The word on the street is that we may be nearing the bottom of this recession, or even be on our way out. I’m a little skeptical of those claims, but even if they’re true, there are three nasty problems that will get in the way of any recovery:
1. High fuel prices
How much you pay at the pump is largely determined by supply and demand, along with a large dose of federal gas tax. The weak demand of the recession has brought about much needed relief in fuel prices. But while nobody is paying attention, the new administration has canceled many gas leases in the western United States, which potentially lowers the supply of fuel. My prediction is that by the time the Dow recovers to its pre-recession glory, the price at the pump will be setting new records as well.
2. Higher Taxes
The federal government keeps spending us deeper and deeper in debt, and sooner or later will have to raise taxes in attempt to balance the budget. Regardless of whether they tax the rich or the middle class, the effect on the economy is still negative. High taxes = poor economic performance. Period. It doesn’t matter who pays the taxes.
The spending of the federal government has been getting plenty of media attention, but I don’t hear much about the trillions being spent by Federal Reserve. While this spending doesn’t drive up the federal deficit, we pay for it just the same – with inflation. LOTS of inflation.