Uncertainty at home and in Europe

Published on: 2011-11-13 20:15:18

One of the Republican talking points over the last year has been that the economy can't get moving again due to "uncertainty". And they are right, except that the uncertainty is probably not the result of government regulation or taxing the rich.

Instead the uncertainty has a lot more to do with people transferring their money to shorter term investments amid record low interest rates. With the difference between investing in a CD and a checking account often being less than 1 percent, billions of dollars have been transferred from CDs to checking and savings accounts. With a lack of long term investment, that creates a lot of uncertainty.

And of course we have Europe. Even if they somehow do manage to prevent the "contagion" where one country defaults leading to the default of others, there is still the problem of Europe being near recession with a projected 2012 growth rate of 0.5%. And that is before the new austerity cost cutting measures in Italy and Greece that will further reduce GDP.

I believe time is going to work some of this through the system, but we have a ways to go still. There is plenty of evidence we will continue to be in a deflationary environment in that areas of home prices, wages, and discretionary spending type items. The only possible area of inflation would be those items links to energy prices like gasoline and food, and should we have that type of inflation it would only increase the chances of deflation in the other areas (wages and home prices).

But on the other side of this we will have more affordable homes and the excess debt will work its way out of the system. Hang in there! 

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