Saturday, December 25, 2010

Christmas Recovery?

Various news articles I have read indicate that retail sales over the holidays are picking up steam, and the economy might be truly recovering. I certainly hope so, because there are a lot of hurting people who could use a job and a lot of business owners who desperately need more sales. My worry is that the nation at large will take this as a sign that we don't have underlying structural issues and monster debts that require near term action. The advantage of the great recession was that it focused the minds of voters on the causes of our travails and they responded rationally, moving the legislatures and the Congress sharply to the right with new members committed to fiscal responsibility.

Even if we do have a recovery, another recession is inevitable, because we have not repealed the laws of economics, and all economies have boom and bust times. Unfortunately, if we don't deal with the underlying deficits, liabilities and out of control spending of federal, state and local government that recession will come sooner than later and will be a depression, not a recession.

Meanwhile, if you are the beneficiary of what might be a temporary improvement in the economy, be careful about preparing for the next down turn. The importance of the Tea Party in focusing on out of control spending and pensions is needed more than ever, if the economy is truly improving.

The other thing to consider is that given the precarious state of the finances of many cities and states, massive default on obligations might precipitate another panic. I hope not, but we should be realistic and prudent about the current situation.

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