Cause and Effect: The US Economy

Talking about the economy is something that only appears to be in style when it’s on the way into the tank. Seriously, if you’re an investor or follow the markets (or your own currency) then it’s likely you know what I’m talking about. The stock market has been down big since the beginning of the year, mostly due to the so called “credit crisis.” Real Estate has been no walk in the park either, with dwindling sales and prices on their way to a significant correction. Worse still, joblessness is starting to increase, and most Americans believe a recessions is here already, not on it’s way.

But what’s the real cause here? What can the average investor do to protect himself? What’s your next course of action from here? Read on.

Really the problems that we have in the economy can ultimately traced back to one word…DEBT. Yes, debt can be helpful, even advantageous, when used in the right situation. The world grows and thrives based on the extensions of credit, and it’s likely we’d be a lot worse off without it. However, and this is a big however for those of us living in the US, debt can be a crushing and brutal instrument that strangles growth and productivity. Just take a look around the personal finance blogosphere. How many have written about their perilous journey from too far in the hole to see the light to financially free and happy? A lot.

Our government is like many PF bloggers before they knew better. We’re taking on debt like never before, and the entire economy is suffering for it. What was the government’s solution to a lagging economy and bad retail sales over the holiday? Hand out money. That’s right, everyone is getting a free check from Uncle Sam come May. At first it sounds great, who doesn’t want an extra $600 in the their wallet, anyway? The problem reveals itself however when you look at the source of this money. The Government doesn’t have the billions of dollars lying around to hand out to it’s citizens, so it just created some more money out of thin air. This will be in the form of debt of course, to other countries, who eat these up because while we spend like nobody’s business, we are also good at paying people back. This situation however, is simply not sustainable.

Your next course of action depends on how bad you believe things are going to get. If you’re really worried, you may want to buy into commodities and precious metals. If you’re even more worried and that, bail out on the dollar. Me? I’m not quite so spooked (if my recent purchase of BAC is any indication). I’m going to weather the storm, so feel free to follow my progress as we go along. I could get fleeced, or I could have found a money making opportunity.

Time will tell.