07.20.2009 original publish date
03.18.2011 repaired broken links
Does the Recent Uptrend in the Stock Market and Government Spending Mean Recovery is Here?
original article written by Net Advisor™
Recovery is an interesting word in economics.
Just because stocks go up in a 4 1/2 month period does not mean a recovery or a “new Bull Market” is here.
In fact the market (S&P) is essentially flat for the year, which we are still on track from when I felt we may be for the year.
The U.S. government thinks by borrowing trillions of dollars and spending it, that will ‘stimulate the economy into recovery.’
This is the government mantra:
“Spend our way out of debt.”
“The more debt (spending) we create, the better the economy will do.”
Isn’t that what caused part of the problem?
The gov has spent over $11 trillion (National Debt), and is on track to double the National Debt in 10 years or less. (Source: PBS.org)
And obviously, all that spending has given us the best health care, the best schools, plentiful high paying jobs, and everyone is living in utopia, right?
You mean more government spending is not the answer? Correct.
The Obama Admin has apparently spent just 1/3rd of the initial 2009 so called “stimulus” and recently there have been calls for another bigger stimulus. Why create more debt when 66% of the miracle cure has not even been used?
The Obama stimulus is supposed to be spent “quickly and efficiently.” (Source: Reuters, 02-23-2009)
All this infrastructure spending has not happened like Obama said it would. This of course assumes that one thought it would have worked in the first place.
As we have learned five months later, that “Only 1 Percent of (Obama Stimulus) Infrastructure Money Has Been Spent.”
— Source: CSN News
Solving the Economy.
If you want to “stimulate the economy” try cutting taxes across the board and cut government spending. Americans have cut their individual spending and that has produced the highest saving rates in about 16 years. (Source: PBS.org)
If the U.S. Gov could materially reduce or eliminate the national debt, the stock market could double or triple. The U.S. Dollar would soar in value, making imported goods cheap (and we import virtually everything). Oil and gas prices would plunge on a stronger dollar.
But the Obama Administration has no interest in this. They want oil prices to go higher to force people to drive the kind of cars they want you to drive, so called “green cars.” Which up to now that means Toyota and Honda since they have the highest fleet MPG in the auto business. (Source: Manufacturing.net/ Associated Press).
Eventually the government controlled or influenced American auto and other auto companies will began to produce more green cars. The question: Is that what Americans want right now: To go out and sell their car for less than it is worth, finance a new “green car” that is over priced and can’t drive very far, with a bank loan they cannot get, with income from a job they don’t have.
At the same time, while we spend money we don’t have in order to “save the planet,” China and India are polluting like it’s the Industrial Revolution. And China’s pollution could become a problem here in the U.S. (Source: Scientific American)
Above: “NASA satellite image reveals the atmospheric brown clouds looming over India.” (Image: NASA. Source: BBC )
Now back to the stock market:
The U.S. stock market has been moving on technical factors and now it is looking for fundamental reasons (earnings) to see if the technical movement was justified.
The Dow is still down about 36% from where it was just 1 year ago, and still down 58% from its July 2007 high. The Dow, the S&P, etc will take a long time, years more likely, to recover to past highs.
NASDAQ has not recovered from its March 2000 high, and is still down 58% nine years later and counting.
The market could continue this rally however at some point, and I don’t know when yet, but we will have to deal with the massive govt debt, potential inflation risk, the commercial real estate market, continued job losses, and the biggest part of the equation – consumer economic stability.
No lasting recovery can take place unless the consumer is financially stable. Consumer spending represents about 2/3’s of the US GDP. (Source: Minnesota Public Radio) The Bureau of Labor Statistics (BLS) placed this number at 60% in 2002. (Source: BSL.gov Report, 11-2002) In October 2009, the BLS reported that 71% US GDP comes from consumer spending. (Source: USA Today)
Government can spend all it wants, but unless it is going to buy 200 million flat screen TVs, and buy everyone food, cars, clothes, etc., fixing a bridge or repairing pot holes in roads are not going to stimulate or recovery the economy.
short link: https://www.netadvisor.org/?p=5266
image(s) copyright by respective owner
Copyright © 2009, 2011 Net Advisor™
Further reading about China and India’s growth and their accompanied pollution:
12-14-2005
Coal, China, and India: A Deadly Combination for Air Pollution?
03-07-2007
Pollution From China And India Affecting World’s Weather
07-07-2009
G8 struggles to persuade China, India on climate
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