Monday, April 30, 2012

The financial press seems surprised that Spain and England are slipping back into recession. Since the response of those countries to the financial meltdown of 2008 was to implement austerity measures, which means cutting government spending, there was no other possible outcome. It is not rocket science. The US chose stimulus first and today we have an economy with sluggish growth and an increase in the budget deficit, but we have the means to address the deficits and excessive federal spending. As I mentioned before the government must save the economy first and then it will be in a position to address the longer term structural issues. In the US the private sector is doing fine while the public sector is in contraction. The overall effect is enough growth to allow us to work on our large fiscal problems.

Things I believe about the US economy:

Unemployment will remain high. Perhaps we need to rethink our educational assumptions. As a country we think that if you graduate from a prestigious college after paying enormous tuition the world will greet you with open arms. Most employers will tell you that upon graduation, the student does not know how to do anything useful.

Real Estate prices are still in a correction and the final correction will surprise all of us who own houses. All it takes is a ride around the neighborhood to see sales are sluggish and all the press about an incipient recovery might just be the Real Estate agents pumping up the business

Interest rates and inflation will remain low. Occasionally there will be a spike in the price of a particular commodity but overall prices will increase modestly.

All these factors mean growth will be sluggish but unlike the Europeans positive.

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