Lost Decade

As current economic indicators reflect an anemic recovery at best, we must now consider the fact that a deflationary spiral is not only possible but probable. This phenomena occurs when an economy spends more time in a recessionary mode as opposed to an expansion mode. Our best example of this is Japan where a whole decade of growth progress was lost in there last recession. Choked off by bad loans on banks balance sheets lending was stalled and resulted in a pullback in consumer spending, businesses cut back on inventory and laid off workers, prices fell as a result. A double dip recession is a better scenario because you can move forward and be done with it, as opposed to feeling the long lasting effects of a lost decade. Job creation is the key to reactivating the economic engine of long term growth, without it this country will continue to follow Japans precarious example by history repeating itself here in the United States.

Keynesian Endpoint

Those familiar with economic theory have at one time or another studied the Keynesian theory of economics, and the United States is embarking on a path of uncharted waters in relation to this theory, many experts refer to this as a Keynesian Endpoint. This occurs when overextended governments refuse to float each other due to the volatility within their own economy's and as a stabilization strategy greatly reduce or refuse to purchase the debt of another nation, usually in the form of treasury's. Currently the U.S. accumulates approximately 1.6 Trillion dollars a year in debt, and only saves 500 Billion a year. These levels are unsustainable and will unquestionably result in a negative feedback loop. China is experiencing an overheated economy and has stated that in the near future U.S. Treasury purchases will be greatly reduced in an attempt to cool inflationary pressures. Foreign governments currently hold 4-Trillion dollars in U.S. debt, and we will have to turn to our central banking system for relief. Printing money will apply inflationary pressures thus making most products to expensive to purchase and consume resulting in a blowout effect. History has shown that hyper inflationary damage is systemic in nature and has brought whole nations to its knees. A third world nation effect in the U.S. would be tragic in many regards, and this we cannot afford.

American Excess

Apparently many Americans have decided to side with there short term memories when it comes to being more responsible in curbing wild consumer spending habits. The latest data indicates that the good old days have returned in force, so grab up your wallet and head for home depot before your neighbor does. No worry the Chinese will bail us out in the form of unprecedented U.S. Treasury debt purchases. I got to see this in real time when a friend said you have to see the addition we are building on our home, its almost finished. He just happens to also be unemployed, so i quietly questioned his timing, and sanity. He showed me where the wet bar will be installed and boasted that it will have a solid marble counter top better than granite. The pool table and surround sound control room will be over there along with two large flat screen plasmas that will be mounted on the wall, he explained that way you can watch different sports at one time, i guess the two he has downstairs wont get it done. No wonder this country is broke, and over weight including myself we just continue on the same unsustainable path with no intention of change because the bottom line is we all believe that we deserve more stuff.

The Politics Of Energy

Today hearings began in Washington as to the cause of the explosion on the drilling rig Deep Water Horizon and the worst oil spill in U.S. history. Top executives from the five largest oil corporations in the world tried to deflect any impending damage to there industry. The message that all five sent was that if recent moratoriums on deep water drilling were to continue that an imbalance in the supply demand structure would cause the high prices that we saw at the pump in 2008 look like a cakewalk in comparison. After watching this circus of political posturing on C-Span i caught an interesting interview with the ex CEO of Shell Oil Corp on the Tavis Smiley show on PBS. John Hofmeister stated that no oil company in the world has a cookbook on how to drill safely at those depths and that all involved including the government are fully aware of the level of risk involved. Mr Smiley asked the question that if what your implying is true why wont the government allow near shore shallow drilling thus mitigating the level of risk?, Mr Hofmeister said that the answer is simple yet embarrassing. After the 1969 blowout on the rig in Santa Barbara laws were implemented to push drilling into deep water areas where unsightly drilling rigs could not be seen. He also stated that if stringent safety precautions were not followed in the drilling process at those depths that it could lead to the catastrophic results seen in the last few months. His most recent book entitled Why We Hate The Oil Companies should be an interesting read for Americans hoping for the truth as to who is truly to blame in this debacle.

Inflection Point

We have definitely reached one of the most important moments in time in our nations brief history, the choice we make today will most probably either lead us on the sustainable path of not only mitigating the damage to our economy, eco systems, fossil fuel dependence, and threat to our reputation as the world leader in Education and Innovation, the other option will lead to the decline of our society as we know it. We have run out of time and good fortune, and its time to pay the piper as they say. Those that adopt a position of business as usual should be seen as a National Security Threat. As Thomas Friedman stated in his most recent New York Times article (a crisis is a terrible thing to waste). The ball is now in this administrations court as the instrument of change, for it was change that Democratic strategists utilized as the winning platform and most certainly will define success or failure for this Presidency.

Intended Consequences

After two years of studying the cause and effects of what is now labeled the great recession, one of the most frequently used terms dealing with the damage inflicted on investors and our economy is unintended consequences. I find this terminology a form of hypocrisy for the mere fact that one would have to assume that those individuals in control of making the decision that resulted in the negative consequence were oblivious to its potential damage. I would contend that they are not only fully aware of the situation, but deliberately choose these moves because the perceived short term reward out ways the long term risk. In one of the books i am currently reading the crash of 2008 and what it means by George Soros, he refers to this aspect as the theory of reflexivity, where a battle between the cognitive and manipulative mind occurs and investors usually side with the more speculative and risky position therefore exposing themselves to the downside. They are in constant pursuit of what he calls perfect knowledge which few achieve. I think this same theory applies to not only the stock markets worldwide, but is currently at the root of many of the worldwide dilemmas we are witnessing today. For example our government seems quite content with bolstering our debt load to offset the effects of this recession, BP looked away when it was fully aware of the potential catastrophe looming in the Gulf, and this administration as well as others in the past have deregulated our markets so that the derivatives market worldwide is left to spread its systemic damage. But as Thomas Friedman states in his book Hot, Flat, and Crowded that the real game-changer will be Mother Nature herself by imposing such harsh restrictions upon the worlds inhabitants, as the result of our repeated rejection of embracing the renewable energy market today with the same passion as we did with the information technology sector in the past.

Debt Debacle

As the stock market continues on its volatile path reoccurring themes are played out daily as contributing factors to its impotence in maintaining an upward run. One of the most popular of late is the sovereign debt crisis in the European block countries. The civil unrest is understandable as citizens hear the cry for Austerity policy implementation by these governments. The IMF or International Monetary Fund has called for the reduction of government spending on subsidies and other public spending programs as an equalization strategy in an effort to stem the continued devaluation of the Euro. I believe that this crisis is a sort of economic petri-dish experiment for the United State's inept fiscal spending policy's our administration has adopted, yes i am implying that it could happen here as well. Now that our National Debt has surpassed our annual GDP at fourteen TRILLION dollars, the writing is on the wall. There is in my opinion an even bigger destabilizing force in wall street and that is the derivative market which is now a forty five trillion dollar market worldwide. Just to give you some perspective on its size the U.S. stock market is estimated to be around fifteen trillion dollars, and all U.S. mortgages wrapped together only equal seven trillion dollars. As long as we enable speculators to bet against government, corporate, or private interests with the unregulated abandon we have all witnessed of late we will see continued unprecedented wealth evaporation worldwide.