Our Current and Escalating Economic Mess

As we are all distracted by the mess that is healthcare reform we need to keep one eye on our economy. Unless you are the Vice President, or a lobbyist for a labor union, you probably realize that the $787 BILLION stimulus package so far has been a bust. Millions more jobs have been lost, unemployment in most areas is hitting levels not seen in a quarter of a century or more, and the US government is borrowing almost half of every dollar they spend. Deficits are planned for more than 10 years out of approximately $1 TRILLION per year. That’s planned spending that doesn’t even include the full impact of healthcare reform (if that survives in any form). This cannot go on forever. Unlike what some in congress may say, we cannot borrow our way to prosperity. The United States is not immune to reality.

The Fed continues to print money to buy up debt from the Treasury and our lenders are getting tired of it. China has said that they will start to diversify their foreign reserves. Of course when they say that, they mean that they are going to start dumping the $2 TRILLION dollars that they hold in US currency. Certainly this is one of the reasons gold has come back up to $1000 an ounce as China and other countries move away from the dollar towards investments that will provide protection against American inflation. For us that means an uptick in inflation considering $2 TRILLION will start floating back into the system.

Economists have started to say that we are pulling out of the recession, which is true, we are pulling out of the latest trough. But was that the bottom? Cash for clunkers spurred an artificial boom of 700K cars sold, but what will an artificial boom do to demand in the next two quarters?

The method deployed for the stimulus has never worked and is not going to work for us long term. The government can’t borrow and spend the country into sustained prosperity.

What’s worse is that the backlash against these monstrous deficits will not result in a cut back in spending, but rather an increase in taxes. This will only force more jobs and more companies off shore or out of business. Throw in a health insurance mandate and you’ll crush the small businesses that make up half of the economy. Mandating insurance coverage doesn’t magically give companies the ability to afford it.

The dollar just hit a new low for the year. Gold is soaring. High unemployment.

Have we paved the way for a solid, sustained recovery, or are we going through a sugar spike that is going to leave us worse than how it found us.

Cut spending. Cut taxes. Pull some money out of the system. Stop lending money to ourselves. Restore investor confidence in the US dollar.

The Stimulus Failure - Visualized

I understand things a lot better when I see them. Despite my HUGE ears, I need visuals.

This video does a pretty good job breaking down the failure of the stimulus. I didn't fact check the numbers but they sound ballpark-ish.



HT : Hotair

The Economy and Jobs

There have been a host of scathing articles on the economy. May job numbers show job losses are continuing to mount, although the rate they are mounting is slowing a bit. The President took the opportunity to claim that 150K jobs have been created or saved and promises a 600K job summer. This just opens up a whole can of worms, 1) the President continues to use the term created or “saved” which is a metric that can’t be measured and was even pointed out by Democrat Max Baucus, 2) will the jobs that are created be useful and permanent jobs or will they be government jobs that are created merely for the purpose of saying that a job has been created.

Here is a list of articles that get into a lot of these convenient numbers and hammer home some hard truths.

- Tough words from the AP blowing wholes in the “accelerated plan” that the administration was touting.
- “Saved jobs” from the WSJ
- The President doesn’t like business, particularly American businesses from the WSJ.
- Three Indiana pension funds have delayed the sale of Chrysler to Fiat. Could this force them into liquidation?
- Temporary and part time work mask the real unemployment numbers
- Geithner didn’t really reassure China very much.

The Economy Stinks... but it can still get worse

These are tough times. That’s a fact. There have been tougher, but most people haven’t seen something like this in a long time, if ever. Financial markets and the economy are kind of hard to predict in the first place, after all they are always changing, but this one seems to be the craziest of all.

Granted, there are some good things going on. The market has experienced a minor rally the last several weeks. This is not a result of the stimulus being IN the market, but rather the normal cycle of the market and the promise of the stimulus money coming into the system. From all of the different things that I have read it sounds like this will push forward a little rocky, but on a positive track, for the next year or so.

Nothing like being a little ‘iffy’ to keep you on your toes.

