Observations

What kind of world are we facing? There is no doubt we are implementing social and economic structures similar to most European countries with the bureaucracy playing an increasingly dominant role.

Social programs are a laudable effort. Karl Marx encouraged the idea that the people (read: governments) should have more say in allocating resources.

We forget, however, that without an economy capable of producing wealth, the system is bound to collapse. This was the weak point of Karl Marx’s philosophy.

Who is going to produce the wealth the government wants to redistribute? Tax receipts are collapsing. We need to borrow. Borrowing implies issuing bonds and interest payments associated with it.

You and I have to pay the interest on the bonds. The outcome is an immense transfer of wealth from us to the bondholders. The government is just an intermediary. The impact is a lower standard of living and slower economic growth. The outcome is that the growth of our economy and income will decline, while Asia and Latin America achieve more status.

We will experience spurts of growth as government stimulus has its effect and inventories are increased. This is what is happening now. Commodities are responding accordingly.

The business cycle will dominate, however, because the markets always win. The model on page 5 will keep us up to date about the rise of inflation, interest rates, and commodities. Eventually the feedback will take place. The increase in inflation and interest rates will force business to be more cautious. The economy slows down. Interest rates and inflation decline. And business becomes more optimistic again.

My point is that market forces will always prevail. The business cycle, with its reliable relationships between production, commodities, interest rates, and inflation will not change because they depend on decisions made by people and based on market conditions.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest

To find out more about my in depth views of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

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