Did World War II pull the United States out of The Great Depression? The war not only gave jobs to many people, including women who at that time were trying to make their way into the workforce, and the causalities of the war, unfortunate as at is, provided even more jobs. With those new jobs came more people spending money and eventually, post-war, America was able to rebound and prosper. However, maybe it wasn’t just the war, but maybe the processes learned from, and advancements we made as a country, after the war, that pulled us out of that recession.

Many economists believe that America’s current economy hasn’t hit rock bottom yet, and that the worst is yet to come. Some even go as far as suggested another “Great Depression.” But can we learn anything from our past? A war wont turn the economy like it did the original Great Depression. I think that has been proven for the past 3 or 4 years now. But can we learn anything from the depression of the 1930’s to help us out of this jam?

2009 was a record year for the United States, but not in a good way. As I’m sure you’re all too familiar we had record job losses and negative growth (ever notice how funny a word that is?). Spending across the nation, across nearly every sector was way down, compared to previous years.

According to this post on ABC, 2010 will continue to be a poor year for unemployment rates. Even with a bullish stock market, better fundamentals, even more jobs, the employment rate will continue to be incredibly high. As the article, and attached video highlight, the census bureau will be buoying the unemployment rates with over 1,000,000 added jobs. But, these jobs are government jobs, supported, in part by record borrowing, so although the number of employed may go up, it is not entirely real.

Finally, I’d like to direct your attention to this infographic over on Fast Company. According to data gathered by the U.S. Department of Commerce and CIA World Factbook, our January 2010 spending outpaced our December earnings by nearly $12 billion. We Americans spent more than we made the previous month. Obviously, it is hard to tell whether some of that money was/is savings, or we are simply up to our old shenanigans with over spending, but one thing is clear if we don’t reign in our overspending as citizens, the country as a whole is doomed to fail economically. We need a better relationship with credit/debt. Otherwise the dollar will continue to fall.

Looking to invest in gold in 2010? Now is a great time. With the world’s economies shakier than ever, California and Greece defaulting on debts, and the dollar shaky at best, Gold will continue to shine. We at gold coins gain would like to extend our hand out and help you consider gold to hedge yourself against further economic losses. Take a look at our free gold investment guide and decide for yourself whether gold should be a part of your portfolio in 2010:

Or Click Here to Receive Your Free Gold Investment Guide 2010

Did you know you could invest all or some of your IRA in gold? That’s right you can, and there are a number of ways to accomplish this. But, why put any part of your IRA in gold at all? Well, let’s do a little comparison.

Purchasing Gold Before the Stock Collapse of 2008

If you had purchased gold around the end of the housing boom in early 2006 (right before the burst of the bubble), before the stock market tumbled, you could have purchased an ounce at around $500. Let’s say you put just $50,000 into gold, effectively purchasing 100 ounces. Today, that gold would be worth around $120,000. That’s more than double your money over 100% return. The same amount invested in the S&P500 would have lost about 20% as of today (investing a similar amount around the same time in a basket of stocks representative of the S&P 500). Stocks ARE up since the crash, but gold is WAY UP, and it never went down.

Gold, as has been evidenced recently and in decades past, is a great hedge. A hedge against inflation, deflation, a weakening currency (weakening US dollar). Check out our post “8 Reasons to Own Gold.”

But, many are surprised that you can hold gold in retirement accounts as well.  The process is simple, straightforward, and Gold Coins Gain can help. As a first step fill out our:

Free Gold Investment Guide

and a representative will contact you (if you’d like) with more details on how to make an IRA Gold Investment

Read some news last Thursday about Gold being bought up in mass in India. The large purchase of gold coming from India late last week seemed to stem from two key areas. First, the Rupee was down, and so too were citizens’ sentiments towards their currency. Because of the decline in Rupee’s people jumped ship and sunk their money in gold.

The second reason for the large purchases of gold from India was the strengthening US dollar. Say what?! Yes, the dollar improved during the week. Gold seems to move opposite to the dollar – when the dollar improves, gold goes down, when the dollar falls, gold goes up. This normally makes sense. Gold is money, it is a standard or way to compare any country’s currency/value to another. So as a currency improves, so too does the physical amount of gold that currency can purchase. Additionally, gold is measured in US dollars.

So, both worries about the Rupee as well as the price decline (brought on by the stronger dollar) sent gold purchases flying in India.

