Do you think the economy is as bad off as the stock market indicates?

No one probably wants to hear this, but I think the economy is far WORSE than the market indicates.

If one read my post history, esp from about spring/summer 2007, I have been trying to help and tell people to watch out for this economic fallout starting with the real estate market. It is worse than I expected. I do this professionally, and had been advising clients back in spring 2004 that we need to watch rising interest rates and that the housing market could be in serious trouble in about 2 years if rates keep going up, which they did.

You know that in any Bear Market there are huge rallies. You know that these are just technical moves, not a move to a new Bull Market.

Issues to deal with:

1. Banks still not lending (that much). Banks also have huge credit card portfolios that are probably going to get a lot worse as the economy slows, and more jobs are lost.

2. MASSIVE US DEBT. - $10 Trillion and counting faster than ever. The FED has increased their securities balance sheet by over 300% in 2008, pushing near $3 Trillion.

The US Gov is guaranteeing another $5 trillion in FNM/FRE, another $700 Billion so called "bank bailout," add what another $200 Billion so far for AIG, the costs of JPM-Bear Stearns deal; and the billions the FDIC has had to fork over for the 122 failed banks thus far. Oh, and add the auto industry bailouts. Trust me, it will be more costly than $25 Billion. Just watch.

Congress (The Demo's) are proposing a $500 Billion ($ 1/2 Trillion) "stimulus plan," which may go to help state's shore up some of their financial mismanagement, and Obama wants to build hybrid cars, some roads and bridges by creating more government jobs.

Hybrid cars: Nice idea, a little late. Are you going to run out and buy a hybrid car or any car in this economy? If so, is there a bank willing to make a 5 year loan to you? And that car will prob be worth what as soon as you drive it off the lot? â€“ A lot less? Hybrid cars already exist by virtually all the major manufacturers, and that hasnâ€™t stimulated sales or the economy. Toyotaâ€™s sales have plunged just like Fordâ€™s. Itâ€™s not hybrid cars that are the problem; itâ€™s the economy.

The rest of the world, such as China, Japan, Brazil, and Europe tend to have high fuel efficient cars. Guess what? Their economies are plunging too. So hybrid cars are not the economic solution to the economy.

I'll take any bet that building roads and bridges and hybrid cars are not going to be the historical miracle that we will read 20 years from now that got us out of this current economic mess. Please.

If you want to "stimulate" the economy, and your strategy is to go in to more debt, then you might as well do a balance transfer from consumer debt to federal debt. We are already taking on $8-9 Trillion in debt and guarantees, and this has not got people to rush out and buy homes, cars, buy stocks, or spend in the economy.

So, I'm moving to the position that if we are going to further increase massive US Debt, you might as well take that $ 1/2 trillion and give it to tax payers. We are paying for it anyway, and at 1% interest (Fed Funds Rate - FFR) and the FFR is probably going lower to Â½% in December 2008, and maybe to 0% (FFR) by 2009; that is a cheaper cost than any credit card or mortgage loan rate anyone has in this country - hence the federal balance transfer idea.

The alternative is to allow the free to market work, and accept massive consumer defaults, major bank failures, and the market tanks to Dow 4900-5000 or maybe 6000. It will take years (maybe 10-20) to recover to previous highs. Note: NASDAQ has yet to hit its all time high since 2000, and there are a ton of stocks trading at 10+ year lows already. There are some stocks that never recovered from the Crash of 1987, and a ton of company that died in the Great Depression.

No nationalization of consumer debt? OK, what else can we do?
We can just keep racking up the national debt anyway, throw trillions of dollars at any business that ran their business into the ground and looking to be bailed out, rather than restructure under more favorable terms. So pick one. I can tell you that the USG is taking the position to spend their way out of recession.

**** Effectively it is like this:

â€œWe are going to take on massive debt in order to improve our economic situation.â€

----- U.S. Governmentâ€™s strategy to improve the economy

Try maxing out your credit cards and home equity lines of credit (if you have any left) and see how that improves your financial situation. Weâ€™ll, that is what the government is doing.

3. OK, let's say we "get out of this crisis." Let's pretend that housing is stable, consumers are buying again, jobs are plentiful, and banks are lending. Then what? Watch out for the next big issue: "Hyper inflation."

The more debt the USG takes on will have the tendency to devalue the US Dollar. A declining US Dollar drives all imported goods higher. This means food, energy (oil/ gas), and retail.

All of this debt from an economic perspective is more than likely to increase inflation as the economy improves. The costs of loans, etc. can also soar during inflationary times. This impact can SLOW an economy really quickly. Please review the economy during the Carter Administration.

This could be the 3rd negative wave for the economy: The .com bust #1 (2000-2002); Credit issues #2 (2007-?); Hyper-Inflation #3 (date TBA).

Yes, we could have deflation and negative growth before any hyper inflation, and this 3rd scenario is only likely if the economy turns around.

4. Taxes. If Obama and crew (Congress) decide to raise taxes (on anyone), raise cap gains (on anyone) I still see this is as big negative for the economy. These targeted tax strategies on businesses and 'the wealthy' were used during the Great Depression to effectively redistribute money to people who needed it, and who were out of work, etc.

What was the result of higher taxes and cap gains? The result gave us a 25% unemployment rate, 50% of all homes in the USA went into foreclosure, and we got massive bank failures. The economy stayed in the tank for 10-11 years. Only WWII got us out of that economic crisis.

Now, I am not suggesting we are going to have 25% unemployment and 50% foreclosures. The gov is already throwing (borrowed) money at banks to keep the big ones in business.

What I am saying is, this is what happened during the Great Depression when taxes were increased. Other factors caused the Great Depression such as no securities regulation, high leverage (if I recall history, margin was 90-1; 10 cents on the dollar), and we had banks that were in the securities underwriting business. Does any of this sound familiar? We donâ€™t want to further worsen the current similar economic situation by taxation.

So what stimulates an economy?
Historically, lower interest rates and lower taxes stimulate an economy. Show me any country that has high sales tax rates and higher income taxes and I'll show you a 3rd world country. I don't mean 3rd world country with no electricity and dirt roads. I mean they are 3rd or lower in terms of economic power.

The Socialists countries have 40-50% income tax rates and 20-50% sales tax rates for everyone. If this strategy was so successful, they would be the economic power houses in the world.

The economy will improve one day, but to say this is a mild 1-2 year recession is a gross understatement. Every bit of data I have read has shown that were are comparing the current economy, and the stock market to the recessions of 1973-74, 1980-81, and 1929-1933.

When you compare todayâ€™s economy to the worst recessions in U.S. history, that is not a bullish sign.