In my regular 'Around the blogs' segment yesterday, I drew attention to Borepatch's analysis of President Obama and his Republican challenger, Mitt Romney. The comments have been flying thick and fast over at his place, and there have been a few here, too.
With respect, I'd like to suggest that much of the debate is moot. No matter who's elected, the economy is going to hamstring their policy options, whether they like it or not. A President may propose policy and take executive decisions; Congress and the Senate may offer alternative policies and pass legislation; but if the money's not there to implement either, their functions are moot . . . and that's precisely the point we're approaching in the USA right now. (I've mentioned this before, of course.)
Our economy is barely sputtering along at present. It's misfiring badly, and the engine is threatening to shut down altogether. Consider these realities:
- The US economy is recovering very slowly indeed from the 2007-09 recession - much more slowly than in previous recessions. This is crippling economic growth and - most importantly - job creation. In fact, as I've mentioned before, official unemployment statistics are a bare-faced lie from beginning to end. The Washington Post has just published an excellent exposé of one aspect of this reality. Our real unemployment rate, right now, is almost certainly significantly higher than 20%. When official statistics put it at just over 8%, they're understating the true position by about two-thirds. No President can fix a problem of that scale without a vibrant economy to provide jobs - and that economy simply doesn't exist right now.
- There are so few investors willing to purchase US treasuries (i.e. bonds to fund US government debt) that the Federal Reserve is currently 'buying' 70% of them,. They aren't really being 'sold' at all, of course: the Fed is offering them for sale, then 'buying' them itself by creating money (literally generating strings of digits in a computer system). No actual money is changing hands at all, but the US government is spending hundreds of billions of dollars every single month that are financed by this method. It's nothing more or less than a financial house of cards. So bad has the situation become that last week, respected investment analyst Peter Schiff called US treasuries 'junk bonds' and warned that the dollar was headed for collapse. 'Printing money' like this must, repeat, MUST inevitably lead to serious inflationary problems - to pretend otherwise is to deny mathematical and fiscal reality. Just ask the National Inflation Association.
- Europe, which as a joint entity is a larger economy than ours, is in even worse economic shape than we are; yet our economy is inextricably interdependent with theirs. If they go down, we go down with them - and that's very likely to happen. Daniel Hannan pointed out last week:
"The EU is in a downward spiral. The worse things get, the more reluctant its governments are to tackle the underlying problem, viz. excessive expenditure. Lacking any alternative narrative, voters blame the lack of growth on 'cuts', 'bankers' and 'deregulation'. They then support parties committed to even higher spending – which, of course, exacerbates the problem. And, as if national governments were not burdensome enough, Europeans must also contend with more rules and more taxes from Brussels."
Need I go on? The political maneuverings that we're going to see for the rest of this year are nothing more or less than play-acting. Whoever wins in November will have to confront this economic reality . . . and it's not going to be a pretty sight.
Let me close with this graphical representation of the total debt load of the world's ten largest mature economies, courtesy of Pinnacle Digest.
The USA's total debt, during the second quarter of last year, stood at 279% of the nation's Gross Domestic Product. It's got worse since then. The same can be said of most of the nations listed above - all of whom are among our major trading partners. Furthermore, the chart above lists only US debt that's actually been incurred - money that's already been spent. It does not list amounts that have been promised to voters (e.g. future Medicare/Medicaid, Social Security and welfare benefits, etc.) but not yet incurred or spent. Those liabilities are very significantly higher than current levels of indebtedness - so high, indeed, that they simply can't be afforded at all. Despite all promises to the contrary, they will never be paid in current-value US dollars. They cannot be paid, except in dollars that have been reduced in value due to inflation - which will be the inevitable (and, I believe, deliberately intended) result of the Fed's money-creation policies. That's the simple economic reality of the situation - and that reality will overshadow all the political posturing in the months and years to come. None of the current candidates for the Presidency shows any signs of being ready, or willing, or able to deal with it.
Peter
The rejection of Obama and his policies in my opinion will spur substantial economic growth, in particular the repeal of Obama Care. There are trillions of dollars sitting idle in the hands o investors, corporations and banks at the present time. Why would anyone risk investment at this time? If you hire employees you may be forced to provide ridiculously expensive insurance to cover them and their dependents to age 27 at an as of yet undetermined cost. If you managed to make a profit at all it will be taxed away from you to implement more socialist policies and entitlements. The economic uncertainty tied to that one piece of legislation alone is enough to hamstring the economy for decades or until it overturned.
ReplyDeleteTo be honest I think Obama accomplished in three years out of a four year term exactly what he set out to do. Destroy America from the inside. He hates the traditional America and so do those who put him in office. His wife clearly stated that when he was elected it was "the first time she had ever been proud to be an American." He wants a European style socialist/communist state. The debt he has saddled our country with will almost definitely destroy us. It most definitely would be impossible for America as we know it to survive another four years of his treason.
You point about how the economy will limit the policy options of the executive is why it's critical to get an executive whose policy will be to open the taps on American ingenuity to start the economy back up again.
ReplyDeleteIf the government would reverse course on their path to shut off as much American business as they possibly can, the economy would improve. They need to shut the fuck up and get out of the way, instead of "helping" us to death by blocking every attempt to engage in commerce that they possibly can.
I think that you're right. The housing market still hasn't seen bottom, and business hiring is more or less put on hold due to regulatory uncertainty.
ReplyDeleteI think that Romney is quite likely to win, and quite likely to continue most of the policies causing these. It will probably be four and gone for Mittens.
Thanks, Peter. Now I am depressed. It's kind of like being on the Titanic after the last life boat shoved off.
ReplyDeleteBusinesses won't do anything until they see what happens in the November election. If Romney wins there should be an initial surge of optimism which opens their wallets. But then the hard work of repealing Obamacare and finding and fixing all the rest of the damage has to happen if we are to right the vessel.