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A Delicate Line to Walk

March 14, 2012 – 5:06 pm

One of the reasons that the U.S. economy’s recovery is so fragile is because of the U.S. deficit that expanded again in the fourth quarter by $124 billion. That was more than expected but the more important problem is that for the year of 2011 it increased by $473.4 billion and that was up from 2010 which was $470.9 billion.

The reason why this is a worry when it comes to the economy is that the government cannot keep this up and at some point they must reduce the excess spending. This spending is pumping up the economy but it has only pumped it up to 2% growth, not enough for it to handle the withdrawal of the cash the government is providing.

This is the reason why the Fed is not discussing and in fact has stated they are not going to raise interest rates until 2014. Never before has the Fed taken that kind of stance. Even with recent evidence of some inflation they continue to hold rates at extreme lows.

The economy needs to eventually stand on its own. It’s a question of when and how it will react when it does. Time may help as the hope is that maybe housing will recover and add its strength to the fragile expansion. This balance of providing cash to push for more growth and overspending, which brought about the last recession, is very delicate and that has produced the current fragile recovery.

Good Trading
Steve Peasley

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