PeakTrader.com

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There are many misperceptions about the U.S. economy, because the real economy is overlooked. Are too many houses better or worse than too few houses?

Over the past 25 years or so, the U.S. economy has been a "Black Hole" in the global economy, attracting imports, capital, and the foreign owners of that capital themselves, while the U.S. became increasingly more efficient, to continue the virtuous cycle.

Now, the U.S. government is the Black Hole "consuming" the U.S. economy. So, U.S. households and firms can expect higher costs of living and production. There will be fewer and smaller assets and goods.

The data show the quantity and quality of U.S. assets and goods have increased substantially in recent years.

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Using the Keynesian consumption function; Y = C + I + G + NX, Obama's "change" will result in lower levels of C and I and higher levels of G and NX.

There will be less consumption of private goods and less private investment with more government expenditures and more net exports (i.e. less imports).

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The Obama spending spree continues. In addition to last week's $30 billion for Afghanistan, attempts to get much more than $80 billion out of U.S. drug firms for health care, and Copenhagen, Obama wants to spend the TARP money (looks like a busy week).

Obama is taking credit for preventing a deep depression. However, the Fed's quantitative easing and TARP, under Bush, likely put a floor on the downturn. I think, all Obama has done is burn money to mostly spin the economy's wheels.

Consequently, the U.S. will be a much weaker engine of economic growth, pulling the rest of the world's economies, for at least a decade.

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A permanent lower level of real GDP growth can be inflationary, given the positive relationship between M2 and nominal GDP, and nominal growth minus real growth is inflation.

Also, at some point, the Fed will need to preempt inflation, from the quantitative easing, and may fall behind the curve.