Is your washing machine working properly? Yes? Why not pay a repairman to come out anyway? You should also repaint your house and maybe add a pool. Oh, and you need to eat out more often and then go to the movies. Why? Well, you see, Uncle Sam needs you to spend, spend, spend. The Fed and our politicians figure that by them printing money and you spending more money than you have, this charade of a healthy, recovering economy can continue at least until the end of their terms.
If you’re up for travelling, the Europeans would appreciate getting some of your money too. The Europeans, at least those using the Euro as their currency, have problems that make the U.S. economy look robust in comparison (at least for now). Spain recently joined 11 other European countries that are officially in recession.
Many of those countries, especially in the warmer, southern part of Europe, have spent more money than they brought in for years. The response to this a year ago had been to finally go on an austerity diet to get debt back under the 3% of GDP that the countries originally agreed upon. However, austerity hasn’t worked out so well, as the mobs and demonstrators have showed up in the hundreds of thousands to sternly voice their displeasure. Leaders of pro-austerity parties have been swiftly voted out of office in places like Italy, France, Greece, and the Netherlands.
The European financial system is running its own version of a Ponzi scheme. As Shah Gilani of “Wall Street Insights” put it “European banks are being given euros (okay they’re borrowing the money, but very cheaply) by the European Central Bank to buy the sovereign debts of their respective countries, which are backing the ECB and the banks that are in trouble. Hmmm… Insolvent sovereigns backing illiquid banks buying sovereign debts with borrowed money from a central bank that’s backed by the same sovereigns? Ponzi scheme.”
Where do the Euro countries go from here? Austerity isn’t a good solution because so many citizens hate it, plus it usually means a contracting economy, which makes it harder to pay off debts. Going back to pro-growth policies means adding on more debt, thus kicking the problem into the future. It is anyone’s guess on what will happen next, but I expect several countries to be forced out of the Euro and to restart their own currencies.
Back here in the US of A, the recovery is taking hold nicely, right? Not so much. Bill Bonner of “The Daily Reckoning” states it clearly “real growth requires real investment, real output, real risk, skills…customers with money…and all the rest. All they (Bernanke and certain economists) can really give the world for sure is more debt. Which is exactly what the plan is.” Both the home ownership rate and what a basket of goods that the median household income can buy are back to 1997 levels. In my view, this is not a bad thing, as it gets us back to square one and about the time that real estate began its monstrous climb. Of course, there are devilish details that are different, like our giant debt, the fact that CNN Money tells us hundreds of thousands of Americans are too broke even to pay the $1500 or so in order to file for bankruptcy, and a real (per Shadow Stats) unemployment rate of 22% rather than the 8.1% posted in the media.
The U.S. needs a new way to grow that will attract private investment and entrepreneurs. The green industry doesn’t seem to have the legs to go forward, so it will be interesting to see what develops.
As an aside, a few of you have mentioned that my blogs are somewhat less than uplifting. My aim in these writings is not to be pessimistic but rather to lay out the reality as I see it based on information that I have been able to gather. Whether you agree or disagree with my conclusions, your comments are always welcome.