A number of people are feeling a little more optimistic these days, because the Manchurian Teleprompter says his stimulus plan saved 2+ million jobs. Right. This from the same people that claim that unemployment hovers around 10% while ignoring “discouraged” workers (those that have been unemployed for 6 months or more). You see, they don’t count anymore. These people are meaningless. While President Obama stumped this week for Harry Reid in Nevada, claiming that he had saved the economy, new unemployment figures showed another 476,000 Americans filed for first time unemployment last week. Up from the week before, the real figures show a deepening trend, the opposite of what Obama, Reid, and Pelosi want us to believe. Who is feeling optimistic? Mostly the news staff at MSDNC, ABC, NBC (raking in the dollars from Olympics), and CBS. None of them want to admit that maybe they were wrong about the messiah.
Maybe you have heard of the idea of a “double bounce”, or a “double dip” recession. Basically recessions start from some point when the economy lacks growth, declines to a low point, and then recovers. Because we are a consumption-based economy, things get better when consumers and business start to spend money, which fires up business bottom lines, which fuels job growth, which provides more money to the economy to spend which fires up business bottom lines… etc. You get the picture I am sure. That is a normal recession. A “double bounce” is far more destructive. Imagine a household that suffers the loss of dad’s (or mom’s) job. Things get tight. They have a Hard-candy Christmas. However, there was a little money in the bank, and of course they had credit cards to cover food and most bills that cash didn’t cover while a new job was sought. Things were pretty lean, and nobody went on a caribbean vacation that year. Then, that much longed-for new job was found. The annual salary and benefits wasn’t as good as before, but nevertheless a step in the right direction. Confidently, the little family increased their spending because there was income. The problem of course was that the credit cards were either maxed out or the credit card company had stopped providing credit altogether while upping the interest rate on the outstanding balances. Even with this, our brave family started spending their cash, because that is what we do. We spend. We consume. We don’t really produce, and we surely don’t save. Then the unimaginable happens. The new job is lost. There are no reserves whatsoever to ride out the storm. Utter collapse ensues. This can and will happen to our economy over the next 24 months unless certain things happen.
How can I say this? It is simple. A small recovery may actually be in the works right now. Business needs it even though there is really no money from banks available to assist in making it happen. Capital in the form of business credit is largely unavailable. This week the Fed raised interest rates a quarter of a percent which signals a tightening of credit, not the inverse which is what we need right now. In any case, we will see some better numbers this year, and by the fall, Democrats will be waving banners suggesting that Obamanomics has saved us. Don’t buy it. Here is why: The Bush era tax cuts will expire this year, and Obama has signaled that he is not interested in extending them. Terminating them was part of his presidential campaign platform. Will his ego let him say he was wrong? Not on your life.
Business however, understands that profits in 2010 will be taxed at a lower rate than profits in 2011. Because of this, their accounting departments will make all efforts to drag as much business and profits into 2010 at the expense of 2011. This backwards accrual will fuel the idea that we are doing very well at recovering from the recession. The hidden secret is that net job growth for the year is forecast at less than 100,000 per month! That is a drop in the bucket compared to current joblessness that hovers at nearly 20% when you account for “discouraged workers”.
Have a great Christmas in 2010, because when 2011 gets here, taxes will rise back to the level seen during the Clinton administration and beyond. Couple that with new taxes from Mr. Obama, inevitable inflation from the unbelievable amounts of cash pumped into the economy by the Fed and the government, and depressing profit figures in the first quarter of 2011 (remember, businesses will borrow from 2011 to save on taxes in 2010) and you have a toxic mixture that could virtually kill the U.S. economy, maybe permanently. Unemployment will begin to rise again as businesses cut costs in the face of faling profits and the lack of capital to support growth. Interest rates will undoubtedly rise, along with taxes. Families will begin to see the real costs of Obamacare, and even those with jobs will labor under the mandatory provisions of this monstrous bill. America is in the set up zone for a massive round-house punch to the jaw and she isn’t even watching.
If you think it has been bad up to now, hold on tight. You ain’t seen nothing yet.
However, this train wreck can be averted. To avert the disaster we have to stop deficit spending by Washington DC immediately. I say DC because I mean Democrats and Repulicans alike need to get their damn hands out of everyone else’s pockets. Secondly, the Bush-era tax cuts need to be made permanent along with some type of temporary tax holiday for businesses and individuals alike. History has shown that tax reductions always precede economic growth.
Remember this: when government is borrowing, it reduces the amount of cash in circulation for businesses and families. Government spending must be slashed. When the government stops spending beyond its means, the economy has more money to be used by business to grow and expand without relying on the Fed to marginalize our past by pouring trillions of inflationary dollars into the market to support both government and business. This will give much needed confidence in the American government’s role in the economy worldwide. The dollar will rebound on these actions. Fiscal responsibility is a requirement for this confidence. Healthcare reform must occur, but not the way prescribed by the neo-socialists in DC. Overnight fundamental change may be what Obama promised, but sweeping changes have unintended consequences and side effects that are unanticipated. Gentle corrections will result in the best long-term results for healthcare and the economy as a whole.
Ron Paul was the straw poll winner this weekend at CPAC. The reason why? Because educated people know that getting control of government spending and fiscal responsibility that starts at home are the cornerstones of any plan that gets America on her feet again. I’m no libertarian, and probably not a Ron Paul supporter across the board, but his big win at CPAC says that people are in tune with these ideas. Without them, we will one day wonder what an American really is anymore.
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