Friday, March 5, 2010

Is This Recovery Real? Or Are We Delaying the Inevitable?

Today the market was up broadly when the Federal Reserve reported borrowing by consumers unexpectedly climbed in January for the first time in a year. This is a clear sign Americans are gaining confidence in the economy. Even though interest rates are low, which means money is cheap, home equity loans that allow consumers to turn their homes into ATM's are not as easy to obtain as they used to be. A consumer led recovery is not likely; millions are out of work and unemployment remained at 9.7% in February. According to the congressional budget office unemployment is likely to remain high until mid-decade. Consumer spending accounts for 2/3 of the economy, but instead of spending we are saving and paying down debt. The only real way for consumers to spend is by borrowing the money. Where does this money ultimately come from? The government's printing press. Since our government does not actually create wealth, this is the only way to get cash into hands of consumers. Wasn't it massive borrowing that helped to create this mess in the first place? Inflation is a creeper and the only way to stop it once its on fire is to cripple the economy; remember the 1970's? The government's plan? Give us cheep money to re-inflate our economy. You decide if this is a sustainable long term recovery.

Source 1 Source 2

1 comment:

  1. Mike, check out this chart from Look at the graph for at year 2010. Looks like something may happen on 2011.