James Altucher is bullish on the economy in 2012, according to one of his recent posts.  If you haven’t read him yet, I would certainly recommend reading some of Altucher’s material.  I sometimes don’t agree with him (and I’m sure most others feel the same), but he is good at stimulating the mind.  If you feel stuck in life or if you are feeling depressed, reading some of Altucher’s material might help you get out of your funk.

So Altucher is bullish on the economy for this year.  I am not as optimistic.  The Fed has tripled the monetary base in just over the last three years and the federal government has accumulated almost $5 trillion in new debt over that same time.  Things were really bad under Bush and (at least economically) they are actually worse now.  The Fed and the governments have not allowed a correction to take place from the previous bubbles they created.  Instead, they have delayed the correction by continuing and adding to the malinvestment.

While I’m not bullish on the economy, there is a possibility that we go through a mini boom cycle this year, due to the loose monetary policy of the Fed, along with the low interest rates and big government spending.  While I think things could tip either way, it wouldn’t surprise me to see the stock market continue to do well for a while longer.  A mini boom might make things appear like they are better than they really are.

While I’m not bullish on the economy as a whole right now, there are some positive things.  Altucher does a good job of pointing out some of these positives.  I will discuss some of his points.

On housing, I’m not sure how much inventories are really down because there are still a lot of houses owned by banks.  However, new housing has slowed down considerably and this is actually good news.  This will allow the remaining inventory to clear and it is necessary to set the stage for a rational housing market.  Prices went up way too fast in the early to mid 2000’s and they have gone down way too fast in the last 5 years.  We need a normal housing market where prices are somewhat stable and just going up with the inflation rate (although that isn’t always that stable).

On corporate profits, I wouldn’t get too excited.  Things can change quite quickly.  We saw that in 2008.

On corporate cash, I think you can look at this two ways.  The reason that businesses have so much cash sitting around is because they are still scared about the economic environment and they don’t want to grow and take risk right now.  On the other hand, it is good because it is a form of savings and it means that businesses are not going into debt as much.

Consumer spending can be good or bad.  It may be a good sign that people are feeling more comfortable with their financial situation and feel like they can spend a little more now.  It may be bad in the sense that people are being duped into thinking their financial situation is better than it really is because of the low interest rates and loose money.  People felt good and were spending money like crazy back in 2005.

Household debt is down and that is a good thing.  Households manage their debt much better than government.  Less debt and increased savings are necessary for economic growth.

On Europe, it is a mess and it will have its effects in the U.S.  We should also pay attention to what is happening in Europe as it could be a sign of what is to come here.

Altucher mentions bank cash and says that the Fed never should have done QE2.  But this is a reason to be bearish.  If the bank releases all of those reserves, it might be good news for a few of the people who see the money first.  For most people, it will mean much higher prices at the grocery store and gas pump.

On his last item, he mentions technology.  I completely agree that this a reason for optimism.  I don’t think it will be enough to overcome the huge barriers put in place by the government.  But the major advances in technology have made our lives better and it will continue to be that way.  Technology will help us overcome many obstacles in the near future.

In conclusion, I am not bullish on the economy like James Altucher.  I am somewhat pessimistic because of all of the distortions caused by the government and Fed.  However, there are reasons for optimism and I think he got some of these right.  Altucher needs to learn some Austrian economics.  However, Austrians should also listen to Altucher, as not everything is doom and gloom.