However there are so many unnatural and unpredictable variables that are exterior to the normal system. Quite frankly there are things happening on a scale and magnitude that no one has ever tried before. The fact that they are being done to the main economic engine of the world only leaves everyone that much more speculative and hesitant. Some of these things are counter acting. For instance the TARP and other bank bailout funds were intended to loosen up credit markets and allow the flow of credit, however increased measures and ex post facto rules implemented by the government on those loans has many banks focused on how to get out of them. This only serves to bring you back to where you were previously. It also means that banks end up holding money they could have lent because there is so much uncertainty still. At the same time there aren’t that many people seeking loans right now because there is so much concern and uncertainty about their own jobs and positions, or they are hesitant to start a new business because it is just not a good time to take a risk.

Because money isn’t flowing the Fed has flooded the market with cash on the scale of TRILLIONS of dollars. The idea is that if you put more cash into the system then the system can support any bank runs or cash demands and it helps to ease tensions. This can be useful to a point, but as I have pointed out repeated, it has consequences.

To top off the whole thing you have a new budget that is about to be pushed through that pushes spending 90% over and above what the government is going to take in, with deep red ink going on for a decade and never coming into line. Every family knows that to run a small deficit in an emergency is understandable, but it has to be dealt with as soon as possible and it can’t go on forever. To plan for a decade of spending where your best year will see expenditures exceeding revenue by 30% is… quite frankly irresponsible on such a scale that it is almost unbelievable. The numbers are appalling if not incomprehensible in real terms.

To put it simply, people don’t know what is going to happen because uncontrolled spending on this scale hasn’t been seen in peace times. Ever.

From what I have seen and read from a variety of sources I personally anticipate something along these lines.

A rocky year in a slight upward direction as the stimulus money comes into the system and the measures that have been taken over the last six month have their minimal positive affect. However, the gross amounts of money going into the system will have a significant negative effect in the form of rising inflation. The increased debt burden of the federal government will push interest rates higher by necessity. The scale of all of this only magnifies the problem. Double digit inflation coupled with double digit interest rates are not impossibilities. We will hit double digit unemployment, in fact some states are already there, but I would expect to see some states go as high as 15-20%. Stories will begin to come out of the massive corruption and fraud being committed against the American people through the TARP and stimulus packages. Corruption in the hundreds of billions of dollars. Already there are more than 20 criminal investigations of fraud in TARP related bailouts, but this is just the smallest tip of the ice berg. As more and more baby boomers go onto the Social Security and Medicare rolls, entitlement spending is going to become the new chief concern as underestimates in real numbers push us further into the red. Just like your personal budget, you plan to spend so much and save so much but things rarely go according to plan. The projected deficits aren’t going to be close to reality. Either a cap and trade system and/or nationalized healthcare will get pushed through. One of these by itself would be a budget crushing blow, but the combination of the two could push the economy into an all out depression. Instead of learning from their mistakes the administration and congress will double and triple down like gamblers on a losing streak, just waiting for the next move to be enough. Upper income tax rates will go up 15-20%, only further hampering recovery.

It’s hard to say where the bottom is going to be.

I hate to be this gloom and doom. I really do. It’s just hard to see an upside when you have this kind of aggressive and reckless stupidity going on. This long term budget is completely unsustainable. These actions that have had limited benefit will not be without repercussions. I wish I could speak with more optimism, but the data just isn’t there.

When President Obama came into office and tried to push his stimulus package through he touted this as the worst economy since the Great Depression. That might have been a self fulfilling prophecy.

Let’s just hope it doesn’t turn out to be an understatement.

I tried, but I just can’t end it like that.

The answer is the same as I have been saying for months. Stop pumping money into the system. Reign in the Fed. Pull back some of the cash. Let the markets adjust. Cut income tax rates by 30% across the board. Cut capital gains rates by at least 30%, if not suspend them entirely. Dissolve Fannie and Freddie. Stop the bailouts. Cut government spending 10% this year and 5% a year for the next 3-5 years to slowly get people out of the public sector and back into the private sector. Cut every department. Make Secretaries actually prove their administrative skills by maximizing the benefit for the public’s cost. Open up the OCS (Outer Continental Shelf) to drilling. Open up restricted areas in Alaska, CO and Utah.

