Some of the myths that are being promulgated by the government, Wall Street, the NAR, the financial shill media and others. Believing any of these myths is a clear and present danger to one’s financial future.

• The Federal Reserve can manage the economy by skillful adjustment of interest rates and money supply. Neither recession nor inflation pose any real threat. The Fed commenced operations in 1913. Since that time, it has been unable to avoid inflation, stagflation, recession, depression and market crashes. Yes, we have had a long calm period of apparent growth, fueled by easy money and credit. But a high price will be paid. John Hussman goes into detail in numerous articles about this myth
• Even if the US slips into a growth recession, other economies around the world are strong and will quickly lead a recovery. The bubble is worldwide. It is already starting to burst in some of the EU countries, notably Spain and Britain. The most recent data shows deflation picking up in Japan as a result of slowing exports to the US. Steve Roach’s recent piece addresses this myth.
• Technology companies are largely immune to economic issues, because they do not need to borrow money. Exciting new technologies will continue to power growth. Technology companies are heavily dependent on the health of the economy. It is amazing that 2000 has been forgotten so quickly.
• The US consumer never falters and robust consumption will keep the economy strong. US consumers have been spending more than they earn by borrowing the difference, frequently using their houses as collateral. That borrowing is rapidly coming to an end and so will the growth in consumer spending. Recent warnings from retailers show this is happening.
• Problems with “subprime” mortgages are contained to the housing market and will not affect the economy as a whole. The widespread credit problems with corporate loans, commercial paper and various exotic instruments show that securitization of mortgages has served to spread the pain throughout the economy.
• House prices will resume their upward climb shortly, probably next spring. Now is a good time to be shopping for bargains. Inventories are continuing to grow at a time of year when they should be shrinking. Foreclosures and bank-owned properties are piling up. There are too many vacant units out there. Prices will not start to climb until inventories fall to a healthy level once more. The inventory trend is in the wrong direction. It will not turn quickly.
• Stocks are cheap. Stocks are richly priced, even based on record earnings. Analysts claim that they are cheap based on big earnings increases forecast for 2008. But earnings have already begun their cyclical decline with a fall in this quarter.