Tag Archives: Obama

Is The Next Recession Here Already?

Posted on by

The US economy is either right at the edge of falling into another recession or has already entered a second recession. The big money spenders say we need more stimulus. It is kind of like having a drink when you have a terrible hangover (the tail of the dog that bit you).

Mike Mish Shedlock wrote:

Is the US economy at a tipping point or has it already tipped over? The best one can possibly say is the economy is at a stall rate.

Harvard University economics professor Martin Feldstein said the U.S. recovery that began two years ago has been losing steam and there are even odds the economy will slip into a recession.

“This economy is really balanced on the edge,” Feldstein said in an interview on Bloomberg Television “Surveillance Midday” with Tom Keene. “I think there’s now a 50 percent chance that we could slide into a new recession.”

What has got us here at the worst recession since the great depression (there are many who believe that we are in a depression). I believe it has been the loose credit cycle of the last 40 years or so with government and the consumer.

Obama certainly didn’t start it but he has put the spending on steroids.

No Solution?

There is a solution, just not a politically viable one. It’s called debt deflation. That is the economy’s way of purging the excesses of a housing bubble and debt orgy.

Instead, the Fed and the ECB-protected bondholders at the expense of taxpayers even though the unemployment rate is sky-high.

The Fed’s action was supposed to get credit flowing again and create jobs. Instead, Fed policy created jobs in China while bailing out US bankers and wealthy bondholders, many of whom arguably belong in prison or stripped of their financial assets.

In the end, Greece defaulted anyway at huge extra cost to European taxpayers. In the US, unemployment rate is 9.2% not counting millions of people who involuntarily dropped out of the labor force.

This is a solution that would in the long run make us an economically viable country. Unfortunately, I don’t think there is the political appetite for this.

But it may happen forcefully at some point in the future whether we like it or not

Keynesians Argue for More Stimulus

Sadly, Keynesians still argue for more stimulus. Supposedly we need to build infrastructure.

Let me ask a question: Where would the US economy be had we done that?

The answer is certainly in a better position than the alternative of dropping bombs in Iraq. For starters the US would have better bridges instead of holes in the Iraq desert and millions of destroyed lives (and millions more enemies on top of that).

However, the US economy would still be where it is now. Why? Because of the three cardinal rules of stimulus.

Three Cardinal Rules of Stimulus

  1. First rule of stimulus: It always runs out.
  2. Second rule of stimulus: All it can do is create a greater pile of debt.
  3. Third rule of stimulus: Spend enough money and interest on debt will eventually consume you.

I thought the first Obama stimulus package was sold to us as “shovel ready jobs” many of which were infrastructure improvements.

I guess those didn’t get done the first time, maybe it will the second time

Never do the Keynesians want to throw in the towel on what they suggest. One might think that the 20-year history of failed infrastructure stimulus in Japan would be enough to open the myopic eyes of Keynesians but one would be wrong.

US Structural Problems

Before we go throwing money around, why not fix a few internal structural problems to ensure we at least get our money’s worth. How do we do that? Easy.

  1. Scrap Davis Bacon and all prevailing wage laws.
  2. End collective bargaining of public unions
  3. Enact national right-to-work legislation

Give me those measures and I will gladly hike taxes a bit. Those measures would at least help ensure we got our money’s worth for government work.

Those would never pass our current congress because they would be seen as anti-union measures. This administration is financially supported by unions.

However, those three items, while desperately needed, do not solve the problem of why jobs are fleeing the US in the first place.

For starters we need corporate tax laws that do not reward and encourage job and capital flight. Second and more importantly, we need to address the issue of trade imbalances

Finally, some of the real reasons that jobs are fleeing the US instead of the usual nonsense talk of the “greedy” business people. Politicians need to stop creating caricatures to campaign against and quite waging class warfare and start addressing the real world problems that are affecting business.

Before wasting more money on stimulus measures doomed to fail, how about fixing internal and external structural problems first? If we do that, and stop the war mongering, we will not even need stimulus; the economy will heal itself.

The economy is life a human body, it has the capacity to heal itself without outside interference.

The problem is that the economy has been artificially manipulated by all levels of government is the name of creating more prosperity. This manipulation has created imbalances that have created financial uncertainly and volatility.

Left to its own devices, our economy would probably already be recovering with strength not what we have. Yes, there would be winners and losers, that is the way of nature. Our politicians can’t let that happen, because they don’t see it as “fair”.

If politicians had their way with nature, there would have never been an evolution in nature, they would have legislated against it because it wasn’t “fair” to the species that eventually were extinct.

We need to let our economy “evolve” into the next stage of our development.

Will This Be The Obama Downgrade?

Posted on by

The Wall Street Journal wrote:

So the credit-rating agencies that helped to create the financial crisis that led to a deep recession are now warning that the U.S. could lose the AAA rating it has had since 1917. As painfully ironic as this is, there’s no benefit in shooting the messengers. The real culprit is the U.S. political class, especially the President who has presided over this historic collapse of fiscal credibility.

This is the point, I do believe that as much as the credit agencies did nothing during the run-up to the credit bubble, they now what to be seen as ever vigilant. But the fact remains, they didn’t create the problems that will cause the downgrade.

On spending, it is important to recall how extraordinary the blowout of the last three years has been. We’ve seen nothing like it since World War II. Nothing close.

To be fair part of the deficit is from the current recession and the previous administration was not know for their fiscal austerity. But this administration in its pursuit of “social justice” has totally blown out the stops when it come to spending.

This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.

And this charade that the administration has played regarding cuts in spending is shameful. Has there been one specific proposal on spending cuts from the Obama administration? Only specific tax increases have been mentioned.

The President is now claiming to have found fiscal virtue, but notice how hard he has fought House Republicans as they’ve sought to abate the spending boom. First he used the threat of a government shutdown to whittle the fiscal 2011 spending cuts down to very little. Then he invited Paul Ryan to sit in the front row for a speech while he called his House budget un-American.

And now the President is warning that social security checks might not go out. This is the “never let a good crisis go to waste” that has been the hallmark of this administration. Get all the political points you can out of a crisis. I hope the American people see through this charade for what it truly is. Also, I thought that social security goes into a separate fund (that has been raided by every congress and President since Lyndon Johnson) so why wouldn’t the funds be available?

This downgrade, if it happens, will be squarely at the feet of the Obama administration and their mishandling of the economy.

Bond yields going crazy in Europe – Are you watching America?

Posted on by

CalculatedRisk wrote:

This doesn’t look good … (see table below).

The Greek 2 year yield is up to a record 31.1%.

The Portuguese 2 year yield is up to a record 18.3%.

The Irish 2 year yield is up to a record 18.1%.

And the big jump … the Italian 2 year yield is up to a record 4.1%. Still much lower than Greece, Portugal and Ireland, but rising.

Are You Paying Attention Washington DC!

This is our future if our politicians don’t wake up and see the tidal wave of debt that we are creating coming. It is hard to think that they are that unaware, but I think they are.

When I was young there was a cliche that said “You can spend on guns and you can spend on butter, but not both at the same time”. Lyndon Johnson was the first President that thought you could have both and seemingly every other President since has felt the same.

I think those 40-50 years of being the policeman of the world and at the same time building enormous social programs has finally come home to roost in a 14 trillion dollar debt. Add to that the baby boomers retiring and you have a recipe for the bankruptcy of the United States.

I think the time for hard choices has finally come, no kicking the can down the road, and our politician are not up to the job.

I hope our country can survive until the next election to maybe find politicians that understand the problem and have the fortitude to work toward solving the problems. And I don’t think the solution is raising the debt ceiling to borrow more.