Tuesday, October 25, 2011

Everyone relives the last crisis. In 2008 it was the banking system which melted down. Today the banking system is better although not all the way back and the trouble lies elsewhere.  I believe the general economy is just OK. Most business people I speak to say business is still not where they would like it but it is better than last year. Business people do not sit still, when a recession hits they change their behavior by working harder, trying new approaches, restructure pricing and try to take advantage of missteps by the competition. All these steps are beginning to pay off a little. There is no way the economy is going to roar until the housing sector works through all its issues. This will take 10 years which started in 2007. As long as the weakness persists in this sector inflation and interest rates will remain low. So where does the current concern in re the economy come from? I believe it is the public sector. This is true in both the US and Europe and Asia, it is true for countries, cities, states, towns etc.

Meredith Whitney in an effort to publicize her new firm made a wildly inaccurate prediction of billions of municipal defaults in the US. What she should have said was the key to the recovery is dependent on fiscal policy at every level and the strains under which the public entities are struggling make this almost impossible for the economy to expand. They will have trouble meeting their current obligations over the next few years. This second statement has the advantage of less hyperbole and also it is true. Examine the State of Rhode Island, the country of Greece, the city of Harrisburg and you will find a laboratory to study the financial troubles affecting every public subdivision in the world. Again it is a moving target and public officials have to respond to the new realities. You see this in California, Wisconsin, NY, NJ, hopefully Italy and Greece. It will cut across all party lines because there is no choice. It the end we should have a different concept of Government responsibility and services and people will adjust. Stayed tuned to the public sector for keys to the economy , the banks will weather the storm

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