Preparing for the Coming Chaos- Part I

Virtually every important economic indicator is headed south with no abatement in sight. In response, President Obama and the Democratic controlled Congress is proposing the largest economic stimulus package in history and my guess is that there will be additional stimulus packages to follow. The stimulus package passed by the house two weeks ago received no Republican votes and appears to be stuffed with pork…politics as usual. My guess is that the Senate version will look much different. Hopefully, the final version will be pork free with projects that target real relief, real fast for real people who need help. Americans are angry over the situation and blame corporate America and Congress for allowing it to happen. The big question on everyone’s mind is, “Will it work?” My best guess is, “Yes and no.” Yes, in the short run it will work because the Bush administration and now the Obama administration have shown a willingness to do whatever it takes (with our tax dollars) to get the economy moving and people back to work. If one thing doesn’t work…like the first $350 billion of bailout funds, try something else…like another $800 billion stimulus package. Consider this their Great Monetary Experiment and my guess is that, as a result, the economy and stock market will show signs of improvement before the end of 2009. Let’s call this Phase I and expect it to last for two to four years. 

 

However, Phase II will be another ugly mess as the capital injections of Phase I begin to wear off and we are left with an additional $2 trillion-plus mountain of debt to add to the nearly $11 trillion we already have. That’s nearly $40,000 for every man, woman and child living in America! Here’s what Phase II might look like along with strategies that just might help you survive and prosper as it unfolds:

 

High inflation. Right now inflation is low but printing money at the rate the government is currently printing guarantees inflation in our future. 

 

Next week, I’ll continue this review of how the current government intervention in our economy is likely to play out along with strategies you can use to keep your nest egg safe and prosper in the years ahead as I focus on the outlook for the U.S. dollar, interest rates, energy, income tax rates and gold.