Welcome to 2011!! - Which Is Not That Different Than 2010…

In 2010 we were treated to increasing government intervention in order to maintain our economic pace.  It worked.  We merely traded $1.4 trillion in deficit spending and roughly $500 billion in newly printed money, or about $2 trillion, for a little boost to GDP and not much help in unemployment.  2011 looks like it will shape up much the same.

We are beginning the year with the extension of the current tax rates and a host of other status quo items, but adding in $112 billion worth of cuts to Social Security payments and the additional $400 billion in newly printed money from the Fed.  Will it boost GDP?  Of course.  Will it create lasting economic activity?  No.

Deleveraging lives.  It is the great counterweight to, well, everything.  And it will win. 

There will be shocks and bumps along the way.  The Europeans are nearing a showdown, and are putting the euro on a rollercoaster.  The Chinese are trying to cool things off, but their property market is so inflated that any pinprick could cause an implosion.  And then there’s the creepy little confidence problem with the US debt.  How can we print so much money?  How can we spend at such deficit levels?  How can our central bank buy so much of our own debt?  The answers, in order, are that we cannot, we cannot, and we cannot.  But we are…for the moment.  These problems don’t surface on queue, they take time.  Unfortunately, when they finally push to the top they cannot be stopped.  Credit markets are unforgiving beasts.

None of the issues we faced on 12/31/09 have been resolved, we have simply dug a deeper hole of debt in which to hide our problems.

Read more at H. S. Dent