.economist.com/opinion/displaystory.cfm?story_id=11016333

It is more important to prepare yourself to
weather the storms brewing now or in the future
by building your emergency fund and creating
other income streams instead of only depending on
a job.

To reduce it all down so much and never come across with the fundamental fact that the Fed is E-V-I-L with big bold flashing capital letters is a huge disservice to readers. The fact of the matter is that the Fed is definitely not some sort of benevolent entity which is trying to help people with money. The thought that the Fed is somehow trying to shepherd the US to financial solvency is ridiculous. Drawing from your analysis of the Born to Buy book, it would be similar to thinking that Toucan Sam is really interested in making sure that kids eat a healthy, balanced breakfast. Absurd!

Banks, the Federal Reserve, Corporations, and every grifter on the street are out to rob people blind in the name of profit. Walking into the buzz saw blindfolded is not the right approach here.

The question on my mind is: how over-extended are America’s banks on additional fronts? A *person* who lived responsibly could take a one percent cut in pay without blinking. A ten percent cut would be harder, but not endanger an entire lifestyle, except in the case of those who have been living so far beyond their means that the next late check means eviction or vehicle repossession that makes it impossible to get to work. While Countryside mortgage can’t quite move back in with Mom and Dad, how did it get to the point where we are now at national crisis?

And why try to stave off recession? Aren’t periods of slow economic growth part of the cycle? We’ve got systems in place so no-one needs to starve or freeze to death. From a lay point of view, it makes about as much sense as trying to stave off winter in Chicago— buy some metaphorical boots, hunker down, and keep the roads clear, don’t build bonfires so you can keep running through the sprinkler…

I understand why the Fed had to bail out Bear Stearns but don’t understand the long term ramifications of opening up the Fed discount window that’s funded by taxpayers to privately-held investment banks whose clients include the very rich and large private institutions. Of course, no moral hazard here.

The Fed had been warned by several entities (Center for Responsible Lending for one) of questionable lending practices during the housing bubble as they were happening in real time but the Fed declined to intervene or regulate. The Fed’s performance clearly needs improvement.

Re. investing, if you’ve plenty of cash, go ahead. If not, I suggest holding off for a while to make sure stagflation isn’t in the offing. Some say it’s coming if not here already.

I agree with #34. Since I don’t get into the consumer debt, interest is actually my friend. My cash investments have not been benefiting from all these interest rate cuts.

I do want to point out that while a recession may not be that desirable, periods of a down economy are natural. All these steps we’ve been taking in the last couple of decades to change the natural economic cycle — this fear of recession — actually serve to make the economy as a whole more unstable in the long run. The last economic stimulus a few years ago set the stage for the current problem.

Constant growth is unsustainable, and a lot of the time the “powers that be” seem to be always trying to stimulate growth, rather than letting the economic cycle take its natural course.

The credit risk of the people getting subprime loans was not THAT bad, but people across the credit spectrum were overextended due to the attractive up-front pricing. So, when the housing market began to cool, there was nowhere to turn for credit.