Dollars and Sense

By LCR Contributor Barrell Rider

2011 is off to a record setting pace. Forget about the epic storms that rolled through the Midwest, the 24 ft of snow on Mammoth Mountain, Charlie Sheen’s record setting binge, the revolutions of North Africa and the Middle East. Winter 2011 has pushed the envelope and taken the balance sheet to new highs across the spectrum. Or was it actually new lows…a matter of perspective I suppose. January ushered in the season with the highest monthly trade deficit in several months at 46.3 billion dollars, an increase of 15.1 percent from the previous month.

In what the government is touting as a positive, the U.S. enjoyed an all-time high in exports of 167.7 billion; however the 2.7 percent increase in exports pales in comparison to the rise in imports to 214.1 billion. From winter 2010 to 2011 US exports grew 2.4 percent annually while imports grew around 19 percent.

Not to be outdone, February outshined January as she set records of her own. February saw record gas prices for the month and prices have since increased through the early part of March. The federal budget deficit also grew to a new monthly high of 222.5 billion in February, eclipsing the previous monthly high of 220.9 billion set in February of 2010. Mortgage rates ended the month slightly higher. Home sales dropped as did foreclosures in February. Then there is a question of a ‘shadow’ inventory that banks are withholding from the market. All of this amidst the 600 billion dollar QE 2 experiment. Rumors of a QE 3 are already circulating.

What does it all mean???

Perhaps the overall economy, while improving, is not yet stable, nor in a growth phase. There are massive amounts of government stimulus and footprints embedded in the current slow economic growth. Unemployment is still very high and there are conflicting numbers as to the actual unemployed, under employed, stopped looking for work etc. The number is definitely over ten percent, most studies range from 10-15 percent.

Unemployment, like inflation, is a number the government concocts out of a sampling of data it chooses appropriate. Absent are the costs of energy and health care (inflation) and those who have seen their unemployment benefits expire, or have quit looking for work (unemployment).

It seems clear that the federal government has no intentions of curtailing spending. The government also seems insistent on manipulating the economic growth. But can the government create any type of sustainable growth with its current direction? This is a difficult question. It seems that so far, most government intervention has been only marginally successful in some areas, while ineffective in others.

The government’s policy and roles in the housing market, in my opinion, were mostly failures. The HARP and HAMP programs designed to help struggling homeowners failed miserably. The stimulus package was stuffed so full of pork, Kobeyashi himself would puke at an attempt to digest the bill! Billions were flushed down the toilet known as the IMF and drained into god knows where.

It’s not all doom and gloom!

Thankfully, the United States has many competitive advantages over much of our competitors. We enjoy a highly productive, highly skilled workforce. The United States has the largest industrial capacity and leads the world in research and development of many cutting edge technologies and processes. America still attracts many highly educated and highly skilled people from other parts of the globe who come here for opportunity, many of those opportunities are nonexistent for them in several countries, or opportunity presents itself on a lower, more risky level. American citizens enjoy a tremendous amount of freedom and have much vested in the country; we collectively have a lot at stake here.

Regardless of the volatility of the stock market, there are still many American companies who have a strong global presence and who provide products with global demand.

It’s time the government takes immediate action! Perhaps it’s not realistic or practical to systemically pull the plug on everything at once. The government could begin an ‘exit strategy’ if you will. Exit debt and exit spending. Some programs should have a timeline to complete withdraw which begins to phase in next budget cycle. Other programs that will downsize yet remain would have a similar timetable, a depreciation of sorts, if preferred. Some programs need real reform; Social Security and Medicare come to mind. Social Security should not go away, there is a responsibility for the government to honor those who have paid into the system, whether they are 30, 60 or 90. But the system much be structured to solvency and the trust fund protected.

The POTUS himself is on a mission of his own, to increase spending and grow…grow…grow…government. Just how big and redundant is our government??? Click HERE to see!

Ultimately, the United States economy will recover, not from the nipple of the federal government but from the hard work, creativity and innovation of the American people. In the long term, government must alter its role, downsize its broad reaching footprint and shelve the current status quo of rushing through legislation.

Discussion: Memeorandum, here, here.

No comments:

Post a Comment

Commenting here is a privilege, not a right. Comments that contain cursing or insults and those failing to add to the discussion will be summarily deleted.