State of the Economy – August 2009


It’s been a while since I wrote down my thoughts on the economy. In my last State of the Economy I wrote that I believed in a double dip. I am not so sure anymore. The reality is that home values are not on the rise yet, unemployment is still high, the number of foreclosures and credit card defaults are up, and worst of all consumer sentiment has not improved linearly with the stock market.

We have seen some good results from companies that are now reporting the effects of their first half cost cutting, but I don’t that many can claim that their sales are up. Most analysts believe in a weak rebound, which clear since it will take a long time to fix home equity values and unemployment giving consumers again the comfort to spend. So if sales will only grow marginally and companies can only cut so much, I believe that companies cannot keep meeting investor expectations and we will see a secondary dip. It wont be as bad as the first… more of a reality check than a dip.

Read: http://www.cnbc.com/id/32505016

Then again I do not make my living off making stock predictions and analysis corporate financial reports. It could be that the stock markets have anticipated what is to come and the slow rebound is already built in to the numbers. Even if they aren’t we will all be ok is we all believe that they are.

Now I wrote in the spring about the Asia market bubble and how those economies are so dependent on the west for growth that it is logical that they will only rebound in a second wave. Just today I read that the Chine’s economy will grow 8.5% in the third quarter, which is dismal in comparison the the last few wild years, but still good growth.

But read this: http://articles.moneycentral.msn.com/Investing/JubaksJournal/chinas-recovery-is-it-for-real.aspx.

The Chine’s economy is a bit like a Ponzy scheme (bad example, but you get the idea). It requires an ever increasing momentum to sustain the growth. If the western rebound remains weak the momentum wont be there and the economic growth cycle cannot sustain itself.

I still believe that the traditional economic power houses will rebound first (G8). The US rebound has lost focus with the HealthCare debate. Health care is fundamentally an economic issue and must be resolved on the long term, but was 2009 really the year to do it?

I have to admit I am not as well versed on the debate as I should be, but let’s not let the fact stop me from commenting… it doesn’t seem to bother others either. I believe there needs to be a public option, but creating another entitlement that we cannot afford is not fiscally responsible. The public option should cover basic healthcare and leave premium options optional. The public option might not be (read: will not be) on par with the current average policy, but it would be a lot better than nothing at all. I think the public option should be subsidized by a corporate healthcare tax. Assuming that current policies would become cheaper due to the base package being heavily discounted for all policies, companies should be able to pay the delta back as a health care tax without a hit on their operating costs. Through a public option’s shear purchasing power we should be able to source a basic universal package from the private sector in the sense of free market economy (which I personally believe has the potential to be more efficient than a state run system), which subsidized by a corporate health care tax equal to the savings delta should be able to subsidize health care to most of the currently uninsured 8.9% that require subsidies. The health insurance industry would have to get with the program. The pharmaceutical industry already seems to be with the program. Subsidized doesn’t mean free. Also the currently uninsured would have to contribute, but at least there would be a subsidized option that is attainable for all.

The base package should be mandated federally to every policy. The few percent that cannot afford even a subsidized offering need to be funded with an increase in the federal tax percentage (which should be balanced by cutting from somewhere else). Let’s call it a social responsibility tax. Providing basic preventive care to all should reduce overall cost of healthcare to the tax payer and not increase it.

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