BUT (and it’s all caps because you know it’s serious – I have a finger waving in the air as I write this)…

Why did the dollar go up?

Because of improved financial data. The country is doing phenomenally! Woopee, we can all go back to partying again.

Or not!

Living in one of the most damaged real estate markets in the country, where everything has suddenly become depressed, it is clear that this is no where near over. There are lots of other markets (California, Nevada, just to name a few) that are going through a similar crisis (and other crises). Jobs in virtually every arena are down, even in Silicon Valley (god help us). The truth is the dollars growth is BS, based in large part on government spending (cough cough propping up) of jobs and industries. We’re spending borrowed dollars on stuff that isn’t actually making our economy grow, creating jobs, etc. eventually this house of cards will fail. Gold will probably tumble from time-to-time as the dollar weakens and strengthens but is the ultimate protection for when the house falls down.

Meditations on the Causes of the Downturn in the Economy and What to Do?

I hate to be a doomsday prophet, but has any of this economic stuff really caught us off guard? A few things have me wondering this, this evening. These include:

• My TV
• My Uncle
• Saving

Additionally, I was just reading a great article over on Reizner’s Way entitled: “Will The US Suffer Inflation or Deflation in 2009/2010”  that got me thinking too. I know what you’re thinking… “a lot of stuff gets this guy thinking.”

Here’s the deal I read the following passage:

Currently, U.S. consumer demand for goods is abetting and consumers are retrenching as a result of the drying up of the credit spigot. Credit is now only available to the soundest of borrowers. Money may not be readily available to many borrowers to buy new homes, refrigerators, and automobiles. The consequent deleveraging of the average consumer (who is over his head in debt and who cannot borrow more to finance purchases) is a powerful wave in the U.S. Without the proposed mortgage and bank bailout by the Obama administration, millions more Americans might be on the cusp of losing their homes.

Long passage I know, but well worth the read. Apparently, Reizner, like many others predicted the crisis as well as the aftermath of the crisis (see Peter Schiff & Brooksley Born). For too long our economy has been driven by consumerism… by the consumption of goods. How is this possible? Well we became a world power after World War II, after recovering from our first Great Depression. Many of the world’s elite scientists fled to the island of North America and we became leaders in the car industry, the flight, and aerospace industries, to name a few. But, globalization put an end to that, and possibly – rightly so – outsourcing the manufacturing of these goods to other countries (cheaper production lines, materials, labor, etc.). But for the last 20 – 30 years has seen nothing take it’s place.

Sure, we have industries, tourism, construction, among others, that are needed, valuable, and provide real wealth, but there is not as much money flowing into the country as there is flowing out of the country. Our own economy, in large part, has been propped up on our own greed, our own need for creature comforts (the purchase of goods), and the credit system (the ability to purchase those goods on loan) that allowed this debacle to continue.

So, we’re finally figuring that out. It started with us realizing that people who couldn’t afford homes previously, were given ridiculous, in many cases, predatory loans (sub prime loans) and then DUH!!!! defaulted on them because they couldn’t afford them… THEY COULDN’T AFFORD THEM IN THE FIRST PLACE.

So What Does This Have to Do With Your TV, Uncle, and Savings?

Well first, I’ve been saving up to purchase a home and in doing research realized that there is help available to first time home buyers. Unfortunately though, where I’m at, the “help,” is only available to people who HAVEN’T SAVED FOR THEIR HOMES?

What… this just doesn’t make sense.

Why should I not receive help for being responsible? I don’t particularly need the help (it would be nice) but why should irresponsible people be rewarded while responsible people are essentially penalized? If anything… get rid of the damn thing. Second, their are special loans for people with bad credit. Awesome, this makes some sense. Credit scoring can at times be ridiculous, but the kicker is… they have worse rates then conventional loans and require additional moneys every month (in the form of mortgage insurance). So, the people that are to be helped will actually be paying more IN TWO WAYS to get the home they want. Again, nonsense. As a fairly savvy consumer, I’d rather take some time to improve my credit score (which should be done anyway) and then pay less.

THE TV

I’ve been saving up for awhile to purchase a new TV and finally have the money (I wanted to have a certain amount of money in savings and in cash to actually purchase the TV). But, then I realized… do I really need this TV? I have one, it’s small 19″ I’ve had it for over 10 years. It works fine. Sure, it’s not HD, it’s not fancy (no Internet), but do I really need a new TV? What’s the point?

