"... The bounce in the economy and the stabilization in markets reflect government actions that are big enough to impact near-term growth rates, but are not sufficiently directed at the root problem of excessive indebtedness to produce permanent healing. The deterioration in employment markets will continue because companies' profit margins are so deeply damaged that a little bounce in growth won't do much to alter their need to cut costs. This deterioration in labor markets will undermine demand and continue to pressure loan losses, which will keep the pressure on the banks and elevate the cost of capital for tentative borrowers, inhibiting credit expansion."

This again illustrates the problem of using past performance to project future results. You have to look at the underlying conditions in order to get a real comparison, and we have not seen a deleveraging recession in the US for 80 years. Using the past data in today's world is statistical masturbation: It may make you feel good, but it’s not producing anything really useful, and may be harmful to your portfolio.

An Unsustainable Trend in Debt

This week, the federal government published 2 important reports on long-term budgetary trends. They both show that we’re on an unsustainable path that will almost certainly result in massively higher taxes. By 2016, we’ll have to fund Social Security out of general revenues, as the surplus we now have will be gone. And there are no trust funds. They’re a myth. It’s as if I wrote myself a check for $2 trillion and then declared I was worth $2 trillion. The money just isn’t there. Social Security makes Bernie Madoff look like a small-time crook.

And Medicare is in far worse shape. For those with the stomach, you can read Bruce Bartlett's analysis here. He estimates that taxes will have to go up by 81% if we’re to pay the obligations as they now stand.

Now that’s unsustainable. It won't happen. And as the saying goes, if something is unsustainable, at some point it will stop. Long before we get there, change you won’t like will be forced on the US.

The following headline caught my eye: "Obama Says US Long-Term Debt Load is 'Unsustainable.'" Yet they announced a $1.8 trillion deficit -- which is really going to be at least $2 trillion -- and are getting ready to pass health-care programs that will mean at least a trillion in deficits for as long as one can project.

How will they pay for it? Even getting rid of the Bush tax cuts will only produce a few hundred billion a year, which is nowhere near enough. They project much lower medical costs in the future, because they assume they’re going to figure out ways to cut costs and make medical care more efficient. As if no one has ever tried that.