The Economy Is Getting Worse Thanks to Liberalism

  The horror in Aurora, Colorado, gave President Obama a little cover last Friday.  That's because the Labor Department announced that unemployment rose in 27 states.

President Obama promised to hold unemployment under eight percent if Congress passed the stimulus package in 2009. Congress did, but Obama failed.  Remember all those green jobs?  They're gone.

The problem isn't Barack Obama; the problem is liberalism.  

Liberals believe that only experts can make intelligent decisions. They point out that the Beta Max was a superior video cassette technology to VHS, but idiot consumers were too stupid to notice.

Yet, for all their wisdom, the experts seem unable to manage even their affairs.

Liberals often point to China as an example of how fabulous a controlled economy can be. But China's growth was largely cosmetic. The benefit of central control of the economy and the media was that China could hide its problems; it couldn't fix them. As a result, we know that Bejieng's sewer system doesn't work, state-controlled baby formula causes cancer, Chinese banks have been playing dangerous games with collateralized debt obligations-squared, and China's totalitarian population controls have produced a demographic cliff that could plunge the planet into a Great Depression.

Liberalism is the original good intention that paves the road to Hell.  

We can't blame all the problems with central planning on Obama.  But we can and should hold Obama to account for shoving a failed system of misery down America's throat.  We can point out that the man who claims government, not people, build businesses and create jobs is incapable of keeping even his softest promises of eight percent unemployment and a slowly recovering economy.  We can and should remind everyone that the man who wants to control all of the US economy struggles to manage the economics of his campaign.

Barack Obama did not invent the failed ideology of central planning, but as its leading proponent he deserves to suffer the same fate his policies have given to the US economy.

 

2009 Economic Prediction *Bumped and Updated*

*Originally posted February 15, 2009* I know this is a little late, but I was waiting for Congress to spend another trillion dollars or so before committing my prediction to the public.  Here goes:

GDP and unemployment will  flatten and even improve a bit in first half of 2009 for a couple of reasons:

First, people will begin to look for excuses to spend money.  This includes businesses.

Second, the hideous transfer of power from individuals to government that passed Congress on Friday will have a psychological effect on people making some believe that things will get better soon. 

Together, let's call this mass hypnosis.

That hypnosis, though, will wear off when we begin dissecting first quarter 2009 numbers in April.  The reality will then hit home:  downward economic trends slowed or reversed because things couldn't get much worse.  (Again, this is the psychological feeling, not economic reality.)  In other words, people will stop thinking "It's getting better," and start thinking, "We're stuck on bottom."  It'll be like old WWII submarine movies where the disabled sub settles on the ocean floor.  The crew's not out of the woods--oxygen will run out eventually--but they've stopped descending toward collapse depth. 

Then, of course, some idiot seaman rolls a bowling ball toward the bow, a rock they're sitting on gives, and the sub starts sliding into 38,000 foot trench. 

The other economic bowling ball that will hit the pins in early summer is Treasuries.  With the uptick in private sector activity and the flood of Treasuries hitting the streets, investors--especially China--will shift their purchases away from government debt.  This will drive up yields quickly until equilibrium re-establishes.  I don't know what the level will be, but it will be high.  

Having obligated over $65 trillion (with a "t") in promisory notes since September, the US government must issue massive amounts of bonds.  If you're a bond salesman with crateful of US Treasuries, a weak economy is a wonderful thing--there's nothing else for investors to buy.  But a growing economy makes Treasuries, which are now riskier than ever before, a less attractive alternative.  Stocks and corporate bonds offer the possiblity of recovering some of the losses of the 50 percent stock market dive.  Treasuries do not.  Not until their yields hit the 12 percent range.

High interest rates will cause already skiddish companies to pull back even more, touching off a new round of layoffs and another dive in both stocks and GDP.  

Of course, I'm just a computer guy; I could be wrong.

The Other Shoe Drops

For months I've been echoing the warnings of Peter Schiff and others:  when China stops buying American debt, we're in deep, deep trouble.  The possibility for hyperflation, prices rise by double-digits on daily or weekly measures, becomes palpably high. Even though this article from IHT failed to suprised me, I have a sick, frightened gnawing in my stomach:

China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home - a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy.

Thanks to Hank Paulson's Bailoutpalooza followed by Obama's promises to pile on more bailouts and $1 trillion or more in stimuli, the US single-year deficit for 2009 will be between $1.2 trillion and $2.5 trillion.

There are three ways to finance that deficit: tax, print, or borrow.

A tax increase, as we have been told, could push us into a deep depression.  We don't want that.

Printing $2.5 trillion in new cash would lead to hyperinflation.  Unless you want to buy bread for $3,000 a loaf, that's not good.

Borrowing delays the reckoning.

One way or another, we will deal with depression, hyperinflation, or--like Germany in the 1930s--both.  At least in a depression with deflation, cash will save you.  In hyperinflation, it's every man for himself.