Saturday, August 1, 2009

In the Long Term, We're All Dead

The economy (in terms of GDP specifically) is actually likely to grow modestly in the 3rd quarter and into the 4th quarter. This also depends on the housing market and whether or not the housing market dries up and foreclosures rise due to increasing unemployment. So it's not a sure thing.

The reason is that any improvement over a dramatic decline will result in relatively higher growth rates. The primary item that will drive modest short-term growth will be business purchases. The businesses that are still surviving did not buy new products and buffer up their inventories during the dramatic decline late last year into early this year. Businesses essentially ran down what they had on the shelves and it's about ordering time.

However, after that runs its course the sugar high due to all the government borrowing, monetary policies such as zero interest rates and money printing because the Federal Reserve is buying treasuries (which floods the economy with cash to those from whom it buys them), and Obama policies being enacted will bring us back to a day of reckoning starting later this year and into next year. A portion of the short-term porkulus money will also create some jobs for some such as my iron-worker friend.

But all in all, my predictions, which I made for the end of 2010, still hold. I see nothing yet to change my opinion of the course of events. We will float through this year with the major economic indicators topping out and leveling off. During the next few years the bill for the credit card borrowing will start to come due. Eventually, we have to pay off a few trillion that we've borrowed. Unless the economy dramatically reacts to it and pulls off some major growth, we're in some real long-term trouble with that. We will have social security, medicare, and the unveiling of yet a third major entitlement to fund - a growing national health care program. Long term it's not a pretty picture.

I'm reminded of what John Maynard Keynes said "in the long term, we're all dead". That seems to be the view of the president. Live for today and let somebody else worry about tomorrow.

1 comment:

Anonymous said...

you realise that is absolutely not what Keynes was saying don't you?