The State of the State

Several incentives have been doled out to jump start the US economy. These include the multi-billion dollar stimulus packages, cash-for-clunkers program and other local stimulus packages. Lot of the stimulus cash has not yet been spent so the impact of this has not worked through the system. But most of these are short-term incentives. These are meant to jump start the US economy with the hope that overall consumer spending (main driver of the economy) will begin working at normal pace before the effect of these short-term stimulus packages run out.

The Federal Reserve has at this point put all of their cards on the table. They do not have any substantial tools left in their hands.

All of these have created smaller shoots of recovery only to be crushed by the larger problem with the economy. These smaller signs of recovery are not leading to sustainable path to recovery. The latest one being just last week, when some numbers implied that things were better. And of course, Wall Street has a tendency to make a trend out of a single data point. Consumer spending should inch up at this time of the year due to back-to-school shopping. But even that does not seem to have materialized.

The chronic problem with the US economy is lack of job creation. The unemployment numbers are substantially underestimating the reality as many people are underemployed and are not counted in the numbers. At the same time, these consumers have lost a substantial chunk of their retirement savings and home values. And so the vicious circle continues.

Any expectation of either China, India or any other nation pulling us out of this recession will not materialize. The principle reason here is that they just do not have the purchasing power needed to not only pull out their respective economies from doldrums but also help the US. Unless of course the US Dollar falls so low as to substantially increase their purchasing power. But such a dramatic fall in the US Dollar would mean substantial and permanent contraction in the US economy and that would be disastrous.