The Goldilocks Economy

There seem to be a few myths floating around about the magic knights in shining armor that are going to ride by and rescue the US economy.

The Feds will "print" money to save the day.

Three flaws in this argument:

Firstly, the Feds can print all the money they want but there is no mechanism that will make it flow into wages (which is what is needed in order to "bailout" the debtor.)

Secondly, the sheep never eat the wolves as we have discussed here.

Lastly, to trash the dollar (or worse, compromise its reserve currency status) would mean "game over" for the Fed, and why would they do that, as we discussed here?

Cap-ex will pick up where the consumer left off.

This seems to be the biggest myth.

Why exactly would businesses invest in expanding their business when consumers are retrenching? Instead, they'll be cutting costs, and the simplest way to do that is to fire people. Any CEO that engages in "cap-ex" while the US burns will be scorched to a crisp.

It doesn't matter if the American consumer retrenches. The consumers in China and India will pick up where the US left off

Three flaws in this argument:

Firstly, Chindia have built a business model exporting stuff to the US (classic mercantilism) so when the US economy gets torched, Chindia will have a complete meltdown.

Secondly, the credit markets in these countries are hardly robust. Foreign banks employ thugs in Bombay to recover defaulted credit. And the claim that the Chindians will suddenly within the next few years give up their thrifty habits and turn into spendthrifts is ludicrous in the extreme.

Thirdly, while it is possible that Chindian companies indulge in capex, the downturn in their economy will make them conservative.

Looks like Goldilocks is going to get sodomized by the three bears!