The economy is strong because of housing. Most jobs in the last years are housing-related, either directly via construction and sales, or indirectly, via purchases made through refis and HELOCs. Economists state that 2/3 of our economic growth is from consumer spending. Thus, if you take away half of consumer spending, the economy will take a hit.
In addition, the Fed has to inject money into the system to pay the promised entitlement benefits, and service the national debt.
The trade deficit is large and unsustainable. The GSEs pose systemic financial risk (both facts are per Greenspan). The dollar is on shaky ground, and our deficit is sustainable ONLY as long as foreigners keep buying our dollars. China has hinted that they want to diversify, and judging by the rising yield curve, it appears they have started.
America was once the world’s largest producer of goods. We are now the world’s largest debtor nation, the largest consumer of goods. We get away with this because we have the reserve currency. But, as in housing, all excesses correct.
Where do you see a bright future in that, North County Jim? What did I miss?
