Oil, healthcare, middle class taxes and the economy
Written by Michael Vass
Over the weekend I was speaking with a real estate lawyer about the economy. My friend is one of the top corporate lawyers in New York City, as well as the nation. They have worked on multi-billion dollar deals for institutions as large as Citigroup as one example.
Our conversation covered what the public might expect to happen in the near future. Neither of us foresaw good news of any signifigance until April of 2010. And that is iffy.
The prime concerns are inflation, the recovery, and the cost of real goods. Right now, the Government is looking forward to passing further laws that will increase the cost of healthcare while reducing quality of care. That is without question.
Right now the Government continues to move slowly on a stimulus plan that was described as “an immediate need to prevent a pending doom”. A stimulus plan that has harmed some with the greatest need, that has inspired creation of temorary jobs that are not full-time nor in many cases even existant for 30 days. Which says nothing of the fact that unemployment has grown far past the promised ceiling the Stimulus was promised to provide - with current expectations of even higher levels, and real unemployment has reached the 12% level in the nation.
But seperate of this has been something we all have heard little about. Oil prices have grown in the last month from $60 to $71 a barrel in less than 1 month. Which is troubling on several levels.
Oil prices are cyclical, and there is a normal drop in prices during the summer. The natural cycle start to ramp up to higher prices as we enter fall. The peak is normally somewhere in the late 4th quarter or early in the first quarter.
But right now we are watching crude oil prices rise with little fanfare in the news. Which is ahead of they normal fall increase. Indicating the potential for a huge increase in prices as the year continues. Adding the burden to families and businesses.
Couple that with the fact that sales for the 4th quarter will be lower due to the number of people continuing to be unemployed. Throw in the potential of higher taxes for businesses if the current healthcare proposal is passed (and the 2.5% tax to individuals that don’t accept the Government plan). And this says nothing of the Democrat Cap&Trade program. A program whose intention is to raise energy prices to force America to use less energy. With side effects of increasing costs of food and housing.
Not inclusive is the cost of food due to the push for green energy. The increase in the ethanol glut alone will push the price of food higher by at least another 2-5%, seperate of any other factor.
This is a recipe for hyper-inflation. Between the growing costs to create goods, and the pressure on food and oil, with a national debt so large (and growing) that the interest alone is greater than the GDP of dozens of nations around the globe combined. Hyper-inflation is unavoidable in my opinion.
My friend saw much of the same factors. They added that there is a huge expectation that the real estate market will take another hit before the end of the year. They expect that the unemployment levels will fuel greater numbers of foreclosures and mortgages in default. This will again attack the confidence of banks and financial institutions.
Add to that instability the probable creation of taxes on the middle class (which will increase foreclosures and bad debt), the continued spending of the Government on new programs (like the Cash for Clunkers program that is seperate from the Stimulus, budget, or currently proposed spending bills), and the unknowns of international actions like those in Afghanistan, Iraq, Iran, and North Korea.
Net net, the outlook is far from rosey or even beneficial.
If the conversations I have had are correct, even in part, and my projections are even half as sound as I believe, then I expect several things to occur.
Unemployment will grow to 11.5% by mid-2010
Interest rates will increase by 5% over the next 2 years, potentially increasing by 10% within 3.
Mortgage foreclosures will increase by another 3%
Mortgages in bad standing will increase by 8%
Food cost will increase by 5% in the next 9 months
A tax on the middle class of at least 3%, likely as high as 12%, will become a reality
The stock market will retract by some 10% and become stagnant
Crude oil prices will reach $90 per barrell with a very probable spike to $115 within a year
The value of the dollar will drop at least 20%
While all of these things may not happen, and/or not to the degree I have described, I expect that the majority will. If I am only half-correct on any and all points, the American economy will be ensured to remain in trouble for another 2 years at best.
I say all this because this is what I see coming. In each of my projections over the past 3 years that I have posted I have never been less than 65% correct. Thus if my readers prepare for what I foresee, if I am incorrect they will be in an advantageous position, and if I am correct they will be well-protected.
But I am open to hear what you think.
