THE ECONOMY: PART 1

Modified from the Motley Fool, Industry Discussions/Real Estate Inv. Trusts: REITs Board. Post # 61218 (February 6th, 2010):

The problem we face currently is deflation in spite of the huge Federal deficits. To get inflation, employment will have to increase, manufacturing will have to increase, and both loan demand and loaning will have to increase. Certainly none of this is in sight yet. The latest figures on employment in January were a loss although somehow the percentage of unemployment dropped.

There is all sorts of talk about the Federal deficits, but no talk about our trade deficits. I don't have the latest figures for 2009, but they still must be around $400 billion, improved compared to the $700 billion in 2008 and $800 billion in 2008, if I remember correctly, but a sizable loss nonetheless. But Wendy on the METAR Board totaled up the cumulative trading deficits since 1977 and got a number of about $30 trillion. For reasons I don't understand, this does not seem to bother anybody but me. As long as we insist on importing so much energy, I can conceive of no way we can run a positive trade balance of even $1.

We have a very serious problem in this country in that we hear lots of appeals to reduce taxes but nothing about what services we will drop to pay for the tax loss (The charade that cutting taxes will increase revenue is nutty. If it is true, let's reduce taxes to zero so the government will roll in money. I agree there is probably some level of taxes that will maximize revenues, but I have no idea what it is.). We can't even get rid of the subsidy on something like corn based ethanol. You have to do a lot of calculation to show there is any carbon dioxide benefit, and, if you cut down a forest to plant corn, you go negative. We can't get rid of anything so stupid (I don't use this word much) as Medicare Advantage which is considerably more costly than regular Medicare. Maybe we can cut out some benefits to the poor because they don't vote (I take no comfort in this.), but that is about the size of it. It has been suggested that we terminate manned missions to the Moon, and even that has received a lot of flack from the same people who want to cut taxes.

If you cut out the ENTIRE discretionary spending of the Federal government (i.e. the budget goes to ZERO), which by the way includes the DOD, you cut out $1.4 trillion from the budget, but the forecasted deficit is $1.55 trillion, so you wouldn't even balance the budget then. And, of course, you put maybe 2 million Civil Servants out on the street which will swell unemployment plus all sorts of Federal contracts are kaput which are the life blood of many industries.

Short term, I agree that deflation is a likely probability for the next couple of years, and may be beyond that too for a long, long time. Perhaps inflation is the answer, but I think that Ben Bernanke, head of the Federal Reserve, would like to see some inflation. I have never fully understood why we haven't had raging inflation since 2001. The Federal government may be pushing on the end of a string.