The 2011 Economy

by Sal on January 3, 2011

in Economy,Europe,Politics

Economic Collapse

On this first business day of the new year, economic analysts are putting forth their own predictions for the economic situation that will unfold in 2011.  The flailing economy has been one of the major stories for the past two years, and one of the major reasons for the Republican electoral landslide this past November.  There are reasons for optimism.  There are signs that the labor market is showing signs of recovery.  Many analysts expect 2.5 million jobs to be created this year, especially with the tax cut extensions put in place during the 111th Congress’ lame duck session.  Additionally, the GOP congress is likely to gain more pro-business concessions from the Democrats and the President to spur further growth.  Indeed, 2011 is looking up.

Yet there are some worrisome signs as well.  It is important to remember that this financial crisis arose out of a monetary crisis, not a crisis of American business.  It was the banks that were failing in 2008 due to excessive government regulation, which caused a panic among American (and global) businesses, resulting in a “battening down the hatches” approach.  Budgets were trimmed, jobs were cut, and companies shored up, unsure of what to expect from the new Democrat administration.  The passage of the Porkulus and Health Care did little to calm the concerns of American Businesses.

What is concerning is that the monetary crisis is showing signs of returning, both domestically and globally.  In Europe, the poor fiscal situation of countries such as Greece and Ireland is leading many analysts to speculate that a series of Bank Runs are possible.  In the United States, almost 100 TARP-funded banks are on the verge of collapse.  You see, TARP itself did little to solve the problem of the bad assets that were brought on by excessive government regulation, and instead simply propped up the failing banks and postponed the problem to another day.  That other day may be here.

What will 2011 bring for the economy?  While there are signs of hope, the ominous signs in the monetary system are troubling, and the Administration’s inability to solve the problem back in 2009 (and to be fair, the Bush Administration’s equally inept response to the issue in 2008) may bring about an even greater monetary crisis in 2011.  Despite all of the optimism coming from analysts, I don’t seeing the monetary issue ending well.  Europe is about to fall apart, and that will negatively affect American interests.  The U.S. banks may not be far behind, and may bring us into a double-dip recession, or even a depression, before the chapter that is 2011 is closed.  Only time will tell, but I pray to God that I am wrong.

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