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US Government: The Cat in the Hat

|Includes: SPY, Financial Select Sector SPDR ETF (XLF)

Most of us should remember the story of the Cat in the Hat.  The kid (Wall Street and the banking industry) makes a mess and creates a stain and the Cat in the Hat (The US Government) tries one thing after another but can get rid of the problem.  The cat simply transfers the stain from one article to another actually making it far worse in the process.  Morale of the story: One can't run from or hide from problems to deal with them.

This describes the economic mess we are in and have been for the last two plus years.  Consider the deep systemic problems we have with toxic assets, still overleveraged banks, under regulated and under restricted financial institutions, too big to fail firms, an American consumer with a disseminated balance sheet, a dysfunctional credit market, horrendous job and housing markets.

It would be nice to think we just had the worst recession in 100 years (excluding the depression) and we have quickly bounced back and will enjoy a typical "V" recovery.  Only this downturn was far worse than a garden variety recession so the recovery should not be typical.  I know we would all hope it would be but it won't be.

To make matters far worse, consider what the US government has actually done to fix the underlying problems.  


In fact the government has put the same punch bowl out that got us into the mess in the first place.  More debt and consumption and don't worry about paying it back.


In our case the US Government has deposited the stain on the taxpayers.  Some of us don't see it becasue we are wearing it.  But it is there, just repackaged. 

Problem substitution is not economic resolution.

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