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  • Roubini: The Recovery as a House of Cards [View article]
    What am I missing?

    Nearly 8 ½ million U.S. jobs have been lost in the current recession. At the risk of over simplification, many of these jobs came about as a result of an economy dependent upon inflated asset values brought about by unrealistic credit expansion and further ratcheted up by a financial sector that created new wealth through financial instruments whose risk was improperly priced. Global dependence on the U.S. consumer plus comparable problems in many other economies made the recession global in nature. To top it off, in a situation that challenges all developed economies, emerging economies are increasingly demonstrating their ability to manufacture high quality goods with lower labor costs.

    Now, in an attempt to restore equilibrium, the U.S. and other developed nations are pumping trillions of dollars into their economies. (Emerging economies are doing the same, but their situation is markedly different as their stimulus goes toward investment in new industries, e.g., China’s entry into alternative energy.)

    But, I’m afraid this effort will be all but futile. The reason: the jobs that get restored can only be temporary in nature as they are now based on public debt rather than private debt and are geared toward stimulating consumption rather than investment. And, when this debt is eliminated (through taxes, a devalued currency, or higher interest rates), most of the restored employment will disappear with it (why shouldn’t it?).

    Therefore, my opinion is that there are only two ways developed nations can restore their economies: create new industries and/or lower the cost of local production to be more competitive in the world (through lower labor costs and/or currency devaluation). A major reduction in imports (think: oil) would help on two fronts: reduced imports and domestic-based replacement of foreign energy sources.

    Unfortunately, the resources to accomplish the goal of creating new industries (and reducing oil imports) have been largely wasted through stimulus payments that can have no significant lasting impact. And, to make matters worse, U.S. political gridlock makes turning the corner that much more difficult to envision.

    It’s hard to be optimistic.

    What am I missing?

    Ed Lane
    Feb 13, 2010. 08:37 AM | 8 Likes Like |Link to Comment
  • When the Economy Hands You Lemons, Consider Dividend ETFs [View article]
    Since Oct 2007, total return on spy was about -11.5% while DVY total return was -15.5% (both according to I think we need a different answer.
    Apr 6, 2008. 08:58 AM | 1 Like Like |Link to Comment