Thursday, August 28, 2008

It's the economy, stupid.

If you say the economy is fundamentally strong, you are immediately branded as an out-of-touch wealthy elitist. "Sure," they say, "it's good for you. But for the rest of us regular Americans..." Now I'm not saying everything is good. I'm saying the economy is fundamentally strong overall. On average. We are currently not close to a recession, let alone any negative growth. To even mention a depression shows a person's utter incompetence, let alone stupidity. The economy is actually doing very well, for that matter. The GDP (how much we produced) went up 3.3% over the last three months. That growth is much higher than expected, catching many pundits and economists by surprise. To have GDP growth 6-7% over an entire year is considered very healthy.

So what will happen? [deep breath] The economy (overall, not including financials, housing or automotive) will be growing healthily which will put pressure on the Fed to increase overnight lending rates which will prop up the dollar (slightly) even though the dollar will still be overvalued (p.s., the Fed does not actually have to raise rates, people only have to think that they will for this to happen). That higher dollar and resulting increased stock prices (people bullish on the future) will drive down crude oil costs, stimulating the economy even further due to the lower gas prices. Unfortunately, the gas (and oil) prices will not remain low, as the old rule of supply and demand will come in to effect in about a month. In the short term, however, we will enjoy lower crude and gas prices - as soon as the hype from hurricane Gustav blows over (pardon the pun).

Thanks for listening.


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