Catch 22

Joseph Heller's famous novel of the same name gave us that famous phrase and it aptly describes the situation we are in. Yesterday I made allusion to the fact we have become Japan. That wasn't completely accurate. When Japan's bubble burst they were awash in cash. The Japanese people are prodigious savers and had trillions in savings accounts. The Japanese government had been running massive trade balances with the US for decades and had more trillions in the balance of payments fund. For 20 years now they have been spending this stockpile of cash on what are, basically, WPA projects all over Japan. Japan is littered with bridges, airports and bullet trains built with that stockpile of cash. This prevented an outright depression and held it down to a perpetual recession. The US has no such luxury. We are the world's largest debtor nation and our national savings rate is virtually non existent or tied up in worthless real estate. We are being told we must cut spending to solve the problem. Cutting spending cuts demand and causes even more unemployment which leads to an even deeper recession. We are told we must raise taxes. Raising taxes cuts demand and causes an even deeper recession. In short we are pretty much screwed because all the things we can do only makes things worse. That is why I think the stock market has farther to go on the downside. A lot farther.