Friday, May 15, 2009

What Recovery?

The economic news this year was already going to be bad. Those who did foresee hard times last year also foresaw that this year would have a commercial real estate bust. Those who own strip malls still have to pay the mortgage, even if there are no stores renting space in the strip mall. The commercial real estate bust is on top of the continuing residential real estate bust. But now it appears that matters are going to get much worse.

Some people appear to think that the economy is recovering. Stocks are up somewhat and therefore everything should be better soon. This is according to officials in the Treasury and the Federal Reserve, the very same officials who failed to see the recession coming in the first place.

If a bucket has a hole in the bottom, it will eventually drain of whatever is in the bucket. But if water is added to the bucket at a faster rate than the hole can drain it the water level in the bucket will, for a while, rise. Bush and Obama, through their stimulus packages, have pumped so much money into the economy that the bubble has partially re-inflated in spite of it deflating just as much as before.

What has instead happened is an increase in debt of unprecedented scale. The end result is that when this trickles through the economy prices will skyrocket. This is the leading indicator of severe inflation.

But while that would be bad news on its own, the government has decided that stricter rules are needed for credit cards to prevent the raising of rates or the lowering of available credit for those who have them.

Any act of lending is a risk, which is one of the reasons lenders charge interest. If it becomes impossible to recoup the risk of lending, such lending will cease. It’s already the case that payday loans are under heavy fire. This will shutter the other means of short term unsecured debt that people have access to. This is not to suggest that debt is a good thing, especially in the current economic environment, but responsible use of debt and short term loans will be hurt by the attacks on payday loans and credit cards.

Combine that with the proposed Employee Free Choice Act and a new mercantilist pro-America policy coming from the White House it becomes apparent that this year the United States is in for a very rough time.

It is no wonder that the administrators of the Social Security Trust Fund recently announced that they are foreseeing trouble.

No comments: