Thursday, August 18, 2011

Stocks Get Rocked Again, Gold Up

The volatility continues.  The Dow closed down over 400 points today.  Gold was up above $1,820 and is up again in after market trading.  With gold going up, stocks going down, and unemployment remaining high, it is an indication that the government's policies are failing, which of course is no surprise to libertarians.

Meanwhile, Obama is going to announce his plans for another stimulus.  There is probably only one good thing that may come out of it.  He may propose to extend the payroll tax cut that will expire at the end of the year.  This is a good thing.  The government is running massive deficits and is headed for default anyway, so we may as well keep what we can now.

If Obama really wanted to help unemployment, he would propose the same payroll tax cut for employers.  A payroll tax cut for employees helps those who are working.  It lets people keep a little extra.  But in order to help unemployment, you have to decrease the cost of labor.  By reducing the employer portion of the payroll tax, it would make it cheaper for companies to hire people.  This would actually do something to help unemployment.  Of course, the politicians, particularly the Democrats, could never just "give away" money to big corporations.

I expect the rest of Obama's "stimulus" to be horrible.  It will contain mostly welfare and government programs that will only make things worse.

The economy needs more savings and investment.  The economy needs a liquidation of the bad debt and previous malinvestments.  The economy needs less regulation.  While Americans try to pay down debt and increase savings, the government is ruining this by spending money and running up more debt.  This is making it almost impossible for any kind of real recovery.

Expect more volatility.  Day traders should be happy.  The stock market will continue its roller coaster as the market is not sure if there will be recession, price inflation, or both.  The bond market and the gold market are telling us two different things.  My guess right now is that bonds are correct for the short term and gold is correct for the longer term.  In other words, we will see a continued recession and then we will see significant price inflation.

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