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John Mauldin: Uncomfortable Choices and the New Normal

Everyone should read John Mauldin's Thoughts from the Front Line this week (here).  (Actually, it should be read every week.)

John defines the issues we face and the new realities that these issues confront.  I'll give a couple of excerpts:

"Frugality is the new normal. We are resetting the underpinnings of a consumer driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth – consumer spending, business investment, and exports – are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive."

and

"It is the proverbial rock and a hard place.  Cut the stimulus too soon and we slide back into a deeper recession.  Let the budget spin out of control for a fgew years and we see inflation return, with higher rates and a recession.  Raise Taxes by 1.5-2.0% of GDP in 2010 and we are shoved back into recession.

There are no good choices.  If we do the right thing and cut the deficit, it means very hard choices.  Can we keep our commitments to two wars and our massive defense budget?  Medicare and Social Security reform are not painless.  Education?  Research?  The "stimulus"?  But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for a sustainable recovery.

Have we grown up? Are there adults in the room? Sadly, I don’t think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard."

Read the entire essay (here).