Monday, May 11, 2009

If you make $50k and spend $100k what do you think your credit score would be?

That is in effect what the Federal Government's income statement looks like for 2009. Spending $2 for every $1 they bring in. If the Fed's called up Capital One right now they'd be looking at a 24.99% interest rate.

Today the White House budget office projected a $1.8 trillion deficit for 2009 (I prefer to say eighteen hundred billion because other than astrophysicists no one can grasp what a trillion $ is). As I've said before the government is getting hit by a double whammy - falling revenues from lower tax receipts (fewer people working, fewer capital gains, falling corporate income tax receipts) and skyrocketing expenditures.

What is particularly unnerving is that the White House forecasts include a fairly optimistic snap-back recovery in the second half of 2009. However, off-the-record there have been indications that the White House has been telling global leaders that it looks like things might not recover until 2011. In a recent tour of the globe trying to gain support for more financial investment the Obama administration has been stiffed by many potential investors.

I think this could be the beginning of a long-term shift in global asset allocations away from the US toward emerging economies in Asia. We won't know how this plays out for 5-10 years, but it will be interesting to watch.

My current long-range forecast is for more sputtering of the US economy in 2009 and 2010 with the stimulus perking things up in 2011 (2011 could be a stellar year for the stock market if things play out right). However, after that I think we'll settle back in for another 5-6 years of tough sledding. People are talking about the Japan's lost decade (which is really like 2 lost decades) - we could be looking at the same scenario here in the US.

Oh, and it looks like a GM Bankruptcy is coming sooner rather than later......


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