Home » Featured, Politics

How Obama’s Actions To Help The Middle Class Could End Up Wiping Them Out

13 December 2008 2 Comments

The election is over.  Obama has won.  And now it’s time for Obama to act on all those promises he made in the 2 year campaign for the Presidency.  Throughout his campaign, you heard words like “fairness” and you heard a focus on the middle class.  Obama made his view clear: the economy can only prosper if the middle class prospers.

Now, how does the middle class prosper?  Well, job growth is the primary engine that helps the middle class.  The middle class worker is usually the one left out in the cold when big companies scale back.  In order to provide more jobs and higher paying jobs, you need economic growth.  Economic growth creates more jobs at every level.

Unfortunately, we are in a recession, possibly a depression.  One of the major results of a recession/depression is a contracting economy and disappearing jobs.  This definitely hurts the middle class big time.  November job numbers just came out, and they were really ugly.  However, a high 6.7% unemployment rate is still pretty good if you consider ugly times of the past.

Why is this important?  Because Mr. Obama is about to take office, and his primary goal is going to be to create jobs for the middle class.  Obama needs to answer to his promises that he will help the middle class and he cannot afford further economic deterioration if he hopes to be re-elected in a few years.

Obama’s Game Plan

Obama has made his direction clear, he will spend and spend to manufacture economic growth and create jobs. He has already announced a massive spending project that is being called the New New Deal.

The problem with this is that we have to borrow to spend.  America has no money, the government must go into further debt in order to finance this spending program.

Inflation

I believe that the unintended result of this massive debt financed spending will result in disastrous inflation.  Now, most people when you talk about inflation start ranting and they say how in the world can you argue for inflation, what we are going through now deflation!  I believe the deflationary environment we are in currently is strictly due to the massive de-leveraging of the entire economy.  Basically, all asset classes are selling off and the result is deflation.  When this short term process is over, I believe inflationary pressure will skyrocket because of severe weakness in the U.S. Dollar.

I am not going to explain the inflation argument in detail because there are better resources out there for this.  For example, a recent Seeking Alpha article details the argument very well.  Also, check out Euro Pac for continuous content on why we are heading for big time inflation.

The Effects on the Middle Class

The folks that will get absolutely killed by severe inflation will be the middle class.  If we end up in a depressionary, inflationary environment, which I think is likely, the effects will be catastrophic.  Basically, the value of your money is wiped out in this situation.  The only people who will survive financially will be the subset of the investing class that saw this coming.

A contracting economy plus a weakening currency could result in people spending $500 on groceries for the week.  The result will be a significant drop in the standard of living of Americans.  For the middle class that is already struggling, this would be a disaster.

Besides all the doom and gloom described here, this could actually result in America being forced to face the wreckless consumption and lack of true economic growth finally.  Americans would be forced to save more money and get back to working hard.  Our country could re-vamp its manufacturing base and begin producing quality goods for the rest of the world.  However, these positive benefits would only come after a serious crisis in my opinion.

How To Prepare and Profit

The biggest way to prepare for such a crisis is to invest in gold and maybe some other currencies.  I don’t think the U.S. market is going to have much upside over the coming years, and might even have more downside.  Except for individual stocks that I like that are not dependent on American consumption, I would get out of U.S. equities.

For more information on how to prepare for such a crisis, download the free Fall 2008 Report.

2 Comments »

  • Morey said:

    And I thought I was the snesblie one. Thanks for setting me straight.

  • bkzjsdd said:

    3pt30y caeyibrwakiu