CHICKEN & EGG ECONOMICS

(Originally from: The Motley Fool: Investment Analysis Clubs/Macro Economic Trends & Risks, Post # 340401)

Government actions seem to be frustrated at every turn. In QE1, instead of loaning the money out, they parked it again with the Fed so the Quantitative Easing did little good. http://www.2000wave.com/ (John Mauldin, "Pushing On A String," Sunday September 26, 2010)

A second thing I have thought about is to let companies repatriate money stuck overseas because companies don't want to pay the difference in taxes between where the money is and the U.S. corporate rate.

In an excerpt from: http://stopcontinentaldrift.blogspot.com/2010/09/jobs-disconnect-between-business-and.html This was done in 2005, for example, but: "The danger of leaving this money overseas is that the companies will start wanting to do something with it and build factories and labs overseas rather than in this country. (The fear with encouraging the money to be repatriated is that companies would use the money to buy back stock and increase dividends, neither of which is productive and even more phony acts. This is what happened the last time this was done in 2005 as a result of the “Homeland Investment Act”.****)"**** http://www.nytimes.com/2009/06/05/business/05norris.html

A third thing that might be done is let the taxes on the very wealthy increase on expiration of the Bush tax cuts and lower the taxes on companies. http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html But these possible benefits could be circumvented the same way a tax holiday on repatriated profits was in 2005.

So are we in a Catch 21 situation? Companies will not hire until they see signs of consumption picking up, consumption cannot pick up until unemployment is decreased significantly. Lastly, many jobs will go unfilled because workers cannot move to their location so long as they cannot sell their houses which are probably underwater (appraised at a lower value than the mortgage).