U.S. Economy: We're Just Kicking the Can Down the Road

This is my first and probably last post while visiting China. The internet is censored and I am unable to read my own blog (directly). I have a way around it, but we will keep quiet on that for the moment. Most of the blogs I follow are also blocked and working around the blocks is a bit slow and cumbersome, so I am a bit economic news deprived. Just as well, two little ones to keep up with here. The youngest is taking a nap, which is giving me time to slip this in.

I see the markets ended May with a last minute"everybody in the pool" event. I guess that solves it, recession over. I can now shut down my blog and wait for the next economic crisis.

Unfortunately, I think that would be a tad premature. Think about it, the governments around the world throw a few trillion dollars at the crisis and, surprise, the economy "appears" to look to be on the rebound. Tell that to the jobless folks and the tax collectors. They are not seeing it just yet.

As Financial Armageddon reports, those collecting the taxes are going through a bit of a dry spell, and this is one stat the government has a hard time cooking. (I would love to link the article but I am having some technical difficulties from half way around the world. Go to financialarmageddon and find the article from May 28 on "Not Much Doubt in these Numbers" to see what I am talking about).

From my perspective, the government is taking a scene out of a Kevin Costner film - build it and they will come. There is a slight variation here, however, as the infrastructure is already built for an economy that no longer exists, so their motto has been "keep it built and they will come back." There are some exceptions to this. Auto manufacturers are downsizing - through bankruptcy or otherwise - to more sustainable levels, and some other no longer needed retailers are going out of business, yet we insist on spending trillions in taxpayer dollars maintaining financial behemoths that have outlived their useful lives. Go figure?

The politicians have yet to latch on to the new reality. We need to downsize in all the sectors built on over-leveraging, be it on the individual or corporate level. We need to get to a sustainable economy, i.e. one that is not dependent on government stimulus for survival. There is a lot more shrinkage needed and the sooner we get on with it the better. Nonetheless, we are hell bent on spending trillions to prevent a well needed correction. We are, my friends, simply kicking the can down the road. For me, the challenge has become trying to figure out how far down the road we can kick it before we have to face reality. Right now I am thinking it could be a couple of years or so. We will see. Either way, we will catch up to the can. Be ready for it. Meanwhile, who knows what to expect. One thing for sure, I disagree with the "majority" of "economists" who apparently are saying we are on the verge of recovery and everything should be hunky dory by 2010.

I must say, however, if we are going to spend the money, the BRIC proposal seems much more sensible - spending it on the real economy, not the financial sector. I agree with their assessment that our stimulus approach to date has been misdirected and "shallow." You can get the full story here.

You may think my predictions are wrong, but keep in mind that I am 12 hours ahead of you. So, some of your future is already my past.

Disclosures: None

Comments

[Roger Knights:]

"we will catch up to the can. Be ready for it."

One day the can will kick back.

Jun 01 10:59 AM

[Larry House:]

I too think we are just pushing the problem down the road. We still have to see if the patient can breathe without life support.

Jun 01 11:01 AM

[conceptwizard:]

The BRIC is the investment for now and in the future. The ETF's and indexs are available from different firms and make good sense for a portfolio.
It is interesting to see that the Great Firewall of China can be circumvented. I wonder how many Chinese officials read SA.

Jun 01 11:37 AM

[dybydx:]

its common knowledge in PRC that proxy can be used to bypass the Great Firewall. ppl even talk about proxying in chat rooms. but alot of ppl dont personally own a PC, they go to PC bars. So yes, majority of the time, the Great Firewall "works".

but then again, most ppl at PC bars are busy playing World of Warcraft. political issues have been fairly lame and moot for most ppl.

Jun 01 01:19 PM

[Gregman2:]

"There is a lot more shrinkage needed and the sooner we get on with it the better. Nonetheless, we are hell bent on spending trillions to prevent a well needed correction." Which group is screaming for protection? Who is getting the politicians' ears for us to be spending so much simply to avoid the inevitable correction?

Jun 02 11:50 AM