It’s worked before. It can work again. Free markets work… if you let them.

My T.O. list... rapid fire!

Oh my, where to begin with all of the stuff going on. I was stumped, so I decided I would make a list of the stuff this week that was just outrageous to me (politically) and give you a quick hits list.

- Our newly appointed Attorney General, who had issues during confirmation because of his involvement in the Clinton pardon scandals, said that we are a "nation of COWARDS" when it comes to race. Hello? I thought the election of Barack Obama was deemed as the beginning of post-racial America. This irritates me to know end! Personally I don’t care if a person it black, white, Hispanic, oriental, Asian, or anything else; if the person is fun to hang out with and can have a decent conversation then we’re cool. It seems to me that 90% of the country is OVER race. They just don’t care! The other 10% is racist, not because they despise or prefer any certain race, but because they CAN’T STOP OBSESSING ABOUT IT!!

- President Obama talking DOWN our economy. This is not the Great Depression! 8% unemployment is nothing like 30%. This is not the worst economy since the 1930s, although if you keep beating it down it WILL BE. I thought America voted for HOPE over FEAR? There is only ONE reason I can think of that a leader would use the bully pulpit to BEAT THE HOPE out of our economy and that is to advance his own agenda. That is pathetic and it makes me mad.

- The non-stimulating stimulus. Just a mental check here. If legislation passes that is going to help our economy, what happens? The indicators for the future of our economy suddenly go up, right? What is the greatest indicator/predictor of where our economy is going? THE STOCK MARKET. Investors not only PREDICT what will happen with our economy, they actually BET on it. They put their MONEY where their HOPE is and guess what? They have no hope in the future off our economy right now because the course our government is on has been historically proven to be WRONG for the economy.

- Inflation. I’ve mentioned it before and here it comes, you keep interest rates too low for too long and throw money into the system like it’s a bottomless pit, and in an economy where we import most things, you are going to have inflation. So now it’s coming. Add onto that the recent implementation of the new anti-lead bill that just took effect on kids’ toys and the budget for a family with four kids just took a kick in the groin. By the way, this same legislation just killed a whole industry that produced dirt bikes for kids… because the MOTORS have lead in them! WHAT?! And every toy that is made for kids will soon have to have EVERY COMPONENT of the toy tested for lead by an independent company. Just think of how expensive NEXT Christmas is going to be! Hope the circuit board in your Xbox didn’t contain tin-lead solder. That’s dangerous, because after all a kid could open that up and LICK the printed circuit boards. COME ON PEOPLE!!!

- Our freedoms eroding. The EPA is now actually considering a 2 year old court ruling that says it should evaluate whether or not CO2 should be regulated. Hmm… I wonder how the Lib’s investigation of that will go? Soon they will be regulating how much you can drive, how many kids you can have, how much you can exercise, and whether or not you can even go to a certain city, because after all there are too many CO2 producing people there already. You might have to get on a waiting list. They have already talked about new taxes on COWS, taxing you for every MILE you drive, regulating how often you can take an airplane… at this point we should all go out and buy horses… but they would probably slap a tax on that too.

- Members of Congress and leadership that don’t follow the STINKING TAX LAWS THAT THEY WROTE AND ARE IN CHARGE OF ADMINISTERING!!! Hello? If President Obama really wanted to boost the revenues to the Treasury and make a move that would send his popularity through the roof, he would request that the IRS perform an audit of all members of Congress. Just in appointing cabinet members he was able to collect on almost a quarter of a million in back taxes. Just think how much we could get auditing all 535 members of Congress?

I feel better now… okay not really, because all of these things have the potential to get worse before they get better. Buckle your seatbelts people, this could be a rough four years. Let just hope we can get some real conservatives (not R.I.N.O.s but CONSERVATIVES) in the Congress in 2010.

Murphy's Law and the Market

Smile, tomorrow will be worse!

Unfortunately that could be the case.

