On the road to recovery?

Recently, the media has been a-buzz about two things: (1) health care reform; and (2) the rebound of the stock market, largely due to improved sales of new and existing homes. I have not posted in a while, but my position on health care has been clear (if you've been paying attention). Here it is again: if it is cheaper for the country as a whole -- both the public sector and the private sector -- to adopt a single-payer system of health care, then it is fiscally-conservative to advocate for that position, even if it means that the government will assume a great deal of the costs. It is not fiscally-conservative to slough off the costs of the system on individuals if it is cheaper for the government to assume the responsibility of running it. Too many politicians forget that they should be thinking of the welfare of the nation, not the welfare of the federal government's budget. Hell, when the rich are beginning to advocate for the end of their tax cuts to fund the system, then it's clear that "fiscal conservatives" in Washington, D.C., don't have their heads on right (go to wealthforcommongood.org, if you don't believe me).

That leads me to the second point: the rise of Wall Street, and of home sales. To sum up what follows: this is more likely a sign of unsustainable economic policy than it is about real recovery. So, there's no reason to be overjoyed; millions of Americans are still without work, and those with jobs are spending beyond their means all over again. There's plenty of suckers to be had, it seems.

First problem: home purchase tax credits. If you buy a house this fiscal year, you can take a significant tax credit. Obviously, this encourages people who are thinking about purchasing a house into taking the plunge. This causes an increase in sales. Under normal conditions, this means that home builders will start building again; however, there is already an over-extension of home builders in their respective developments. Further, there are already plenty of homes on the market due to the foreclosure crisis and the high unemployment. Consequently, the increase in sales does not necessarily mean a corresponding increase in home construction, and this means that there may not be as many jobs created as expected.

Second problem: the Fed rate is artificially low. The federal government cannot continue to permit the Federal Reserve to loan money at interest rates of 0.25% or lower. Eventually, the government will need to raise the interest rate in order to pay off the deficit. Further, the interest rate will need to rise in order to combat inflation, and put value back into the U.S. dollar. Because jobs are not being created by the increase in home sales (in significant amounts), the spending and lending will decrease as the interest rate rises. Consequently, when the interest rate rises -- and it will -- home sales will drop, and the economy will falter again.

Third problem: credit card defaults. More and more consumers are defaulting on their credit card debts, and the debts are becoming uncollectible due to bankruptcy. These assets are quickly becoming valueless, which will decrease the lending leverage that certain lenders will have (depending on the amount of credit card debt they are holding). When these lenders start to fall, the federal government is unlikely to bail them out. This will cause further credit restriction, which will, again, choke the economy. Consequently, when the predicted fall of these card-asset lenders occurs, we will see another economic fall.

The only hope, at this point, is the release of stimulus funds, and the creation of the promised jobs. The Obama Administration needs to put more effort into getting these projects approved, and started. There needs to be some risk accepted by the federal government: recently, the federal government decided to kibosh a uranium-enrichment plant in Piketon due to its failure to demonstrate its financial viability over time. While there is something to be said about having certain returns, the need for employment is so grave in Ohio that the rejection has caused a scale-back of the economy around Piketon. And this is not good at all.

So, we're still on the road ... but not to recovery.