After Congress passed the $700B bail-out about a month ago, I wanted to write down some predictions that I had about the future with the bail-out and financial crises and instead of actually posting this, have sat on these ideas for the last month. I am posting these finally, although now some seem kind of obvious.
Those who passed this bail-out say that this is all that is needed. My first prediction is that this will not be enough and that there will be much more needed. I think it is a joke that they have divided it into an initial $350B package and then being open for requesting for the other half--as if we'd only use half of it. We are not only going to use the $700B, but we will be adding more money to bail-out additional companies. It may not come directly as a second or third bail-out package from Congress, but it will be with taxpayer money, either by taxes, deficit spending, or inflation.
Inflation is going to skyrocket. The prices of goods is going to go up. You cannot do what the government is doing and result in a net effect of 0 on the value of money (as if our money has any real value anyway). If the total money supply is $10T and you add another $1T to it, you will have reduced the value of the existing money by 10%. Now, the effect won't be immediate, but it will happen.
We will see the international community abandon the dollar as the financial "standard" that it has been. I think we will see the introduction of a world currency and the slow (or fast) collapse of the dollars value as goods such as oil are then valued in that new standard. It would not surprise me if we end up abandoning the dollar and switching the US to the new currency.
We will experience a prolonged and ugly recession. And the more the politicians and financial people try to intervene and throw money into the system to try to prevent it, the longer and worse it will get.
We will see a significant movement into socialism as the government takes control of more industry. This will be done in the name of "saving the economy" but what makes us think we can trust politicians more than CEOs?
The stock market is going to continue to go down. It probably will have up days, but the fundamentals in the market are bad and you simply cannot create money out of nothing and somehow "save" the system in any permanent and lasting way. It has to correct itself and the correction won't be pleasant.
