State of the Economy – June 2009

It is time again to summarize the sentiment and the stream of economic news. The Fed yesterday kept rates down. The risk of inflation has been widely commented on and Dr. Doom has stated his worries about super inflation in a few years time. This may be the case, but for now massive unemployment is keeping inflation in check.

Unemployment is still rising and the White House has been the weakest on this front. Where is the money from the American Recovery act? This week I read an article about the revival of plans to build a high speed train system to tie together urbanized America. This is the smartest thing I’ve read in a long time. Massive infrastructure projects that will generate jobs and invigorate local economies with longevity. If you could jump on a bullet train in San Francisco and be in LA in under three hours, would you even consider taking a plane?

Healthcare is a major issue, especially on the long term, but I would urge the President to take strong and definitive action on unemployment and the loss of home equity for majority of America. The idea of a $15k tax rebate for any home buyer is a good start. The rebate should start a buying frenzy if banks were out to lend. This would deplete to pool of low cost foreclosed homes in stable metro areas and start driving up prices. There should also be a rebate on some home improvements… kitchen, bathrooms, heating systems, etc. These all add back to home values reducing the gap between mortgages and true values. Generating jobs… clear national infrastructure projects: high speed trains through urbanized America, new nuclear power plants to provide power for a generation of electric cars, revival of public transportation in major metro areas that are under served (e.g. Atlanta). 

I have come to believe that regardless of the green shoots we will have a double dip in this recession. We will see a major hit after the summer, but I still believe in 2009 recovery time line. Unless unemployment becomes the number one focus the growth curve will be very poor.


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