Within the past few days, a couple of VIPs in the financial community made some relatively astonishing statements that it’s likely many didn’t hear, but nevertheless, must be heeded.
First, Nouriel Roubini, the economist who predicted the 2008 financial crisis, says a “perfect storm” of fiscal woes in the U.S., a slowdown in China, European debt restructuring, and stagnation in Japan may threaten the global economy by as soon as 2013.
Then, Pimco’s Bill Gross, the man who runs the world’s largest mutual funds, tells CNBC today that when adding in all of the money owed to cover future liabilities in entitlement programs, the US is actually in worse financial shape than Greece!
Perhaps these two heavyweights of finance might finally awaken Americans, who polls show as late as the end of May, were still in deep denial about our debt-and-deficit problems…perhaps. We no longer have the luxury of simply ‘being concerned’, when now is the time not to oppose, but to SUPPORT, some of the major remedies under consideration, particularly when the actual debt, including unfunded obligations, exceeds half-a-million dollars PER HOUSEHOLD!
But wait, what about all that stimulus? What about QE1 and QE2? All that Keynesian-based economic policy, and nothing of merit to show for it? Peter Ferrara’s Forbes article “Reaganomics Vs. Obamanomics: Facts And Figures” recalls, “In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.”
After delving into the economic disaster that Reagan was thrust into, Ferrara lays out Reagan’s explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy, which amounted to the most successful economic experiment in world history, a recovery that lasted from November 1982 to July 1990, 92 months without a recession. To add to this success, Ferrara guides us to Art Laffer and Steve Moore’s The End of Prosperity, which points out that Reagan’s recovery grew into a 25-year boom, with a few slight interruptions by shallow recessions in 1990 and 2001.
This brings us to our current conundrum and the meat of Ferrara’s article:
“What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.
The capital gains tax rate will soar by nearly 60%, counting the new Obamacare taxes going into effect that year. The total tax rate on corporate dividends would increase by nearly three times. The Medicare payroll tax would increase by 62% for the nation’s job creators and investors. The death tax rate would go back up to 55%. In his 2012 budget and his recent national budget speech, President Obama proposes still more tax increases.
Instead of coming into office with spending cuts, President Obama’s first act was a nearly $1 trillion stimulus bill. In his first two years in office he has already increased federal spending by 28%, and his 2012 budget proposes to increase federal spending by another 57% by 2021.
His monetary policy is just the opposite as well. Instead of restraining the money supply to match money demand for a stable dollar, slaying an historic inflation, we have QE1 and QE2 and a steadily collapsing dollar, arguably creating a historic reflation.
And instead of deregulation we have across-the-board re-regulation, from health care to finance to energy, and elsewhere. While Reagan used to say that his energy policy was to “unleash the private sector,” Obama’s energy policy can be described as precisely to leash the private sector in service to Obama’s central planning “green energy” dictates.
As a result, while the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed.
Previously the average recession since World War II lasted 10 months, with the longest at 16 months. Yet today, 40 months after the last recession started, unemployment is still 8.8%, with America suffering the longest period of unemployment that high since the Great Depression.”
Revise that 8.8% unemployment when Ferrera wrote this in early May to the latest 9.1% numbers, and look to a Business Insider article that reveals where all that QE2 money went: “In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!” Great, huh? Continuing with Ferrara's piece...
“Moreover, the Reagan recovery was achieved while taming a historic inflation, for a period that continued for more than 25 years. By contrast, the less-than-half-hearted Obama recovery seems to be recreating inflation…These are the reasons why economist John Lott has rightly said, “For the last couple of years, President Obama keeps claiming that the recession was the worst economy since the Great Depression. But this is not correct. This is the worst “recovery” since the Great Depression.””
Ferrara concludes that the full ramifications of Obamanomics won’t be fully felt until his historic tax rate increases of 2013 become effective. So, while Reagan’s policies set in motion a historic 25-year economic boom, it’s unknown how many years of economic stagnation the opposite policies of Obamanomics could result in, and it would be advisable to reverse these destructive policies before it’s too late.
And Clifford Asness made a comparably profound observation in his latest WSJ piece, concluding that it’s not necessarily the “uncertainty” that many point to as the problem of a retarding economy: “Many commentators blame our continuing economic woes on "uncertainty." They allege that recent and anticipated dramatic policy changes make business planning difficult, and that this is retarding growth and employment. This view is not wrong—but our main problem is not the uncertainty surrounding new policies. It is the policies.”
Indeed. Cease. Desist. Reverse.
