The Obama Effect… Will It Help?

By inthemoneystocks.com on January 24th, 2009
I still remember hearing about this charismatic up and coming politician named Barack Obama years ago. An African American man who could speak like few in the past and charm the pants off the public. I liken his speaking talent and charisma to Bill Clinton who was able to slide through many a “sticky” situation and come out one of the most popular presidents ever. Granted, he presided over one of the greatest expansion and wealth building economies in history as well. Many will debate whether or not the economic expansion was his doing or possibly a result of Reaganomics years before. In any case, President Obama has the power to raise us up, make us want to be better, makes us want to unite. He has already put a stop to the pay raises in the White House, gone huge lengths to reduce the bipartisan politics. The American public is tired of the rich getting richer and politicians that disagree not on a basis of their own beliefs but because they are on opposite sides and thus must. This is uplifting for me to see and I truly hope it continues.

Barack Obama is facing one of the worst economic situations since the Great Depression. There is no real doubt in my mind it could be that bad should action not be taken. Action has been taken. The printing of trillions of dollars as the bailouts flow like water under a bridge. A small trickle now the gushing Mississippi. The big question to me is, when do we, the United States public have to pay the piper. As of now, banks are not lending even with the bailouts, however, that will change in time. When they do start lending, it is imperative that the Federal Reserve clamp down on the excess money and quickly. Ben Bernanke spoke about this over a weak ago and admitted they have pumped trillions into the economy. However, he noted that inflation would remain muted due to the lack of bank lending and the commodity collapse. I agree with this. Near term you will see inflation stay low but only until banks begin to lend. At this point it is imperative that the Federal Reserve be ahead of the curve and start raising rates to restrict and pull back the excess money. In addition, I believe it will take much, much more. If not? Hyper inflation will be here in full force.

When has the Federal Reserve actually shown they are ahead of the curve? Never, in my opinion. This is what worries me so much. Believe it or not I don’t even fully blame them for never being ahead of the curve. Why? Because while the Federal Reserve is supposed to be independent from the government, rhetoric and politics, they always get caught up in it. Do not think the president does not have the Chairman of the Federal Reserve on speed dial.

Knowing this, I have little faith that within a few years, we will face an even worse situation. Hyper inflation. Dear readers, think about this. Most Americans have already lost half their value in their pension and other retirement vehicles not to mention half the value in their houses. So let us say someone had one million in retirement savings. It is now worth five-hundred-thousand-dollars after the stock market collapse. That amount of retirement savings could buy… let us say, half a million apples. Hyper inflation hits and all of a sudden that amount of money can only buy a quarter million apples or less. So within the span of 5 years you have cut the retirement savings in real terms by three quarters. From one million to just one quarter of a million dollars. That is scary. Of course there are countless other problems as well. States are running billion dollar deficits. California may have to file bankruptcy…that is if the government does not bail them out too. Pension are under funded and let us face it, what tax revenue will the government get in the next few years? Sales taxes are slumping as consumers are not spending, unemployment is rising which means no tax on income and everyone has huge losses from the last year in their portfolios. I just do not see an easy fix unfortunately.

I am for Obama. He is the right man to lead us through this mess because he is uniting the country and the world. This is a global issue and we need the world for once on our side. The mess we have dug ourselves will cause more problems down the road I fear. We need a leader who is able to inspire us and keep us together as we find out the hard way there is no quick fix. Yes, near term his stimulus package will have an impact but all these stimulus packages are really just creating more dollars. The more dollars there are the less each one is worth. Simple economics here. Supply and demand.

There are ways to protect against hyper inflation. The end game and the only way to help the United States clean up this mess maybe a new currency even… However, that is for another time.

So I say lead us forward President Obama, I am behind you. But just in case all this does not work? I am preparing myself for hyper inflation!