Markets tend to change not on what they know NOW, but what they predict for the future.

So is the market giving us an indicator of where investors think we are going?

Although the author doesn't give any financial kudos to McCain either, he sees Obama's tax plan as the worst possible thing to do in a bad economy. We'll see.

And, as it looks increasingly likely that Obama will be that man, the
markets are casting a vote of "no confidence."

What are the biggest threats to the economy?

Very interesting story from the AP about a survey that was put out to financial gurus about the future of the economy and the most looming threats. The first of course was the housing fiasco and the second and third...

the next biggest threats to the economy now as the possibility the government will impose higher taxes or raise protectionist barriers to foreign competition.

Interesting because Obama and Hillary have pledged to do both. Both pledged to review NAFTA. Both have spoken against the CFTA (Colombian). I know of course that the entire country was glued to the debate the other night and witnessed BOTH candidates talking about raising taxes. Charlie Gibson had trouble actually getting them to say the words, but if you listened it was in every economic plan that they had. Of course the taxes that are high on the list are the “death” or estate tax where the government can take as much as 40% of your estate after you die. Nice eh? And the capital gains tax, which Charlie Gibson pointed out to Barrack Obama that history shows when you LOWER the capital gains tax the revenues to the federal government go UP. He didn’t seem to care though and pointed out that it wasn’t about revenue, it was about making taxes “fair”. RL was going on and on about this today. I REALLY and sincerely hope that this all gets brought up in the general election debates and that people actually WATCH THEM.

The Budget Mess

This is a shining example of what is headed our way if we fail to get out and vote this November.

There are three very important things that have influenced me to absolutely support John McCain for president.

#1 He is BY FAR (as Romney would say the BIG DOG) the best qualified of the three remaining candidates to be our commander in chief.

#2 He has pledged to USE his veto pen and purge the PORK! ABOUT TIME!

#3 He has pledged to appoint constructionist judges on the order of John Roberts.

However, even if you choose not to vote for McCain (as some conservatives have pledged), you still need to get out and vote for conservative Senators and Representatives. Send a message that we are tired of the politicians using our tax dollars like it was free money.

The Liberal congress is already at it, striking down tax cuts that have boosted the economy. Granted our economy has some major problems right now, not because of tax cuts, but because of an attempt to micromanage the market.

What is going to happen now is that, as the market softens and corporate sales go down, they will have to cut back on their work force to cut costs. Then you throw on tax increases and what will happen... they can't just ABSORB this extra cost like it was nothing, they have to compensate for it some how. Higher prices(which is VERY tough in a soft market) and/or reduce costs (i.e. cut jobs).

This whole thing is a recipe for a disaster.

If you want to increase revenue to the federal government you CUT taxes rates. It gives people and companies more money to invest. Companies re-tool, expand, higher more workers and upgrade. More people have jobs and are getting taxed less, so they go out and buy the things they've been wanting. The whole things builds on itself. Tax revenue actually INCREASES because the market is healthier and people are buying more stuff and making more money. The revenue to the government DOUBLED in the 8 years that Reagan was president. Revenue to the feds was a RECORD amount last year. Of course our elected officials acted like they just won the lottery and handed it out like drunken pirates, but that's beside the point.

What congress REALLY needs to do right now is make the current tax cuts PERMANENT. Look for ways to cut taxes on companies who KEEP factories in the US, make it pointless for companies to move their head quarters off shore. Demand a 20% decrease in all federal government programs across the board (except the military). The president needs to smack the federal reserve in the head and put some different people in charge who will stop acting like the economy is their own little puppet show that they THINK they can control. Move out of the system and let the market run itself. Watch the dollar come back up. Yes, interest rates will also come back up but that will ENCOURAGE investment in American dollars (hello!). Demand responsibility and ACCOUNTABILITY from ALL Americans. Mortgages are PRIVATE contracts that the government has NO BUSINESS involving themselves in. If we don't take a market correction now and get our hands out of it, then we will be looking at an all out meltdown.

Wow... sorry, I didn't even have my french press coffee this morning. Just think if I had!