Red-Bull Economy?

Mark Gongloff talks about how the fed and the government have risked long term downturn to the economy by focusing on the short term.

We've got interest rate cuts and tax rebates which may help in short term but will hurt in the long term.  He compares it to Red Bull where you get a short term jolt then get even sleepier.

Remember that the consumers are becoming more cautious.  Most people - fearing a recession - are going to stash the check into savings.  So I am not sure how big of an effect it's going to have. 

Getting back to the article. 

Remember in 2001 it was not the tax rebates that helped so much.  It was the HEW and the housing bubble that played a much bigger role.  Now the HEW and housing going down, this rebate is not going to do much.

With the credit bubble and housing bubble blowing up,it is looking more and more like Japan.  That is one scary situation.

But this cycle looks different. Home prices haven't fallen this broadly or deeply before. And the banking system is sorting out an overhang of broken debt securities it has little experience fixing.

 

"In the rush to enact a timely package, politicians may have stopped a 2008 recession, but they have ignored a risky letdown -- after the election," Lehman Brothers economist Ethan Harris wrote Friday, warning the U.S. faces "another brush with recession in 2009" for this reason.

 

One scary example -- especially when you consider that the S&P 500 has been essentially flat in nine years -- is Japan's Nikkei, which closed Friday at 13017.24. It first crossed the 13000 mark in July 1985. What happened to Japan's economy in the two-decade interval? A stock-market bubble, a real-estate bubble, a credit crunch, a messy banking-sector cleanup, super-low interest rates and a series of short-term stimulus packages that solved nothing.