The Managed Economy

There seems to be some euphoria surrounding the Obama White House that the economy may finally be on track.  The stock market's behavior this month is a glowing chorus of approval, according to many observers.  Perhaps, the economy can be managed after all.  Perhaps, taxes and health care costs don't really matter after all.  Perhaps, the collapse of Europe is irrelevant.  Perhaps....

The cold reality, though, is that the numbers on the ground are still pitiful and have the potential to get worse.  What little pulse the economy has is now an occasion for celebration in the White House.  Strange.  The American economy has historically provided 3 to 4 percent economic growth as the American middle class became the envy of the world.

Yes, the middle class has greatly improved its economic position over the last three decades.  Only if employee benefits are left out of the calculation, which now amount to over 30 percent of employee compensation, can we reach the conclusion that the middle class is losing ground.  The middle class was doing better than ever until 2009.  Now, we have Obama.  Good luck middle class!

In the new Obama economy, only those at the top of the stagecoach will do well -- the rich, the famous, the politically entrenched.  Those who fight for jobs and profits in the private sector will remain under seige until the political climate changes....which won't be anytime soon with the retreat of the loyal opposition.

We have now entered the age of the "managed economy."   The Fed combined with government subsidies to preferred friends have largely sucked out the marginal dollar from legitimate free market uses to political purposes.  That spells no growth.

Businesses are still the enemy and they will remain the target of this administration.  Don't expect any help from a Republican-controlled House of Representatives.  The Republicans have fallen on their sword and should, deservedly, lose control of the House in 2014.  They have lost the will to fight for anything other than social issues and are willing partners in the rush to expand government.

Don't expect much from the new "managed economy" other than the absence of economic growth and a large permanent underemployed and unemployed class of Americans.

Optimism Abounds

The stock market has thundered forward since the turn of the year.  Unemployment claims are near their twelve month low and even California thinks it sees balanced budgets ahead in their future.  So, are we there yet?

Unfortunately, nothing has really changed.  Let's begin with California.  California, New York and Illinois face an almost immediate crisis with their pension systems.  These problems are far, far larger in magnitude than their total annual spending budget for everything else they do.  And, the clock is ticking.  These problems don't get better every day; they get worse. 

California, like New York and Illinois, believe that higher tax rates have no effect on economic behavior.  They are wrong.  Thus, the revenue projections these states are expecting from higher tax rates are an illusion.  Even without pension funding issues, these states are on a straight line to some form of bankruptcy, even if the day of reckoning is not (yet) known with certainty. These states have done nothing to reign in excessive spending or face up to unfunded liabilities....nothing at all, much like their big sister -- the US government.

At the national level, the US remains mired in the slowest economy recovery in modern times.  New and higher taxes that impact almost all Americans and almost all businesses (think income taxes, payroll taxes, Obamacare-imposed taxes and higher health insurance rates for almost everyone).  These new taxes will slow any green shoots in the economy from gaining enough strength to power a real recovery.  Expect continued stagnation, continued high unemployment.

What about Europe?  Aren't things better there?  There is certainly a pervading sense of euphoria that the worst is over.  Is it?  What has changed?  Today, Europe has significantly more sovereign debt than it had two years ago.  Today,  the Eurozone is in a recession which it wasn't in two years ago.  Today, the same stultifying labor laws and regulations maintain their stranglehold on European economies.  No real change there.

Recall the fall of 2007.  This was a time period a full year after the housing market had begun its collapse and after several large mortgage companies had gone bankrupt.  This was a time three months after the asset-backed securities market (a market responsible for 20 percent of all debt financing in the US) had ceased to function. 

What happened with all of these problems staring us in the face?  The stock market surged to an all time high topping 14,000 in October, 2007.  Lehman Brothers and Bear Stearns traded at their all time highs in a burst of euphoria that the worst was over.  Five months later Bear Stearns collapsed and within twelve months Lehman Brothers failed in the climax of the financial collapse of 2008.

It is an interesting question why the stock market surged in late 2007 after it was widely known that the housing market was in full freefall and that housing finance was shaking the foundations of most of the larger banks.  One wonders why European stocks are surging today in face of the facts on the ground. As for the US markets, is current market enthusiasm well founded or are we repeating the late 2007 scenario?

So Much for the National Debt

Obama's inauguration speech yesterday makes it pretty clear.  He has no intention of discussing ways to lower the deficit and begin to tackle our national debt problems.  Quite the reverse!  Obama has more spending, taxing and regulating plans ahead for the next four years.  As if the economy wasn't bad enough, Obama is planning more anti-capitalism moves.

