Sunday, January 10, 2010

Out of the Woods & Into the Fire

4 Reasons Why Our Economy Is Far From Out of the Woods.
Fox News
By Mallory Factor

This article presents a good summation of factors that could send the economy into another tailspin next year:

1) Tax Increases

a. Expected, New Health Care Tax
b. Bush Tax Cuts End at the Start of 2011

2) End of Stimulus Spending

There is an open debate on whether stimulus spending is really effective. When it was tried in the 30’s under FDR, the economy became addicted to this type of spending and would start to tank when it was withdrawn (1937).

One of the more interesting parts of the article is its stance that such spending harms future GDP more than it helps current GDP: “Stimulus spending will likely produce a negative feedback effect on the economy by 2011. This is because every dollar in Keynesian stimulus spending takes an estimated $1.23 out of future GDP, according to many economists.”

3) Inflation

a. Weak Dollar Policy
b. Deficit Spending

It should be noted that most sources that I have read discount that inflation is a serious concern in the near to mid-term. The majority of experts see the risk of deflation as greater than inflation at this point.

4) Prospective Legislation

a. Cap-and-trade
b. health care
c. pro-union legislation like “card check”

Democrats may have trouble passing any of these items. Public support for any of these items is very low and sinking by the day. While the politicians have tried to link at least some of these items to economic recovery, the link is tenuous.

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