MY UNCLE

I was talking to my uncle about purchasing a place (he’s a very savvy real estate investor and has made a fortune in the real estate market over the last 50 years) and he mentioned buying a place that was bigger and nicer in order to see a higher return. Sounds good. But, he thought it was worth the price even if I couldn’t necessarily afford it. He said I could look forward to growing my income over time and being able to afford it down the road. Unfortunately, I am not such a huge optimist when it comes to money.

THE POINT

The point is, our economy has been fueled by people and circumstances like this for too long. A larger house would be fantastic, but unless everything goes as planned or my income grows… can I really afford it? I would love to have the new TV, but honestly it would give me pleasure for a bit, before fading into the background of all of the other electronics, gadgets, and shit that litters all of our houses. At what point to we start to hunker down and say, I will only purchase and acquire those goods that bring me true utility and do without those things I don’t need? We MUST spend less.

But spending less has it’s pitfalls. As we spend less, major companies and manufacturers will then have to fire more people (they have less money, because we’re spending less). And the cycle will continue down. As more people are laid off, there will be less collective money to be spent, less products bought, and more layoffs (to the extent that these companies rely on domestic purchases). And the cycle will continue all the way down.

Until when? I don’t know.

But we can begin to stave off a much more bitter future by saying enough is enough, spending less now, saving more, purchasing only those things that truly have utility, or value – doing what hundreds of other generations did to build wealth/security/freedom.

Late last year, October 2009 to be exact, we wrote a post about inflation or deflation in 2010. After significant feedback, requests, and time, I thought it would be appropriate to revisit the article and discussion on whether or not 2010 is heading towards inflation or deflation. First let’s get everyone up to speed:

What is Inflation?

Inflation is defined as a general and progressive increase in prices. Pretty simple, and I’m sure we’re all pretty familiar with this common definition. If you’ve ever heard your parents or grandparents complain (or fantasize) about how prices for a  movie were just 25 cents and you could buy a home in the 50’s for less than $15,000 you’re probably familiar with inflation (although in some areas home prices have insanely dropped to such a low).

Inflation though is a funny thing.

WHY DO THINGS COST MORE? Is it because they are now higher quality? Because they use more advanced, expensive materials? Probably not. The truth is over time, the costs of goods SHOULD go down. As we (humans) become more efficient at mining, assembling, and creating, the costs of goods shouldn’t go up.

The truth is, inflation is really the weakening of a national currency. A dollar doesn’t buy as much as it used to in the 50’s. Check out this awesome chart I found courtesy of Campaign for Liberty:

Did I just blow your mind?! I bet I did. You see how, over time, the purchasing power of the dollar has decreased. Or put another way (and shown on an inverted graph) inflation has increased over time. Never mind the correlation of the steep drops to us leaving the Gold Standard. That’s a whole other post.

What is Deflation?

Deflation is defined as the contraction of economic activity (for example spending within the U.S.) resulting in a decline of prices. It’s a decline in prices. As our economic engines slow there is less need for goods/services (or less desire for consumption) so prices inevitably fall. This is definitely been evidenced, in some small ways, over the last 1.5 years (since the crash of the stock market and turning point of the economy).

As a quick side note… remember all the hulabalu over whether or not the U.S. economy was in a recession or not? Pundits all over CNBC and other networks were going back and forth and no one wanted to admit it. Those were the days.

Back to deflation. If you’ve purchased a car recently, home, etc. you’ve no doubtedly noticed that prices are lower than they once were (circa 2004 – 2008). I purchased a car about 6 months ago that I never could have afforded a few years ago, but because of dealers’ huge inventories I was able to get my dream car. Same with houses. The market is literally flooded with homes, both those that were built and never purchased as well as  ”older” homes whose owner’s were in financial distress and either need to sell, or have been forced into foreclosure. Prices have come down.

But the purchasing power of the dollar is down.

So the question I have is…

Will 2010 signify both deflation and inflation?

Prices, relative to the purchasing power of the dollar may go up (as the dollar falls), ie inflation, but since there is less money shuffling, less purchases being  made, the general prices of goods and services in the U.S. may also fall.

