From Marketwatch:

There is a marked difference between economic growth and debt-induced demand. Instead of letting the market take its medicine and enter recession in 2001, the powers that be injected fiscal and monetary drugs to dull the pain and induce stock gains.

From the NY Times:

Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

Housing has been deteriorating for the last two years.  News from yesterday indicates the market stands a very good chance of getting worse.

From Josh Marshall:

A lot's getting said tonight. And a lot of it is baseless speculation. But the one thing that rings true to me is this: The Clinton campaign got rough and nasty over the last week-plus. And they got results. That may disgust you or it may inspire you with confidence in Hillary's abilities as a fighter. But wherever you come down on that question is secondary to the fact that that's how campaign's work. Opponents get nasty. And what we've seen over the last week is nothing compared to what Barack Obama would face this fall if he hangs on and wins the nomination.

Below is a compilation of two posts from my blog last week.  Combined they show an economy that is in serious trouble.

Mish has been all over this story.

This is a compilation of posts from my blog.

From today's WSJ:

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.

There will always be a debate about the need and extent of regulation.  This debate is healthy; it should prevent one side from pushing too far against the other.

However, as the financial system continues to experience a high amount of turmoil, it is clear that deregulation has exceeded the "too much of a burden on business" argument.  Instead, too little regulation has broken the economy.

Since June of last year the curtain has raised on the US economy.  Underneath the hood of "The Greatest Story Never Told" lies a host of problems that will take a while to fix.  In other words, don't expect this situation to end anytime soon.

Yesterday on my blog I wrote a series of articles on inflation.  The bottom line is the inflation picture is not that good right now.  This has incredibly important implications for Fed policy.  If the Fed lowers rates too much they run the risk of stoking inflationary pressures.  That means that on the flip side of the current economic mess we run the risk of having to increase rates too quickly to deal with inflation.  That move will slowdown the then underway expansion.

In addition, we're in a period of declining purchasing power for the average consumer.  Note that energy and food inflation are increasing.  As the cost of necessities increases more and more people will have less and less money available after buying all of their monthly necessities.

As the information below indicates, inflation is a problem.  And it is growing.

There have been two events over the last 5 days that signal the financial markets are nowhere near and end to their problems.  These events indicate the depth and breadth of the problems we currently face.

I've done a great deal of complaining about the overall conditions in the financial markets but I haven't offered any solutions.  So, here's my answer.

There isn't much we can do.  Any solution would create a moral hazard, meaning the solution would encourage the behavior that got us into this mess in the first place.  To illustrate this point, let's take a quick look at what got us into this mess.

From the IHT:

Democrat Barack Obama said Wednesday that as president he would spend $210 billion to create jobs in construction and environmental industries, as he tried to win over economically struggling voters.

Obama's investment would be over 10 years as part of two programs. The larger is $150 billion to create 5 million so-called "green collar" jobs to develop more environmentally friendly energy sources.

This is part of the Constitution

It use to mean something

Amendment IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

I have a guilty pleasure to admit: I have been listening to right wing radio over the last few weeks with increasing pleasure.  I am reminded of the phrase, "when in a hole, the first thing to do is stop digging."  However, it's doubtful they will take  my advice.  But in listening to Rush and Hannity and reading the likes of Powerline and RedState, I see them dance around the central issue without quite getting there.  So let me offer my help to help them get to that ever important point of acceptance.

You guys controlled the While House and Congress for 6 years.  The country saw what you want to accomplish and are experiencing the impact of your policies.  And guess what?  THEY THINK CONSERVATIVE GOVERNMENT STINKS.

From the WSJ:

Federal Reserve officials are acknowledging increasing weakness in the economy, signaling a willingness to cut rates again at their next meeting. But inflation concerns are rising among some officials, indicating the magnitude of their next move may be a matter of contention.

From the AP:

President Bush unveiled a $3.1 trillion budget on Monday that supports sizable increases in military spending to fight the war on terrorism and protects his signature tax cuts.

The spending proposal, which shows the government spending $3 trillion in a 12-month period for the first time in history, squeezes most of government outside of national security, and also seeks $196 billion in savings over the next five years in the government's giant health care programs -- Medicare for the elderly and Medicaid for the poor.

Even with those savings, Bush projects that the deficits, which had been declining, will soar to near-record levels, hitting $410 billion this year and $407 billion in 2009. The all-time high deficit in dollar terms was $413 billion in 2004.

First, I'm back from vacation and I will start blogging again tomorrow.

I've been silent on the Democratic primary.  I'm not much of a political writer (duh!) and am not that astute at the underlying political trends/give and take of everyday politics.   In addition, I'm very much a political centrist, which is not exactly where the primaries are fought.  

I should also state that I was first a Dodd supporter, largely because he was easily the most experienced candidate.  Since he dropped out I've been pretty agnostic about the whole primary thing.

However, this is huge news, especially with economic wonks.  In addition, the following endorsement comes from my favorite Federal Reserve Chairman.

Ever since I have been writing about the economy (about 4 years) I have focused on the mammoth increase in US debt during this expansion.  It has led me to question the underlying vitality of this expansion as a whole.  Events of the last six months indicate the markets are also asking the same question right now, although in a somewhat different way.  

In effect, the economic dominoes are starting to fall.  Ultra-low interest rates which inflated asset prices and allowed an explosion of debt are starting to seriously bite as a financial system is burdened with too much bad debt on its books.  In addition, the market is starting to realize that asset prices -- namely housing -- were ephemeral and will have to drop.  In effect, the entire economy is going through a process of reevaluating "the greatest story never told" and is discovering it wasn't that good a deal to begin with.