State of the Economy – May 2010

Again, it has been a while since I last wrote my opinions on the state of the economy, but so much is happening that I feel I must capture the moment. So what has been happening? Financial reform legislation is going through the houses, Goldman is being grilled by congress, some housing improvements, companies starting to hire again and economic growth in Q1 hits 3.2%.

Goldman needs to be grilled publicly, so that the matter can be put behind us, as a nation. Someone has to take responsibility in the public. Now the law suites and congressional grilling are not going to impact Goldman to any great extent, but the scene must be played on the big stage, so that we can all feel good about our elected representatives.

Financial reform is needed badly so that the new world order that is rising from the great recession will have a framework for growth. The reality is that Wallstreet will find new ways to manipulate the system to maximize profits. This is ultimately what the stock owners want and how compensation packages are formulated for top executives. What other outcome can we expect? What we as consumers need to learn is that we do not stretch ourselves too thin, because another recession is just over the next hill.

Housing is the biggest issue for the administration in my personal opinion. Unemployment is starting to fix itself. I still believe that we will have massive structured unemployment in US society for years to come and that is the ultimate price of this recent crisis. Housing impacts us all and it is the biggest monthly cost item for families and it is where families invest and build their futures. Without a robust housing market families will not have a future.  I personally hate criticism without constructive ideas on corrective action, so I will make my own suggestion. I believe that the government should continue tax credits for home buyers… and not just first time. I believe that the government should continue tax credits for green home improvements that will reduce energy consumption, increase home values and create green tech jobs/investment. I am saying that over time stimulus spending needs to morph into tax rebates that can be phased out over the next five years.

As US is clearly out of the woods, I have great concerns that Europe is spiraling down. Greece just got bailed out, but Spain, Portugal, etc. will soon follow and political opposition to bailing out union member states will quickly hit a crescendo. Most of the sovereign debt is being held by big European banks, which will be hit by this. As banks are hit, liquidity will freeze again, which will impact society at large. Spain already has unemployment topping 20%. How much more unemployment can the Spanish society take before its social fabric is torn.

I started writing a book. Do not get excited… it is a slow process. The book will touch on the social revolution that we are currently living. As the industrial revolution generated growth and wealth, I believe that the social revolution will have a similar fundamental effect on society. We need to start looking ahead and no longer dwell in the recent past.


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