You wonder if his advisers have any idea what the implications are for the economy of all of this.  There was always the chance that a Republican House would block the most extreme measures, but that is becoming increasingly unlikely as Republicans tack feverishly in Obama's political direction.

Given Europe's situation, which is far, far worse than the pundits are saying, the economic outlook for the US is pretty bleak.  The best that can be hoped for is more slow growth and stagnant employment.  That is the very best that one can hope for!  The worst is that the economy could begin to slip into recession mode.  While pundits think Europe is doing better, the truth is that, compared to two years ago, the European economies are much, much weaker, the level of sovereign debt in Europe is much, much higher, and what little restraint on spending and regulation has lost its political support.  Europe is doomed.

The real question is whether capitalism in the US is doomed as well.  It may well be.

Republicans Go Over the Cliff

Too often, Democrats get blamed for our national debt problems and the economic stagnation that has come to characterize the US economy.  Republicans deserve their share of the blame.

Who provided the votes necessary to escape considering our debt problems at the start of this year?  Speaker Boehner violated the "Hastert Rule" and let the Senate bill come up for a vote which raised taxes.  48 Republicans then voted for the bill.  A solid victory for Obama.  A solid defeat for the American taxpayer.  And, who engineered this?  Republicans.  Ditto for the emergency pork bill that passed the House last week.  Once again, with Boehner's concurrence, Republicans provided the necessary votes to pass this abomination as well.

Yesterday, Republicans announced unilateral pre-emptory capitulation before the White House by pledging to extend the debt ceiling for three months in exchange for the usual -- nothing.

What is the difference between a Republican majority in the House of Representatives and a Democrat majority?  The answer -- nothing at all.

You get the same legislation, the same bad economic policy.  There is absolutely no difference.

Republicans object that the polls show that the public is on Obama's side.  What did the polls show, then and now, about Obamacare as Obama jammed his unpopular health care through the Congress?  It showed that Obamacare was unpopular then and unpopular now.  But, did that matter?  No

Obama saw it through.  Say what you will.  The Democrats believe in what they are pushing.  The Republicans don't and it shows.  Small wonder that Republicans have trouble getting their voters to the polls.  Why bother?

The New Wall Street

Better-than-expected results were common for the major money-center banks that reported earnings this week.  The announcement of these "good results" were accompanied by more layoff notices from every large bank.  Wall Street continues to downsize as the rest of the economy remains in hunker-down mode.

We are gradually becoming accustomed to accepting economic stagnation as the new normal.  Reminiscent of the 1970s,  Americans are becoming used to sluggish job prospects, sluggish income and wealth growth, and massive and continuing unemployment.  All of this is now described, by the president's coterie of supporters in the media, as an improving economy.  This is not an improving economy so much as a different economy.

The place to be is somewhere in the government or quasi-government sector.  You can make high six figure incomes at a relaxed pace in the upper echelons of most large universities.  Even better, you probably aren't at risk of being laid off.  But, if your plan is to enter the private sector and work your way up, the historic pathway of the American dream, you can probably forget it.

Working for government, at any level, is the ticket.  Once an economy reaches the degree of government control and government ownership that the American economy has reached, the pathway to success changes.  You can't depend upon the vibrancy of the economy any longer.  That vibrancy has been legislated out of existence.  So heading off to the private sector is problematic. Instead, it is time to strap on your politics and find your way into a government job or a non-profit job or a job in the educational sector.  That is the pathway to success in the new economy.

Of course, this means increasingly that economic growth will not happen.  How can it, when most people that "work" aren't involved in producing anything.  Many so-called "workers" are mainly enforcing laws that prohibit others from working.  If you have an economy where a growing percentage of workers produce laws and regulations and then enforce them, while a dwindling few produce anything of substance, then the real pie can't grow.

Instead you create a national divide -- something we can already see emerging -- between those in the protected sectors of government, education, and non-profit (funded by tax-reducing so-called charitable donations) who have incomes and job security and those fending for their life in the increasingly marginalized private sector.

So, the new Wall Street is simply the most visible current display of the decline of American economic leadership.  The Obama plan is working.

Fitch Warns on Us and Spain

Today, the Fitch rating agency warned of possible downgrades to two countries who look increasingly similar to one another -- the US and Spain.  Neither country seems to have much hope of averting a fiscal collapse within a generation.  The leadership of both countries have thus far refused to acknowledge their cataclysmic debt problems and seem to be intent on pursuing the path to modern Greece.

We Are A Deadbeat Nation!

The President said today "we are not a deadbeat nation."  He's wrong.  The US government has made promises to our future citizens that are impossible to keep.  Obama knows it and we know it.  Making breast-beating utterances like the one Obama made today is, at best, disengenous.

The Obama "Ostrich" policy continues.