Tuesday, February 28, 2012 – 09:30 a.m.

A few observations on the state of economic affairs.

So home prices continued falling in January.

Down another 1.1%. A number worse than forecast.

So much for a housing recovery.

More sales have occurred to investors buying distressed properties. But nothing more.

Energy Prices

Crude oil is hovering near $110 per barrel.

The switch to summer blends in April for states like California will translate to roughly another twenty-five cent increase in the price per gallon of unleaded gas.

Higher energy prices impose an artificial tax on consumers and thus a drag on the economy.

Gross Domestic Product

Fourth quarter gross domestic product (GDP) was highly celebrated.

However if you remove the component for business inventory build, GDP was a paltry 0.5%.

Don’t expect the current quarter to fair much better.

Taxes

Governments across-the-board have to raise taxes and cut spending in order to start some form of fiscal austerity.

Another drag on the economy. But more like a double-hit.

The Greece Default

Greece has defaulted on its sovereign debt.

Anyone who says this hasn’t occurred is a fool.

The supposed Greek bailout forced private bondholders to take heavy write-downs on the face value of their investments.

In other words a ‘default’.

Many other European countries will eventually suffer the same fate.

The Phony Unemployment Picture

Employment isn’t really improving at all.

The Department of Labor continues to reduce the size of the available U.S. workforce in order to bring down the published monthly unemployment rate.

Gallup places the real underemployment rate at 19.0%.

For a place like the Inland Empire, it’s more like 24%.

The Future Budget Problem

Will the U.S. deal with its budget deficit and debt load?

The answer is no!

Our politicians and even the GOP candidates look at the problem like it’s the bogeyman.

They are all hiding under their proverbial blankets hoping the problem will go away while they continue to spend away.