Our Dystopian Future: The U.S. Economy Six Months from Now


The recession is over, we're told by Bernanke, Geithner, and Summers, it's time for an exit strategy, to wind down the economic stimulus before it turns inflationary. Big banks are booming, TARP funds are coming home to roost, the market's up, the Fed has stopped buying mortgaged-backed securities, and the first-time home buyer tax credit will end in a few months.

Why, then, are we all still so nervous? Because the recession really isn't over, not for you and me. And, absent renewed stimulus -- for which there seems to be no political will -- we're screwed.

Here's a look six months in the future if the U.S. continues to follow its current economic course.
By the end of June, the home buyer tax credit will have ended and the Fed may well be inching up interest rates to keep a lid on inflation. What inflation? Housing prices will have peaked and dipped, dropping in every case by the value of that $6,500 or $8,000 tax credit. The unemployment rate will be, at best, stable between 9-10 percent because banks won't be lending yet to small businesses, sticking as long as they can to the Fed carry-trade of borrowing from Bernanke at a low rate then lending that money right back to Bernanke at a slightly higher rate. Sure beats investing in America, right?

The Treasury Department will still be looking in vain for the proper incentives to get banks doing the right thing, meanwhile another million homes or more will have gone into foreclosure with the failure of the Obama mortgage modification plan. Prices will stagnate, growth will falter, consumer confidence will dip again and Jim Cameron will still be 11 years away from releasing his next blockbuster.

It all comes down to political stalemate. You know that's true. We started talking about it here six months ago, now the New York Times has picked up the story, making it legit, and the general press is starting to emerge from its fog. This isn't anti-Obama or pro-Obama, it's just a mess we're finding ourselves in that's probably inevitable until our national ass is truly ablaze and we find the common will to do something about it.

But what's that? What do we do now to forestall such a lousy future? Or what do we do then if it's truly inevitable?

I'll cover that tomorrow.
 

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