Three Reasons why the Economy keeps Stuttering

Until we see signs of improvement in any or all of three areas, no solid long term recovery is expected.

Overcapacity of planes, trains and everything else

Overcapacity of planes, trains and everything else

No matter if the Dow Jones gets the better part of 10,000. No matter if the media keep saying it’s getting better. Maybe on Wall Street, but not on Main Street. The economy is still facing three major problems to overcome, and that won’t be addressed any time soon.

Problem Number One: There is a huge excess capacity in manufacturing, commercial and residential real estate and capital asset inventories. It will take months, maybe even years to bring these back into operation, and that is only if demand picks up. If it doesn’t, companies will be forced into cutting back more workers and capacity. Additional job losses mean demand falls further, continuing a vicious cycle.

Problem Number Two: Out of 100 bonds issued this year so far, less than ten will use the extra money to seek expansion or spend it on R & D. The other 90 are stashing it away. Companies aren’t spending.

Problem Number Three: The banks aren’t buying into the phony recovery and are still in shock of their mistakes of the past. Lending has now fallen for six straight months. Total lending to businesses and households is now down to $6.75 trillion from $7.32 trillion last year October. The government hoped to push the so-called recovery along by pumping more money into the economy. But instead the banks are sitting on their piles of money and the consequently weakening dollar is pushing up energy cost.

Until we see signs of improvement in any or all of these areas, no solid long term recovery is expected.

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9 Comments

  1. tommylee

    I guess the laws of supply and demand still work. Something Wallstreet is unaware of, maybe or has Mr. Sandman come by?

  2. Hal_Burns

    Bingo, right on target. Out of the three listed above, and I agree with all three, if I had to choose which one would be the number one problem I would choose number 3. Until the banks are forced to get off the money they are sitting on and get it back into the system, you can forget it. Many businesses are on the verge of closing and many will just after a projected “bleak” holiday shopping season. Have you looked at any shopping centers or strip centers in your area lately? Not a pretty picture, is it. Don't fret though, things are getting better. Don't take my word for it, just listen to the evening news tonight, there that proves things are better!!!!!!!!!

  3. stringdude

    It is the age old fight whether demand can be created or not. Cheap money suggest yes. With cheap money people buy anything, deal or not. When money becomes expensive or in today's situation hard to get, all the production build up becomes obsolete. Do yourself a favor and get up early one Saturday morning to visit some garage sales. It's not about cleaning out garages anymore. It's about getting rid of all those things bought when money was cheap, but no one really ever had any use for.
    Especially fitness equipment seems to be represented on every garage sale. Yep It's going to take long time before that production overcapacity will start up again.

  4. stringdude

    I don't know anyone who still watches TV News! The six o'clock news interferes with Happy Hour and the 11 o'clock news interferes with a rerun of Two and a Half Man on Channel 10.

  5. Hal_Burns

    Ahhhh, Grasshopper. Keeping friends close and enemies closer is so true. One will never know just how deeply we are being led like cattle if one doesn't keep up with what and how they are doing it. I too enjoy happy hour and two and a half men, that is what DVR's are for, record it. Visit the new ABC store and buy a weeks supply of happy hour, but don't lose sight of our dilemma in this country.

  6. John Wheelwright

    Sorry Master Po, I'm very particular to where I go for happy hour and my location of choice is 5 Points Liquor. As to the dilemma in this country, I'm finding out daily that it may seem like a tug of war, but in reality the line in the middle moves constantly to preserve the status quo. Bush or Obama, republicans or democrats, pro or con, yes or no; it's all the same.

  7. Hal_Burns

    Nothing wrong with a good fight, as long as you are watching it. It is true of the tug of war you describe, it goes on constantly. I think what people like you and I, and other readers must do, is be on the alert for those signs that tell us what we need to do in order to protect ourselves and families. That is the one reason I subscribe to the notion of watching what goes on, if it is the evening news then so be it. It was once said that “A revolution every now and then is a healthy thing”, don't you think so.
    I guess it's a little like the septic tank on the farm, every now and then it too needs pumping out.

  8. John Wheelwright

    Absolutely correct always have your antennas out for news on how things are likely going to play out. And prepare for it. Being from the old country and a survivor of several “revolutions” of human and political behavior, I recognize the signs of tension.
    At a dinner party last night I answered the question of US vulnerability to attacks with:”if it comes, it comes from the inside. Sheriff Seagraves a keynote speaker at a tea party, the hardening of positions on both sides of the fence, the increasingly vocal intimidation inside of the country, the fact that manufacturers of ammunition are about the only industry expanding these days, all signs that a “civil” confrontation” may soon come forward. I don't get this from TV news however. I spend most of my time on the Internet where the Big Picture is displayed, rather than the tunnel vision view of a news reader on TV.

  9. Hal_Burns

    I totally agree, however I still like to view on the evening news what and how they come across to the public, it still amazes me how they can look right into the camera with a stright face and tell what their told to say. I know this may be a little far out for some but I truly believe it is all scripted, (what comes from the government).
    As for a revolution coming from within, it will. Tension is high and building daily. Gun control and health care are hugh issues. If you don't have time for the evening news, ask me and I will update you.

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