Economists are expecting inflation rates to halve over the next year due to spikes in consumer goods such as oil and grains.
Unemployment rate is currently double its pre-recession level—and only expected to get worse as Christmas time lay-offs and arrival of Iraq troops.
Joshua Dennerlein, economist at Bank of America, “Without some kind of monetary policy help you would definitely get deflation.”
September witnessed the highest inflation rate in three years—3.9%--but is expected to fall to 1.3% by next October.
**Operation Twist: Central Bank’s stimulus program is due to expire in mid-2012 and could pose a major threat to the economy if inflation and unemployment rates have not sunk.
This possible scenario is cause enough for action on the Fed’s part to attempt to put a stopper on deflation and provide more support for economic growth.
One way to counter inflation would have the central banks raising interest rates. Short-term borrowing costs were cut to zero and will bring quite a predicament in fighting falling prices.
Fed’s want to keep people and businesses away from the “Deflationary Psychology” of waiting to make purchases until prices are cheaper later on down the road. Be watching for stimulus propaganda—Buy NOW with (tiny) savings/benefits/gift!!!
Growth (g) was 2.5% in third quarter and was only slightly above 1% in the second quarter. This was largely due to the recovery from spikes in oil prices and the quake in Japan.
However, if Europe fails to bottle-neck their financial woes, it could be Big Trouble in Little America.
Wage pessimism is at its highest level since 2009, following the housing market bubble and Big Bank Bailout. 1 out of 5 Americans have the impression that their incomes will significantly drop in the next six months.
One economist expects the unemployment rate to be only 9% by second quarter of 2012—current rate of 9.1%
To date, the Fed has knowingly dumped $2.3 trillion into the banking system. Much of this sum has not “trickled down” into the general economy as of yet due to “weak demand and tighter lending standards.”
“There is a legitimate concern about deflation,” says Richard Burdekin (economist @ Claremont McKenna College). “But to have a deflation when you have the sort of money growth we’re seeing would be unprecedented.”
Other economists & investors are pointing towards the decline in housing prices (dropped a third since pre-recession peak), S&P stock index is down about a fifth, and values of a number of other asset classes. I.e. Reuters-Jefferies CRB commodities index—dropped 15% since April 2011 and nearly a 1/3 since 2008.
“When you have deflation in all these other areas, it’s kind of difficult to see how goods and services are going to resist the trend,” said Gary Shilling (San Francisco Fed & economist at several Wall Street firms).
How this will all fare if the Occupiers of Vancouver get their demands from the G20. The Group of 20 rich & developing nations will be required to impose a 1% tax on all financial transactions and currency trades. Their message: "We want you to slow down some of that $1.3 trillion easy money that's sloshing around the global casino each day — enough cash to fund every social program and environmental initiative in the world."
The 3rd quarter has brought some improvement for the United States’ economy. Consumer spending and business investment has seeded the 2.5% growth in the July-September quarter. The first six months of the year bore witness to a grueling 0.9% growth rate.
Growth is projected to continue through October-December quarter at roughly the same rate. GDP is providing a much more optimistic perception of the path of our economy. Just three years ago, GDP was at a standstill with 0% growth rate followed by a sharp decline into 2009 @ -2.9%.
Consumers have spent at an annual rate of 2.4% on items such as cars, furniture and clothing. It seems amazing that at times like these people can waste money on nonessentials while not heeding the warning of upcoming strife, destruction, chaos, etc….DOOM. We are truly creatures of habit and fellows of the present. Reminder: Consumer spending accounts for 70% of economic activity.
The service industry also experienced growth from consumer and household spending. Health care and air conditioning were the prime recipients of this spending. Overall, Americans are STILL spending more than they are making, hand-over-fist.
After-tax incomes took a hit over this past summer, falling at a rate of 1.7%. The increase in spending and decrease in salaries was offset by a likewise decrease in the saving rate.
Investments in equipment and software from businesses has done its part for the economy. Setting off a monumental 17.4% rate in growth. Most of this was spent on new buildings and construction.
FYI: 14 million Americans out of work and want jobs.
“Economists warned that even their modest assessment of growth of around 2.7 percent for next year will fall short if the European debt situation does not get resolved. And the outlook could dim further if U.S. lawmakers allow a Social Security tax cut and extended unemployment benefits to expire at the end of this year.”
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