The U.S. economy often reacts a lot like a colicky baby that requires constant adjustments to exactly what and how much of something is going in one end so that the right thing comes out on the other without a lot of trouble.
That’s a particularly apt analogy right now because we may be brewing a tricky inflation stew that will cause some serious hiccups in our financial recovery.
But the majority of businesses in America survive month to month by using a line of credit to purchase goods and services.
The line is repaid as the recipients of the goods or services pay them back in 30 or even 60 days, which unfortunately has now become the norm.
Most businesses can not afford to keep large amounts of cash on hand that aren’t being put to some use and so a good credit rating and a strong relationship with a bank become a vital part of the bottom line.
However, there was a bit of constipation for the past three years because even after the federal government loaned billions of dollars to American banks very little came out the other end and reached those smaller businesses.
The result was a record number of layoffs because those same businesses employ most of America and they didn’t get the bailouts.
Those were reserved for the giant corporations who had helped to create the economic maelstrom.
Now it’s 2011, and we’ve arrived at a place where the banks have a lot of cash on hand and the economy is starting to pick up just a little.
People are buying goods and services again. Interest rates are still being held at historically low levels trying to give the economy more of a jolt into the black.
Too much money that can jump into the economy without regulation or common purpose, an ability and desire to purchase and low interest rates are the perfect mix of ingredients for a sudden surge in inflation.
If inflation becomes any kind of a measurable reality it will cause a new kind of pain for an entire economy and might stall out the fragile recovery we’ve been experiencing lately. Already food and fuel and some manufactured goods are showing sudden increases whether it’s in the price tag or getting less for the same price.
That’s still inflation.
Add to all of this the probability that real estate will not be a part of the surge this time like it was in the early ‘80s when inflation hit double digits, which provided some relief or at least a sense of getting something out of all that mess for homeowners.
There isn’t enough relief across the board from what we’ve already lived through to measurably increase the number of home buyers.
There’s also still a glut of product on the market and that’s mixed with higher real estate taxes as local municipalities try to cover their own red ink.
Renting has become a smart way to go until things shake out a little more
So here’s an ironic twist to consider.
While the Republican Congress’ budget cuts are draconian because the programs that will disappear are needed and some people are going to get hurt, they may be inadvertently preventing a greater harm.
Pulling back from the edge of over-spending will take just enough heat off of the recovery to make the banks dole out the abundance that was shoveled at them in smaller amounts.
This won’t kill the recovery just make the climb out a little slower over a longer period of time.
The alternative is a return to a short-term fix followed by a long-term, painful financial meltdown.
But if we can show a little accountability for what we all created together and not stop but cut back on spending we may still avoid flinging ourselves into another predicament.
We have to stop acting like children who want everything when they want it and start making the harder choices that will build a stable economy.
(Martha Randolph Carr’s column is distributed exclusively by Cagle Cartoons Inc. newspaper syndicate. E-mail Martha at: Martha@caglecartoons.com.)