Where is the US economy headed?

Gold is useful in jewel and some electronic and that is it.

To illustrate, the last stimulus package didn't produce significant construction activity at all. Instead it merely delayed constructive action in state governments to address their already excessive levels of debt, thereby making these interlocking problems worse.

Gold is not wealth without any goods or services - but especially for food and water.

LINDAU -- If politicians don’t get a handle on it soon, the debt crisis will be a game-changer for the whole Western system. The economies of the United States and Europe will face years of stagnation and decline with regard to emerging nations in Asia and Latin America. In fact, the Euro Zone might break apart.
These are some of the views received by Die Welt received in answer to questions it put to 17 winners of the Nobel Prize for economics who are gathered this week for the Nobel Laureate Meetings at Lindau, an island in Lake Constance.
These wisest of men, brought together to discuss pressing world problems, are calling on political leaders to show courage and leadership so they can win back credibility in the eyes of consumers, business leaders and financial markets. Only confidence in the stability of the system can prompt an urgently needed reboot. The core issue, according to the laureates, is nothing less than the continued dominance of Western ideals that have shaped the world order since the Industrial Revolution.
Edmund Phelps, a Colombia University professor who won the prize in 2006 for his theory on growth, says that during the past decades the West has lived above its means and in so doing has already consumed part of its future. That means that the United States, but also Europe now face a long period of stagnation.
Phelps says the West has to pay for the mistakes of the past, but if it can get back on track rapidly, recovery can start that much faster and the mistakes will take less of a toll. He considers the political system to be the greatest problem. In the United States, political parties are busy putting spokes in each others’ wheels, while leaders in Europe have managed to create a system of perverted incentives with banks and insurers having to hold government bonds and governments exceeding agreed-on debt ceilings. Phelps says politicians need to show both more courage and a greater sense of responsibility, facing the fact that they are going to have to be the bearers of bad news -- such as tax hikes -- to their citizens.
Is stagnation here to stay?
Other laureates also see the debt crisis as responsible for the terrible state of the economy. To Eric Maskin, government debt addiction is ruining the Western system and if politicians don’t wake up and act quickly economic turbulence can be expected to go on for years.
James Mirrlees, who won his Nobel Prize for political economics research, rates the chances that the Western world will be facing a long period of stagnation as “very high.” Myron Scholes agrees, adding that both the United States and Europe are looking at a fate similar to Japan’s lost decade if the present muddling continues.
Credibility and decisiveness are of the essence to solve the European debt crisis, and Germany’s role is pivotal. Maskin says that the euro zone only stands a chance of long-term survival if a central fiscal system is introduced, while financial market expert Scholes is more optimistic about the zone’s chances of holding together, though not in its present configuration. A currency union with a central bank and 17 independently acting finance ministers cannot survive, he argues. Taxation would need to be centralized, transfers made possible, and in the short term, the European Central Bank should lower bank rates and continue to buy government bonds.
Laureates Daniel McFadden and John Nash believe the future of the euro zone is mainly dependent on Germany, and that Germany should understand that such a zone is in its interests. Weaker members would need to be removed, and in the longer term, Europe will have to build up a stable fiscal system that makes effective control possible, McFadden says. Nash, known to many through the film “A Beautiful Mind,” says: “Where there’s a will, there’s a way.” The euro zone stands a chance, he says, if all club members work really hard to keep it together.
In one respect, the laureates feel that a decline of the West is already sealed: regardless of all and any political decisions that may be taken, the dominance of the dollar as the world’s reserve currency will fade. Its leading role will decline progressively over the coming decades.
The economists see this as inevitable, like the devaluation of the British pound in the 20th century. They unanimously agree that the Chinese yuan will gain in stature. Unlike the others, game theorist Nash is also betting on a “super ruble,” while Edward Prescott sees opportunities for gold.
To save the Western system and its values, the laureates suggest better coordination among governments. Stronger institutions are needed to achieve results. And McFadden says that the United Nations cannot fulfill the role -- in his view, it doesn’t have the support, nor does it enjoy the respect or clout, to do so

News flash: Congressional Republicans want to raise your taxes.

Impossible, right? GOP lawmakers are so virulently anti-tax, surely they will fight to prevent a payroll tax increase on virtually every wage-earner starting Jan. 1, right?

Apparently not.

Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different "temporary" tax cut should end as planned. By their own definition, that amounts to a tax increase.

The tax break extension they oppose is sought by President Barack Obama. Unlike proposed changes in the income tax, this policy helps the 46 percent of all Americans who owe no federal income taxes but who pay a "payroll tax" on practically every dime they earn.

Gold is not wealth without any goods or services - but especially for food and water.

georgeob1 wrote:

To illustrate, the last stimulus package didn't produce significant construction activity at all. Instead it merely delayed constructive action in state governments to address their already excessive levels of debt, thereby making these interlocking problems worse.

Keynesian economists have said from the beginning that President-elect Obama's stimulus package was grossly inadequate, given the size of the output gap and the contraction in state spending. The failure of the stimulus didn't come as a surprise to them, though it did come as a surprise to Obama's inner circle, who had deluded itself about the magnitude of the problem they had inherited.

This self-delusion also causd the now-admitted dearth of shovel-ready projects today. President-elect Obama was convinced---against the advice of Christie Romer, Larry Summers, and the rest of his economic team---that the economy was in a temporary glitch, and that there wasn't much point in creating new shovel-ready projects for 2010 and after. The reasoning was that spending on these projects wouldn't be needed anymore by the time it kicked in, and that they would only overheat an already-hot economy. (I can go back and dig out the articles published at the time, but I'm too lazy to do it without being asked.)

I think you and I agree that President Obama lives in a bubble of self-delusion that poses a grave danger for the US, even for the world. But we disagree about the object of this delusion. In my opinion, it's too much happy-talk, too little action. It is timidity rather than overconfidence about stimulus. Romer, Summers, and every other economist with the stature to pierce the bubble, have given up on Obama and left his administration. I am not a happy camper.