The economy is now staring eyeball-to-eyeball with an activist U.S. government. It will legislate, reform, supervise, bully, give out money like cotton candy and get concessions in return.

It will encourage technological development in environmental and other “future” industries. It will seek sources of energy other than the oil and gas we get from Mexico, Canada and OPEC. And it will put generous sums of money behind these initiatives.

The Obama government emphatically does not want banks to sit on the money they get from the government. Nor do they want it to go to shareholders in the form of dividend payments. This is why I look for more companies to cut their dividends and this plays perfectly into my Red Flag Insider strategy.

But wanting it and getting it are two different things. The financial crisis has spread to other countries, undermining economic growth everywhere and putting a dent into foreign exchange reserves. All the while, the printing presses of the world are working overtime. The draining of money from the global economy combined with the wanton printing of money has turned into a high-stakes battle.

The crisis continues unabated. The money drain is winning so far.  And here are four reasons why it’ll keep on winning…

1. Consumer, construction and commercial real estate loans are getting worse.
2. The U.S. economic crisis has turned into a global crisis. And now the global dimensions of the crisis is boomeranging back on the U.S. economy and aggravating our problems even further.
3. Some overseas economies have been hit hard. But many developing countries have not yet felt the full brunt of the global crisis. They will this year, making the crisis truly global.
4. The negative feedback cycle, as Warren Buffet calls it, is still playing out. Consumers have lost faith in the economy, buying less. Companies are laying off and cutting back, expecting consumers to buy less. And banks are increasingly fearful, lending less to both individuals and businesses.

This is worth watching. With so many sectors suffering, the ones that get government sustenance are operating at a competitive advantage.

Fair or not, it gives you a way to invest.

Source: Why the Bailout Won’t Work

Last 5 posts by Andrew Gordon

• Why ‘Best of Breed’ Investing Is No Passing Fad - August 4th, 2009
• The Resource Wars Are Heating Up - July 28th, 2009
• The Coming Global Blackout - July 7th, 2009
• Are Banks Really Coming Back? - July 7th, 2009
• What’s Next for the Fastest-Growing Foreign Markets? - June 30th, 2009