John Mauldin starts this week out with a cold-eyed appraisal at the medium-term economic outlook:
Bottom line? It is going to be a tough environment for the next 6-8 years. That is just what happens when you have a deleveraging / balance sheet / deflationary / end of the Debt Supercycle recession. It is what it is, and no amount of wishing or finger pointing can change the facts.
The job market is as squishy as room-temperature Jello, even for those with jobs. Courtesy of Money Game, here is what the average work week looks like based on data from the Philly Fed:
In a recovery, that line would be pointing up, not down.
Instead, over the last year the average work week has been dragging its keister along and below ground level to the point that we’re now lower than last year.
Then there is the cheerful report published by Congressional Budget Office that includes this graph on the CBO’s best guess (based on enforced economic assumptions) for where the federal budget and deficit are headed:
The CBO outlook is developed under these constraints:
This report presents CBO’s updated budget and economic projections spanning the 2010–2020 period. Those projections reflect the assumption that current laws affecting the budget will remain unchanged—and thus the projections serve as a neutral benchmark that lawmakers can use to assess the potential effects of policy decisions. As such, CBO assumes that tax reductions enacted earlier in this decade that are currently set to expire at the end of this year do so as scheduled; it also assumes that no new legislation aimed at keeping the alternative minimum tax (AMT) from affecting many more taxpayers is enacted. In addition, CBO assumes that the measures enacted in the past two years to provide fiscal stimulus to the weakened economy will expire as currently scheduled and that future annual appropriations will be kept constant in real (inflation-adjusted) terms. Under those assumptions, the federal budget deficit would decline substantially over the next two years—to 4.2 percent of GDP by 2012—and, consequently, the budget would provide much less support to the economy than has been the case for the past two years.
I think the CBO’s revenue projects are rosy.
The CBO’s assumption about future annual appropriations by Congress is laughable absent a November election that sweeps waffle-kneed incumbents from office and places stony-hearted conservatives at the controls of the appropriation machine.
The thing to do is quit depending on the government.
Today’s Sunday. In Christian cultures, it’s a day of rest. Throw something on the barbecue. Watch a pre-season football game, or a baseball game. Play catch with your kids.
Tomorrow, sit down and take a cold-eyed look at your family budget.
Decide firmly against any new large long- or medium-term increase in debt: no new car until mid-decade, for example. Renting? Think about finding a smaller, less expensive apartment or asking your landlord for a lower rent in exchange for not moving out. (This may depend on the conditions of your lease.)
Look into restructuring any existing long-term debt on favorable terms: will your bank or credit union give you a better rate on your mortgage without whacking you with fees? Can you manage to pay more on the principal each month, or make an extra monthly payment?
Pay down any existing high-cost debt: the best return on investment right now could be paying off any balance on a credit card that you’ve been rolling over from one month to the next. At 18% (or higher), you can’t find any investment vehicle that comes within shouting distance.
Finally, although socking away money in a savings account approaches setting dollar bills on fire, you want to pile up an emergency fund. Remember the squishy job market? If you find yourself a statistic in an upcoming Initial Unemployment Claims report, you want a cushion to keep you out of the following month’s Mortgage Late-Payment report.
Related articles by Zemanta
- “CBO Releases Its Annual Summer Update of the Budget and Economic Ooutlook” and related posts (cboblog.cbo.gov)
- CBO offers mixed take on tax cuts, stimulus (money.cnn.com)
by Milton Friedman and Anna Jacobson Schwartz, an extract from their larger work, 
.
