Tags: Coronavirus | coronavirus | economy

The US Economy After the Virus

a clock next to a piece of paper reading economic forecast
(Artur Szczybylo/Dreamstime)

By Friday, 05 June 2020 11:57 AM Current | Bio | Archive

After the blissful past five years, where there was a balance between demand (consumption) and supply (produced goods) creating near full employment and negligible inflation (see my blog of 12-30-19), the coronavirus invasion and the resultant close-down brought the U.S. economy to a brutal halt, resulting to a shutdown of practically every manufacturing plant. This resulted a reported 30 million unemployed people in May alone and now crossing the 40 million mark. The effect was a loss of $5.5 trillion in productivity, equivalent to a loss of 2 % of our national gross product each month.

The U.S. Treasury and the Federal Reserve System made a commendable effort by immediately placing about $4 trillion into the banking system, and ultimately to the consumer side of the ledger (for unemployment, small businesses etc.) While this money prevented social unrest, its effect was that almost 100% of the funds were used to prop the consumer side of the economy and indirectly the stock market.

As a result, we now have an imbalance between demand and supply.

While the effect of this imbalance might not be visible at present, it certainly will be in 2021. There we will have an overhang of money not matched by sufficient production of goods, since there is a time lag between factories producing at full capacity and the forced shutdown period.

Now we have an oversupply for spendable money facing insufficient goods. Classic economy teaches that when this happens, there is inflation. Like all inflation, it will start slowly, probably this fall.

The question is, how can one protect one's savings against a likely 14% inflation throughout the coming years?

The best way is to invest funds in fixed assets such as gold. It is not surprising that the price of gold during the past two years has increased by 33%.

Real estate also is a possibility. However, it has high carrying costs (maintenance, taxes.) Getting value appreciated may have to wait years.

My favorite investment is the stock market. It is not for nothing that the Dow Jones index since 1940, has adjusted itself step by step with inflation. My picks are well capitalized companies paying dividends (typically a sign that they make profits.) This excludes most high-tech or what I call "gambling" stocks.

While production and labor cost will rise during inflation, the underlying value for industrial buildings, machinery and land will keep its intrinsic value.

I must apologize for telling you in my last blog that I expected decreases in the rate of new virus infection per day starting at the beginning of April. However, the high point of 39,000 new patients per day was only reached on April 23 thereafter beginning gradually slowdown of daily infections. So, I missed it by 2 weeks.

Dr. Hans Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. He is a member of the American Research Society and an Inductee of the Hall of Fame of Automatic Control, besides also being an honorary member of a number of technical societies. Read Dr. Hans Baumann's Reports — More Here.

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Now we have an oversupply for spendable money facing insufficient goods. Classic economy teaches that when this happens, there is inflation.
coronavirus, economy
Friday, 05 June 2020 11:57 AM
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