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Don't Doubt the Double-Dip

From Prudent Bear. Everyone from the president to Warren Buffett to news anchors are all saying we're moving in the right direction, but facts say just the opposite.

"Although there are some dubious current statistics the desperate could cite to make an optimistic case, many simply are falling back on the extreme rarity of past "double dips." But, in an unprecedented time, the lack of historical precedent hardly seems to matter. What is far more significant is a raft of new data that point downward. As the high from last year's monetary and fiscal stimulus wears off, there is a good deal of evidence that shows the U.S. economy plunging into an abyss."

The new data (link above contains a chart) shows global liquidity drying up--everyone's hanging onto their money, as they should. Typical economic theory says that spending will revive the economy, but in reality, savings and productivity are the only things that will ensure a stable recovery.

"We've spent trillions of dollars on bailouts, stimulus programs, and Cash-for-You-Name-It programs, and we still have nearly half a million new people filing for unemployment every week. As Billy Joel would have asked: Is that all we get for our money?"

In other words, government's tried to do the spending for us, and look where it led? We now owe more money than all the available world's cash combined.

"Under these circumstances, the Federal government would ideally cut its size in an effort to put more capital into the hands of the private sector, thereby fostering more investment, production, and ultimately more jobs in the economy. Regrettably, the Obama Administration is preparing to do the opposite –the Bush tax cuts of 2001 and 2003 are set to expire next year (effectively raising taxes), and the economy will likely suffer as a result.

According to projections from the Congressional Budget Office, higher taxes will raise an average of $380 billion per year over the next 10 years; this translates into well over 2% of GDP annually, at a time when nominal growth is decidedly below that mark. Even an elementary school student can do the math - we're getting ready to raise taxes by an amount more than the entire growth of the economy; a renewed contraction should not surprise anyone."

...

"At a time when the U.S. badly needs trade surplus, monthly deficits continue to average well north of $40 billion dollars. Unfortunately, based on government policies that prevent industry from operating more efficiently, export-led growth does not look to be in the cards.

But, despite these clear and dramatic signs of mounting malaise, most economists continue to forecast relatively solid economic growth both now and in the future. According to the Third Quarter 2010 Survey of Professional Forecasters (released in mid-August by the Philly Fed), economists expect real GDP to grow by 2.9% this year, 2.7% next year, and will accelerate to 3.6% in 2012. Given that first half GDP is already well below their forecast for the year as a whole, these economists are therefore predicting a much better second half. If anyone knows where this momentum can be found, please let me know.

In my view, these economists are way off the mark. In reality, the U.S. economy is weak and deteriorating, and a renewed contraction in GDP - whether officially labeled a "double-dip" or not –is a near certainty. This is not your garden variety recession. Don't expect it to behave like one."

I expect it to behave like the Depression that it is. Obama's purposely chasing industry (productivity) away with perverse tax incentives, threats of higher taxes, secret funding of oil rigs in Brazil, union invasion threats, and undue regulations. He's trying to collapse the system, get everybody on welfare, then he plans to hand the whole thing over to U.N. control--the Progressive Dems wanted this all along...a one-world order. Thank God some countries are seeing the light, and going the other way! Even Cuba now sees the error of its ways.

Obama's also trying to collapse the incentive to save by having the Treasury print out so much money, the dollar is devalued to the point that banks don't even pay 1% interest on savings. We're doing it anyway--some of us are saving our money in the form of stocked pantries, home improvements, retirement accounts, and paid-off debt, which has already been bought at lower prices and taxed at lower rates than we're going to see next year. In some cases, that return is better than anything you'll see in the markets within the next decade, unless you resort to investing tricks outside the scope of normal human risk tolerance. Paid credit card debt alone is the only double-digit return you're going to see for a long while.

It's a shame when your mortgage rate is higher than your bank's savings rate, isn't it? This will eventually change as our politicians change from voting them out.

Posted by Cute at 8:22 PM

Labels: economy, financial (non-tax), politics