In conclusion: Economies based on services and high taxation are high cost of living economies. That’s where the U.S. is heading.

Out of all tax returns submitted by Americans, deduct all 1099s, deduct all government workers (police, politicians, teachers, postal workers, etc.), then deduct all those working in health care. Now, how many people are left? These are the folks actually “producing” productivity. I’m curious to see what the percentage is. That’s the number of actual jobs you have. As the cost of insurance and insurance mandates & regulations skyrockets, w-2 jobs decrease drastically, and there is strong disincentive to have older employees. Once one’s age is over 50, you wouldn’t believe what health insurance costs.

I totally do not trust our unemployment statistics. My husband is a 1099, and we pay all medical insurance with after-tax dollars because of that fact. However, for purposes of losing his unemployment benefits, he was considered “employed”. They may have considered him employed, but he has years with about zero income. However, I’m sure he was included in the statistics as an employed person. Big deal. Many jobs these days are commission only, and very low paying. To brag that an economy is going well because unemployment has decreased is not painting an accurate picture.

An A+ for your analysis. Great.

First, the core inflation numbers are inaccurate. Real Inflation is mostly hidden right now and is at about 17%, not the visible core stuff,

Second, while it is true that banks are hoarding cash, they never should have gotten the bailouts in the first place–if anybody, the taxpayers should have. All the hoarding cash does is create a slow rise to the hyperinflation instead of a fast jump, but it will happen nonetheless. We’re currently in the saddle of a double-dip recession, but nobody in DC dares admit it for political reasons. The bailouts were a horrible idea, and they should not have been rewarded for bad business practices.

Third, China can continue to absorb inflation as long as they have a trade deficit in their favor, which is why their cheap crap continues to be imported and be cheap. Tariffs will not improve that either. When the trade deficit goes away, they stop importing our inflation, and we are totally screwed. China has us over a barrel, dictating trade policy to us based on our debt, and the consumer and worker suffers with the widget economy going out of business. But if we try to restore the widget economy and narrow the gap, our debt comes home to roost. This is why deficit and debt spending has been so much of a problem!

Fourth, consumers are cutting back but not cutting debt as the cutbacks are going back into necessities, because those prices are going up–that slow rise to hyperinflation mentioned above. Had the consumers gotten the bailout directly, instead of the banks, their debts would be reduced, which hurts the inflated paper economy, but it would have created more consumer confidence and investment in the widget and service economies. But doing that would bring back the issues of deficit spending explained above.

Fifth, employment cutbacks are happening from rising costs in health care and unemployment insurance premiums while wages stagnate, not to mention the slow rise in costs of supplies and materials to actually produce anything.

It all comes back to the deficit spending and out-of-control debt coming back to roost, and all attempts to minimize the pain will be ineffective. That’s why the stimulus didn’t work–you can’t stop a tide rolling in by spraying it with a garden hose the other direction.

Taxes remove money from the economy, weakening it. Government spending does not add new money, it only replaces some of what was removed. Government projects and spending cannot fund a recovery.

Tax reductions have nearly always been in the form of a tax rebate. They are a temporary injection of money into the economy. Most tax rebates have been insignificant to those recieving it, rarely even as much as a weeks pay, and has cost more than the people recieved to distribute. A long term reduction in taxes would have more impact, because it would not need to be returned. I do not see politicians or economists advocating such changes.