The Wile E Coyote presidency
ZeroHedge, “The Next Four Years Won’t Be As Good As The Last”:
Obama has already laid the foundation for his next four years of Presidency – more green jobs, tackle global warming, raise taxes on the rich and create jobs for the poor. That will come at a hefty price of further government spending. In the first four years of his term Obama increased the Federal Debt by more than 45%, however, with more than $5 Trillion spent in promoting everything from solar panels to housing, the economy only grew by 7.1% during the same time frame (or a total of $905 Billion.) In other words it took more than $5.60 of debt to create $1 of economic growth.
The amount of debt required today to create a single dollars’ worth of GDP today is clearly unsustainable. However, the current Administration has been increasing Federal debt at a run rate of more than $1.2 Trillion annually to date. The understanding of the impact of increasing debt on economic growth is crucially important to understand.
As we discussed recently in “Debt and Deficits: Killing Economic Prosperity” it is “the economic impact of spiraling debt levels that have eroded economic growth. Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The chart below shows the rise of federal debt and its impact on economic growth.”
The current Administration, however, is trapped into the belief that “big government” is the solution to the long term economic ills. However, a simple look at the impact of debt increases on economic growth tells us that this approach is misguided. Regardless, as stated above, further spending increases are going to rapidly run into an antagonistic House of Representatives who will push to block any additional spending programs.
While political gridlock has been a positive for the economy during past Administrations – this cycle is different. Rising debt levels, weak employment, declining wage growth and rising inflationary pressures all act as a retardant to economic growth. Economic growth at sub-2% levels is not strong enough to promote the kind of employment growth needed to absorb increases in the natural working age population which continues to shove an ever larger portion of the population into the masses that have “given up looking for work.” In turn this increases the dependency on government support leading to further weakness in consumption and reduced demand which keeps employment weak.
While Bernanke has been flooding the system with monetary policy focused at suppressing interest rates it is fiscal policy from Congress that ultimately begins to clear the way for job creation. However, with the burden of ObamaCare just on the horizon, the threat of rising taxes and increased regulations covering everything from the financial industry to oil and gas – businesses are remaining defensive to protect weakening profitability.
While Obama will continue to increase the Federal Debt to well beyond 100% of GDP – the reality is that economic growth will continue to stall and muddle along at best. At the worst we are potentially facing another recession in the very near future. Either way the economy ahead will remain difficult and disappointing by almost any measure.
Overall, the set up going forward looks like it has in the past couple of years. It is unlikely that Obama will move to the center and be more of a politician with the best interest of the economy at heart. It is also just as unlikely that the Republicans will back down and begin to cooperate with the Senate. I could be wrong, of course, and if I am then I will chance my investment posture accordingly. However, the weight of evidence is stacked in favor of “more of the same” which means less for you and me.
Evidently, the folks at Zero Hedge don’t know John Boehner like we do. He’ll capitulate, and we’ll see more failed stimulus and greater debt — all to feed the welfare state, which continues to expand even as it grows more and more unsustainable.
The good news, though, is that businesses might soon have lots of available cheap labor, with the GOP already making noise about amnesty and comprehensive immigration reform in order to compete yet again with the Democrats at their own game of pandering identity politics.
And that could create some economic movement in the short-term while politically setting the country up for a permanent welfare state majority.
Were I not a liberty-loving defender of the Constitution and first principles — that is, an odious “purist” who keeps stupidly insisting that we reject the entire progressive paradigm as the false mapping of reality it is — I’d offer this advice to those libertarian capitalists who are trying to figure out how to negotiate these election results: sell your souls and become cronies. We are living in a state of liberal fascism. If profit is your driving force to the exception of all other motivators (be it an ideology or a simple and intuitive sense of justice), position yourselves to invest in what the Obama cronies are putting money into.
After all, most of it is yours, anyway.
Me, I’m resigned to being on the outside looking in. I haven’t the skill set to run with the manipulators and financial players looting the system and feathering their own nests. But that doesn’t mean I’m going to stop throwing rocks or sticks or mulch at the doors and windows, or crapping on the lawn. In fact, my dream, when the crash comes, is to set up my own personal Hooverville on Harry Reid’s estate.
So that every day he wakes up and walks outside in his monogrammed slippers he’s met by the smells of sewage and flame-roasted coyote.
I have my pride, sure. But I also have a sense of humor. Which can lead to moments of profound bemusement.