OUR STIMULUS CHALLENGE

For those of you wondering why the "recovery" we're currently experiencing will NOT continue check out this USA Today article by David Lynch. In a few words Lynch argues that we can't depend on deficit-stimulus dollars forever. Private demand has to rise. This demand can only come come from three sources: consumption, investment and exports. Unfortunately, things don't look too good. Lynch writes:

Consumers ... are sidelined by the need to repay debt. Investment, too, is unlikely to contribute much to growth, because many industries already are saddled with unused capacity. (Think anyone will build a new auto plant any time soon?)

In the end, Lynch makes one simple point about future consumption, which I also discuss in my book: "the American shopper is tapped out." This leaves exports.


Every nation is looking to export their way out of this current mess. This, unfortunately, can't be done. Worse, if we're not careful accomodating trade partners will become fierce trade competitors. Aggressive trade nationalism, competitive tariffs, and currency wars will become part of the mix. Anyone familiar with how world trade deteriorated in the 1930s knows this does not bode well for our future. As then Secretary of State Cordell Hull is reported to have said, "if goods can't cross borders, soldiers will."

Stay tuned.

- Mark