In this case inflation will cancel out deflation – and the average U.S. consumer will see no or nearly no differences. BUT and it’s a big BUT if I may say so, the U.S. economy and the dollar relative to other countries’ economy and currency will stagnate and look stale, dated, and impoverished. Let’s face it, with such little collective savings, and such enormous debt, we are in trouble. So, where deflation may save us for awhile, our engine can only grind to a slow murmur. We will always need to consume the essentials – food, water, housing.

And when that happens should inflation continue, as it should given our ballooning national debt and deficit, we may be spending $100’s of dollars for a cup of coffee.

In the last few days I watched the following two videos:

• Peter Schiff’s Video – UnHappy Stimulus Anniversary
• PBS Frontline’s The Warning

Peter Schiff (who not only runs an investment firm, is also running for office in Connecticut AND continues to put out quality videos on youtube all the time) continues to damn the stimulus package and reveal how it is simply hiding/delaying the inevitable.

The Warning reveals the story of the CFTC (commodities futures trading commission) which regulated agriculture futures as well as derivatives, and it’s new president in ‘96, Brooksley Born.

Both of these videos deal with money the economy, but what do they REALLY have  to do with one another?

Predictions!

Both of these individuals, Peter Schiff & Brooksley Born, predicted in their own respective ways (and specialties) the current economic meltdown we’re wading through. Peter Schiff foresaw the implosion of the real estate crisis, Born predicted the toppling of major US financial institutions due in part to derivative problems (see AIG).

Crazy Predictions

We hear them all the time, the panelists on CNBC or MSNBC predicting the share price of stocks, and they get it wrong. But, Peter Schiff in particular, when making his predictions about the over all economy beginning in 2006 and continuing through the full collapse at the end of 2008 was shot down:

And he was right. Born, on the other hand, predicted the potential problems of derivatives all the way back in ‘96 when derivatives were first being used (and abused) by major financial institutions – and at the time they weren’t in any way regulated.

So, Peter Schiff continues to be a doomsday profit, saying that the current stimulus package is the wrong move. What do you think? No new industries have been created or taken off in the United States, our spending (as a whole – aka Government) is WAY up.

Here’s some crazy stats:

2009 Deficit $400+ Billion
2009 National Debt $5.6 Trillion

2010 Deficit $1.2 Trillion
2010 National Debt $14 Trillion

1 Year deficit increased nearly 300%! 1 year debt increased nearly 300%!

The FDIC keeps a record of troubled banks called the “Problem Bank List.” These are the banks that are in danger of failing, and the list is confidential. Calculated Risk maintains an Unofficial Problem Bank List, which compiles the banks named in press releases and other public sources as being on that list.

In today’s Quarterly Banking Profile, a report on the health of banks in the third quarter, the FDIC stated that 552 banks are on the problem list, with $345.9 billion in assets. This is an increase from the second quarter, which only had 416 banks on the list with $299.8 billion in assets. Keep in mind that there were quite a few takeovers of banks during the third quarter already, as the number of banks the FDIC has stepped in on this year has already reached 124.

If you haven’t protected your money yet from potentially losing it in a failed bank, please make sure that your bank is insured by the FDIC. Diversify the way in which you hold your savings. Times like these necessitate an emergency fund. Cash in an account will do little when inflation rises, but it will be a great backup plan should you suffer a lay off or an unplanned medical procedure. Gold is a liquid means of holding your cash in which you can gain the safety the metal offers while still making som returns. Gold can also be very quickly traded, in any country, in any amount, into any currency. Just because your banker may have made bad choices, you should not be penalized.

The “recovery” of the US economy is not as strong as previously believed as an error in gross domestic product growth was made clear. The US Department of Commerce has lowered their calculation of third quarter GDP growth to 2.8%. The initial estimates had gauged the number higher, at 3.5%.Adjusted for inflation, the GDP is down 2.5% compared to a year ago.

The GDP report also showed a significant increase in corporate profits, which were up 10.6% over the prior quarter. The report cites massive lay offs as the reason for the surge, due to the fact that business investment declined, and there was a large decrease in capital spending on software and equipment.

This is one reason why many analysts believe the stock market is currently overvalued. Much of the profits firms are showing on their balance sheets are a result of slashed operations budgets and fewer salaries and benefits to pay. This type of “growth” is unsustainable. It is another reason to invest in gold, which holds its value through difficult economic times. These corporations can only paint their frugality as “profit” for so long, and then the market will be due for a correction.