State of the Economy – June 2010


I wish I had a crystal ball. The indicators from the US market seem to be encouraging. Without inflationary pressure the Fed will probably keep the rates low into 2012. Companies seem to be performing well, but the strengthening of the dollar versus the Euro may impact some companies (like IBM) going forward.

I read and article this morning that there will be a shortage of houses in the future as the economy picks up. Population growth has not decreased with the economy. When home values will start to rise on average is hard to say, but I would highly encourage the administration to continue tax breaks for first time buyers. Also tax breaks on any home improvements that increase home values should be encouraged.

I am still waiting to see the big stimulus projects, like a high speed train track across the length of Florida or California. Stimulus is still needed to keep the momentum going. These are investments that will pay them selves back fairly quickly in taxes and increased economic output.

In every State of the Economy blog I’ve wrote about the massive structural unemployment. Health care benefits have run out and unemployment benefits are running to an end for most. There is a lot of political hesitation about pumping more money into these programs with the deficit already astronomically high. The fact is that, as a nation, we cannot afford to keep these programs indefinitely past cut off dates. It is heart breaking for the families that fall totally out of the system with little hope of getting back on. This massive pool of structurally unemployed needs move to the growth centers across the national and start from zero. The government should help in this move. Provide subsidized housing in growth markets for migrant workers that have been laid off for more than 2 years. Many are still stuck with mortgages that are doomed to fail. If we all agree that it will happen any way, why not do it now and enable those people to start again fresh.

I have great concerns over Europe. Every week I read the financial news the Euro zone seems to spiral deeper. The sentiment on the street level is really poor. Nothing seems to move and everyone is mainly concerned just about making ends meet in any way possible. When you reset the startup/entrepreneurial pool this way the effects will be felt for years to come. It is often small businesses that start hiring first and have the greatest impact on unemployement. Without a healthy vibrant SMB sector growth out of this EU double dip will be really slow. Being European myself I feel I can say this… the problem with the EU is that it doesn’t have a central federal government and the member states are virtually impotent. Handling an economic crisis is not just about monetary policy, but also about political and social policy. I personally do not see a future for the EU without a strong federal government. Who can even name the EU president? Who can name the name the German Chancellor, British Prime Minister, French President or Italian Prime Minister… I’ve made my point. The austerity policies of most EU countries will stifle growth and compound the problem. 

I recently read an article that stated that the EU crisis will not bring down the US market and growth. I agree. US is an economic engine in itself and the weakness of the Euro zone will only strengthen the US as an economic partner to growth markets even more. Nasdaq will be impacted as many of the listed companies sell into the Euro zone and report in USD, but the DOW should stay strong. 

Lastly I’d like to comment on recent news about mineral riches found in Afghanistan. Administration, do not let those slip to the Chinese the same way as every to date. Set conditions for aid… like any other Western power. Just look at the military gear Greece has to buy for the financial support it got.

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