The Truth about Economics: Part 10 Predicting the Economic Future

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(See Comic)What most people don’t realize, including people who should, is that the current credit storm is really simply a result of the nature of modern money. Modern money is based on debt. To increase the money supply and avoid deflation requires ever more debt. Things like credit default swaps (unfunded insurance on risky investments) are the kinds of tools that become necessary to keep credit flowing when the debt game gets excessive. But they are also dangerous and start to explode when the debt game starts having a hard time keeping up. Really, deflation is perfectly fine in a world without debt. And it is what the economy has needed for many many years. But in a world that runs on debt, deflation is very undesirable since it makes past debts more costly instead of less. And despite talk right now about deflation caused by the tightening of credit, it is all most likely only going to lead to a new big wave of inflation. The federal reserve has been doing all it can to expand the money supply, and things like 700 billion dollar bailouts are ultimately inflationary. So, what can we expect to happen over the next few years and beyond? Well, there are three main storms looming over the economy: debt, energy, and terrorism. The debt storm wants to be deflationary, but it is inflationary since the central bank and government will do all they can to avoid the cleansing pain of deflation. The energy storm will be exacerbated by inflationary pressure. Economic growth requires energy. And to keep the debt game going requires growth. If energy (and the availability of resources in general) hinders growth, that is a problem. And if the money supply expands without ample growth, that is very inflationary. That money will be out there driving up prices of existing things since it won’t have new things to go into. The terrorism storm is psychologically deflationary. If terrorists wipe out a major city with a nuke, no matter where it occurs it will freak everyone out. No one will be too excited about moving to a big city since that city could be next. Nor will people be too eager to pour money into things like the stock market. But people will get over it and it could finally facilitate the cleansing of the debt system sufficiently enough to get the party started again. However, America might not lead the twenty first century party like it led the twentieth century party, especially if it sticks with the same basic monetary system and stays bogged down by its costly yet lame entitlement programs. So, based on these trends, here is how the dow jones industrial average chart could look going into 2050. The market could just stay in a sideways channel for the next twenty years. It has done that before. But another big boom will eventually come where stock price increase more than tenfold like they did from the early 80s to the year 2000. The question is though, how much purchasing power will a dollar have relative to today when the dow hits 100,000? Just focus on the trends, not the minute fluctuations dow forecast chart of the future dow jones index Global boom driven by new technology Things improve and the economy expands