A Roadmap to Stop Bleeding and Start Healing (Part 1)

Right now the American economy is sputtering, losing momentum just in the most needed time, with exports failing to propel the way the did early in the year, and jobs hard to come by, pretty much this is how a recovery works.




Either way consumer led or export led kicks (both a source of demand), the spare capacity begin to shrink (from factories to offices and retail), but not until business think they need to, so a sustained rhythm seems necessary, in factories this is pending orders or unfilled orders, and in retail means dropping inventories + more and constantly increasing traffic in store turning in to sales, after the current number of employees begin to seem unable to fulfill upcoming demand, is when the magic happens and hiring unwind, unfolding a virtuous cycle when increasing hiring, led to increasing demand, to increasing investment to expand capacity and so demand keep rising, etc.



In the current recession, few have been able to consolidate a robust demand from exports or consumers, Asia thru a mix of both, as governments help to reassure confidence and opening the grid of credit.

Europe seems to be quickening before and during the debt crisis, and such event sparked a temporary stimulus by making the euro cheaper, the European GDP data proved that PIIGS remain weak, but a lot stronger than consensus, and improving German fortunes may actually send demand shockwaves across the mainland, while at the same time government have been sending confidence to the economic agents thru tightening fiscal policy with still loose monetary one, as well a big 1 trillion dollar support to states in need have quite shored up confidence along the way, even in the current state Europeans are likely to begin to spend a bit more, companies keep tapping Asian demand and even after the budget cuts, mostly because they are not so harsh in most of the nations and spread out across a span of several years.



Meanwhile U.S economic policy remains quite dovish about how to mend the country, the real worry (the same from companies and consumers) is about the sustainability of the country current economic structure, lack of reforms, overspending, and not foreseeable credible plan to return to a more normal path, the current lack of confidence, is denting the ability of the economic agents to take decisions to invest, spend and thus they rather save (¿have everyone seen how much cash is kept by companies and how consumers are saving?) , U.S need reform to strengthen real income grow, a credible plan to restore confidence in the public finances and a way to pave a true recovery road, while at the same time cutting trade deficit and raising competitivity

Why is the keyword “confidence” in this comment? because economic agents will hold their decisions until the future seems more clear, this is keeping most of Americans guessing “what’s next for us” and “in this current environment im unable to spend”