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Saturday, June 27, 2009

Dems will lose in 2010. (It's the economy, stupid!) By then it may be too late.

Thanks to the latest essay by John Mauldin, a great deal of the economic future facing America is brought into focus. The Democrats in Congress face an economic catastrophe in 2010. Forget about the stimulus package being aimed at "stimulating" in 2010. Economic numbers will be grim. And there's nothing that the Congress can do about it.

Last week I detailed how air, trucking, and rail shipping is down 20% year-over-year. Global trade is down about 30% in the major exporting countries ...

Last month saw the number of unemployed rise by 345,000. What was not in the headline data was that 217,000 of those jobs were estimated from the "birth-death" ratio. ...

In other words, the Bureau of Labor Statistics (BLS) entered an estimate that 217,000 new jobs were created. Does anyone really believe that? Without that fudge factor, unemployment rose by 562,000!

In earlier recessions hiring picked up as manufacturers expanded production. In a service economy the re-hiring process is much slower. That's what happened in 1992. The nationalization of the US auto industry does not bode well for a consumer-led manufacturing recovery.

... should labor market conditions instead proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011."

That is not in any Congressional budget forecast. Want to run an election campaign at 10% unemployment levels?

... This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates."

Thanks to the fear of losing their homes and jobs people are increasing their savings at an incredible rate.

From a negative 3% in late 2005 (the result of massive borrowing, primarily mortgage equity withdrawal and credit cards), we have risen to a positive 6.9%. That is the highest rate since 1993.

It bears repeating: the recovery will not be on the backs of the consumer. And with credit hard to find and even harder to get, it will be slow to come from industry.

Final thought for today. The Congressional Budget Office released another report this week, saying that the current deficit levels are unsustainable. They suggest that either taxes must increase by $440 billion or spending must be cut by a like amount, or some combination. If you assume some of the new health-care and other programs are enacted, the number comes closer to $700 billion.

This is not a Congress that wants to cut other parts of the budget by $700 billion. Raising taxes by $700 billion (over 4% of GDP) will dip us back into recession. Not raising taxes will result in debt that cannot be funded at anywhere close to today's rates. A recent IMF study is very sobering about the worldwide problem of growing country debt. Finding a trillion dollars in the market every year, when every other country is also trying to raise debt is simply not going to happen. It will destroy the dollar. There are few good choices in front of us, and fewer still good choices that are likely.

Team Obama, Pelosi and Reed are Mad Hatters that have seized the wheel of the ship of state and have no idea of the carnage they are unleashing on the American economy. Over the next year they are going to push and pull on economic levers and they will find them disconnected. Forget about the economy returning to normal. We are facing a New Normal and God help us because the government can't.


Anonymous said...

Youre forgetting the tax increases slated for Dec 31, 2010. Tax increases on dividends and capital gains especially will hit the economy hard.

My theory is the voters judge the economy not based on how it is on election day but in the previous 12 months leading up to the election.

1976 and 1992 had decent economic growth but yet the incumbent party was thrown out of office because the previous year's were recession. Economic growth hadnt been felt yet by the average voter.

Thus with rising interest rates, taxes and gasoline prices, 2011 will likely see a significant economic slow down and possibly a double dip recession.

Anonymous said...

So long as the GOP is in the clutch of the anti-science, bigoted loons, so lovingly fomented by Limbaugh and Beck, the Democrats are safe. Yes, the US needs a conservative party. Right now, it looks that we'll have to create one from scratch.

Moneyrunner said...

Anon 2: I don't want you in my party. Get the hell away from me. Start your own bunch of bigots.

Moneyrunner said...

I don’t know if the second Anonymous (Anon 2) is a disruptor or one of the classes of cretins known as Libertarian Atheists, but I find them despicable.

They are every bit as ugly as the brand on the Left represented by Bill Maher. They are some of the people that Jonah Goldberg wrote about in Liberal Fascism; the Hitler Youth of the USA.

I’m leaving its comment up because I want people on my blog to know what exists out there and claims a kinship with the Right.

Well, not with me.

B. Johnson said...

Dick Morris has also repeatedly said that the Dems are going to have the economy so screwed up by the 2010 elections that the voters are going to retaliate by wiping Obama's Congress from power.

And in anticipation of the coming Democratic economic chaos, conservatives need to learn a lesson from the Democratic motto, "never waste a good crisis," and do the following. Conservatives need to convince the voters to elect pro-state power leaders to both the federal and state governments in 2010 who will do this. Pro-state power leaders need to repeal the ill-conceived, anti-state sovereignty 16th and 17th Amendments, the source of power for the corrupt Democrats now ruining the country, in my opinion.

The problem with these amendments is the following. First note that Chief Justice Marshall had established the following case precedent, now wrongly ignored, which appropriately limits the power of the feds to lay taxes.

"Congress is not empowered to tax for those purposes which are within the exclusive province of the States." --Chief Justice Marshall, GIBBONS V. OGDEN (1824)

And not only does the 16th A. make it too easy for the corrupt feds to ignore Justice Marshall's precedent concerning unauthorized taxes, but the 17th A. has made it too easy for state sovereignty clueless federal senators to approve bills which use illegal taxes to fund constitutionally unauthorized federal projects.

And once the 16th A. has been repealed and the federal income tax eliminated, the state governments can finance the feds with higher state taxes. The reason for this is as follows. The states can use their greater constitutional powers to serve the people to fight a downhill battle with the feds, eliminating constitutionally unauthorized federal taxes, keeping as many tax dollars in a given state as possible. (Did you hear that California?)

And when state government "leaders" show their voters that they are more interested in protecting the welfare of the federal government than that of their own state, then they can look for another job.

The bottom line is that the phony powers of the Oval Office and Congress, powers politically delegated to the feds by Constitution-ignoring special interest groups, as opposed to the limited powers actually delegated to the feds by the Constitution, need to be destroyed.

thisishabitforming said...

I agree with you're comments, particularly the one "God help us because the government can't". If you look at the nation and the people that have charge of it, the problems so overwhelming, the solutions suggested so far from anything the Founding Fathers imagined, short of a revolution, we do need God's guidance like never before.