The cat in the tree

“The cat is up the tree these last five years and we still haven't gotten it down yet” is a sentiment expressed at an economic forum recently regarding the status of the global economy. Some argue for increased spending to generate demand, increase growth and thereby reduce debt with greater tax receipts. I am not convinced this would work without careful expenditure since mal-investment is a waste that exacerbates the economic malaise with more debt and little compensating economic growth.

Japan's infrastructure spend of twenty years ago did nothing to turn around their current economic malaise now entering it's third decade. It's malinvestment in nuclear utilities caused by ineptitude in preparing for the inevitable tsunami has doomed Japan for more decades of decline as they have to mothball some facilities and dismantle and detox others. In both cases the return on investment is negative but the later is extremely so.

With American real estate clearing up and the war expense in Afghanistan and Iraq winding down the economy is getting a gentle breeze behind it. A good case could be made for the stalemate in Congress being a good thing.

Scandinavia is an example of governments actually seeking value for expenditures. Sweden was in bad shape in the nineties and today it is doing great. They may be socialists but they are extremely practical. No hand wringing on their part when it came to not saving Saab, a car company which I am sure many Swedes were proud of and in a country such as France would have been saved by the government in charge in a heartbeat. Didn't I blog earlier about the Sweden taking on Milton Friedman's school voucher system?

My final point is that global banks are the great cake eaters in the system. The greater the percentage of global GDP from assets badly allocated by whales gone wild the longer it will take for the cat to back down to the ground.