Our Current and Escalating Economic Mess

As we are all distracted by the mess that is healthcare reform we need to keep one eye on our economy. Unless you are the Vice President, or a lobbyist for a labor union, you probably realize that the $787 BILLION stimulus package so far has been a bust. Millions more jobs have been lost, unemployment in most areas is hitting levels not seen in a quarter of a century or more, and the US government is borrowing almost half of every dollar they spend. Deficits are planned for more than 10 years out of approximately $1 TRILLION per year. That’s planned spending that doesn’t even include the full impact of healthcare reform (if that survives in any form). This cannot go on forever. Unlike what some in congress may say, we cannot borrow our way to prosperity. The United States is not immune to reality.

The Fed continues to print money to buy up debt from the Treasury and our lenders are getting tired of it. China has said that they will start to diversify their foreign reserves. Of course when they say that, they mean that they are going to start dumping the $2 TRILLION dollars that they hold in US currency. Certainly this is one of the reasons gold has come back up to $1000 an ounce as China and other countries move away from the dollar towards investments that will provide protection against American inflation. For us that means an uptick in inflation considering $2 TRILLION will start floating back into the system.

Economists have started to say that we are pulling out of the recession, which is true, we are pulling out of the latest trough. But was that the bottom? Cash for clunkers spurred an artificial boom of 700K cars sold, but what will an artificial boom do to demand in the next two quarters?

The method deployed for the stimulus has never worked and is not going to work for us long term. The government can’t borrow and spend the country into sustained prosperity.

What’s worse is that the backlash against these monstrous deficits will not result in a cut back in spending, but rather an increase in taxes. This will only force more jobs and more companies off shore or out of business. Throw in a health insurance mandate and you’ll crush the small businesses that make up half of the economy. Mandating insurance coverage doesn’t magically give companies the ability to afford it.

The dollar just hit a new low for the year. Gold is soaring. High unemployment.

Have we paved the way for a solid, sustained recovery, or are we going through a sugar spike that is going to leave us worse than how it found us.

Cut spending. Cut taxes. Pull some money out of the system. Stop lending money to ourselves. Restore investor confidence in the US dollar.