Smart Money with Keith Springer Saturdays at 1PM and Sundays at 6AM on NewsRadio KFBK 93.1 FM and 1530 AM

Critical Economic and Market Commentary 06/16/10

Lynch BP already and get on with the recovery!

The BP disaster and subsequent hearings are good for one thing: providing a nice distraction from the economic troubles both here and abroad.

The market finally appears to be getting past the European crises and is resuming its uptrend following a nasty but needed correction. At the moment, the Greek and EU problems seem to have been successfully swept under the rug and, according to politicians, they should not ever reappear. However, realists can only hope for a reprieve of at least a couple of months.

The current financial problems are very real and affect the entire world. The population of every developed country is aging rapidly and the basics of demographics are simple:

· People spend less as they get older.
· Less spending means lower demand for goods and services.
· Lower demand translates into less supply needed.
· Lower supply means fewer people are needed to build stuff, and unemployment rises.
· High unemployment means people have less money to spend…including on taxes!
· Less spending leads to financial crises.

Globally – The European crisis is simply a global crisis of too much debt. The austerity measures being taken by Greece and Spain will eventually have to be taken by every developed nation in the world to cut spending and reduce debt levels. Social entitlement programs in almost every country (including the U.S.) will bankrupt their respective economies 10 times over, and the current policies are simply unsustainable. This will drastically slow global growth.

In the U.S. – The continuation of a “slog-through-the-mud economy,” as I have termed it. We’ll have some growth but it will be very slow, and given the demographics, nowhere enough to create enough jobs necessary to bring us back to growth levels we saw from the baby boomers during their peak spending years (1983 – 1999).

What’s needed for a strong recovery?
1. Increased consumer spending – this accounts for 70% of the economy.
2. Lower unemployment – people like to buy stuff, as long as they have the money…even if they can’t afford it.
3. Rising real estate prices – needed not only for individuals, but for the banks’ balance sheets.

My crystal ball:
1. Spending will actually decrease.
2. Unemployment will increase, especially as the states alone lay off over one million people this next year.
3. Tax increases will stymie any potential growth.
4. Real estate prices will start to decline again.
5. We will see DEFLATION.

 

Regards – Keith Springer

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