All Aboard!

The Stagflation Express! A few things to consider.

Corporations (and those that can) collecting early in 2010 will lead to a staggering drop in the 2011 economy:

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

Add to that some rapid increases in wages for workers in China:

Coastal factories are raising salaries, local governments are hiking minimum wage standards and if China allows its currency, the renminbi, to appreciate against the U.S. dollar later this year, as many economists are predicting, the cost of manufacturing in China will almost certainly rise.

Although the salaries of factory workers in China are still low compared to those in the United States and Europe (the minimum wage in southern China is close to $125 a month), economists say the changes will eventually ripple through the global economy, driving up the prices of everything from T-shirts and sneakers to computer servers and smart phones.

In addition, consider the fact that jobs are NOT coming back in America after the dismal economic downturn that has cost some 8 million jobs to disappear.

That is a recipe for a perfect storm of a dying economy, hyperinflation and near-permanent unemployment for a large segment of the American people.

Then consider the kindergarten level of diplomacy and understanding of the way the real world works by the Obama administration.

How’s that hope and change looking right now?