Wednesday, August 10, 2011

Volume 3 Issue 32: Intelligent Investing

Double Dip?


I think this article by Robert Reich, Professor of Public Policy at UC Berkeley, pretty much describes what is happening in the US:
Imagine your house is burning. You call the fire department but your call isn’t answered because every fire fighter in town is debating whether there will be enough water to fight fires over the next ten years, even though water is plentiful right now. (Yes, there’s a long-term problem.) One faction won’t even allow the fire trucks out of the garage unless everyone agrees to cut water use. An agency that rates fire departments has just issued a downgrade, causing everyone to hoard water.
While all this squabbling continues, your house burns to the ground and the fire has now spread to your neighbors’ homes. But because everyone is preoccupied with the wrong question (the long-term water supply) and the wrong solution (saving water now), there’s no response. In the end, the town comes up with a plan for the water supply over the next decade, but it’s irrelevant because the whole town has been turned to ashes.
Okay, I exaggerate a bit, but you get the point. The American economy is on the verge of another recession. Most Americans haven’t even emerged from the last one. Consumers (70 percent of the economy) won’t or can’t spend because their major asset is worth a third less than it was five years ago, they can’t borrow as before, and they’re justifiably worried about their jobs and wages. And without customers, businesses won’t expand and hire. So we’re trapped in a vicious cycle that’s getting worse.


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