Thursday, August 4, 2011

Double dip recession

The most unexpected thing about the Obama recession of 2011 is how many people failed to expect it. The US economy was like a giant locomotive, derailing in a slow-motion movie, and yet, the multiple well-respected experts could not foresee the coming crush. The obvious root cause of the blindness of the liberal economists is, at its core, their profound ignorance of how the economy works. They just do not understand the most basic things about the wealth creation. But before I jump to a more detailed discussion, let me first post a few quotes from my own blog.

The first quote comes from my November 2008 article, right before the elections.

Well, one thing that makes me feel better [about democratic lead in the polls] is that Obama seems to be gaining ground, and may well be our next mumbler and stumbler in Chief, while the libs will continue their control of Congress.

Some political party will pay dearly for all the crazy spending, bankrupt SS, Medicare, Medicaid. Someone will have to make hard decisions on the war with Islamo-fascism. Someone will have to deal with failing Europe, resurgent Russia, belligerent and powerful China, insane global warming scares.

If all of that falls on the narrow shoulders of Obama, Pelosi, Reid - and they fail (and fail they will) - the DNC will have to pay a dear price. Can Obama be better for the GOP and America than Jimmy Carter was? I most surely think so.

So 4 years from now, when unemployment is 10-12%, inflation is 10%, GDP is down, stocks are down, our economic freedom is gone, I can look at liberals and tell them: "You folks were kind of stupid in 2008, weren't you? Now, drop on your knees and beg for forgiveness". Isn't it totally worth it? I say yes...

In short, the chickens are coming home to roost - and the liberals may be the ones organizing the welcome party for them. Libs did not want to reform the Social Security under Bush - heck, they will have to deal with it under Obama. Libs thought we could easily win the war by talking to our enemies - smile, Obama will have 4 years to cool down Iran, Iraq, Afghanistan and the rest by talking to them. Libs did not want to cut welfare spending - they got Obama who will expand it. Taxes are too low for companies? Obama will raise them. You think our economy can sustain the liberal Congress, liberal president and the coming recession? Think again.

Bush is doing his best to avoid the recession under his watch. He is pumping the market with paper, so he could postpone the inevitable. And stupid democrats are playing along. Whoever is elected will have to deal with a crisis of Gargantuan proportions, and Obama is the best guy to screw it up – since I don’t want a republican to do it. In short, good freaking luck to liberals and what the liberals lovingly called "A Magic Nergo".

And yes, don't let me forget - Europe is, not feeling too good. Something to do with sclerotic liberal economy and "youths". It will get worse soon. Don't be surprised - liberal policies are quite advanced in Europe - like the advanced stage of cancer. I believe the Europeans should run for their life...
All in all, I expect Obama presidency to be an utter failure, and I do expect the Republican party to cleanse itself by 2012 and take over Congress and Presidency.

Who can honestly argue that my 2008 predictions were not spot on? Notice that nearly everything I said - did happen - the US economy is in shambles, Europe is disintegrating, American foreign policy is in disarray, and unemployment and inflation are rising yet again. How in the hell could Hyphenated American know all that in 2008?

Here is another quote - from an article I wrote in April 2009, when Obama's economic plans were put into action. Back then, if you don't remember, the stocks were starting to rise, it seemed that Obama was pushing back the unemployment.

I remember the former Russian Prime-Minister, Egor Gaidar explaining back in the 90ies to his leftie liberal opponents (former communist apparatchiks) in the Duma that printing money is bad for the economy. While there is some initial euphoria after the money influx, after 6-9 months the inflation catches up, and all the results of the stimulus are gone, and the people are saddled with even more discombobulated economy, mal-investment and high unemployment. In short, things got worse, not better.

Lets now examine the United State. Bush and his liberal cohorts in Congress and Senate pushed a lot of money in late summer, and fall. You surely remember the stimulus checks, money for the banks, the whole nine yards. Trillions of dollars left the government purse and were injected into the economy. It's April now, and the stocks started an unexplainable rise, while unemployment is going up. If you know economic theory - there is nothing puzzling in this situation. Wait for the inflation to hit the stores pretty soon now. It will become ugly. Will it be worse than 10% inflation? It most likely will - since don't forget that Obama makes Bush look like a fiscal ultra-conservative. It will be a long and sustained inflation. Should we expect price controls? Very plausible from this administration.

The New World Order is here - same as Old Europe.
Again, my predictions mostly came true - except I under-estimated the time constant of the US economy. Back in 1990ies, the lag between the government's massive spending and inflation was about 9 months in Russia, while it appears to be closer to about 2-4 years in the US. I presume this is due to 2 main reasons - US economy is much larger than the Russian economy (and don't forget that some of the newly minted dollars spill over to other countries), and American people are less used to high inflation (which means the people's reaction is slower). But all in all, again, my predictions were quite good - Obama's "stimulus" created a false short-term stimuli to the economy and masked the actual problems. When the money ran out, the recession returned - and I believe it will be worse than the 2008 recession.

So, how did it happen? The money pumping started under president Bush, and it was greatly accelerated during the Obama administration. It can be argued that most of TARP money was actually returned to the government, which means Bush's actions did provide a short term relief to the economy without too many immediate negative effects (in the long run, "too big to fail" policies will lead to even more outrageous policies of the big business - the so-called "moral hazard"). But Obama's stimulus money was completely spent - or mis-spent if you want to be more accurate. It would be very difficult to find any long-term positive effects from any item on the long menu of the 2009 stimulus bill - the fixed-sum handouts to the poor and middle class, the "shovel-ready projects" which did close to nothing to fix the infrastructure. Undeniably, spending 900 billion dollars in two short years did create a false impression that the economy was recovering and did promote the short-term spending spree, but in the end it could not solve the underlying causes of the 2008 recession - and once the money was gone, and reality rose its ugly head, the recession came back with a vengeance. What I also expected was that Obama would surely impose numerous rules and regulations that would seriously damage the US economy - which he proudly did. From CO2 emissions, to union rules (for example, Boeing-busting by the labor department), Obama's jihad against energy producers - coal industry, oil exports from Canada, and illegal moratorium on drilling after BP-Obama disaster. The so-called "Dodd-Frank Bill" was a rather brave attempt to drastically increase the role of the government in financial markets (same government that bankrupted Fannie and Freddie - as well as Medicare and Social Security, and grew the national debt to 100% of the GDP). Last but not least was the bonanza of regulations due to Obamacare - the naked attempt by the liberal elite to take over the national healthcare. I also expected Obama to raise taxes - which he undeniably did through the so-called Obamacare. And of course, the federal spending went completely out of control under the current president. It's sufficient to note that 2011 budget is larger than 2007 budget (last one written by the republicans in Congress and signed by Bush) by a hefty 1.1 trillion dollars.

All in all, even without Obama's busy schedule to destroy the US economy, America was in a bad shape. But the last 2.5 years made the economy fundamentals far worse than they were in 2008 - which is something I expected a Marxist community organizer would easily achieve. Artificial work projects, handouts to the poor and subsidies are inherently a wrong way to promote the wealth creation. Any person who studied the Austrian economic theory understands that these measures will only give a temporary and false feeling of recovery - which will have undeniable negative consequences in the long run. When the government decides to spend a billion dollars on a feel-good project, it does not help the economic recovery - quite the opposite. What it does is it essentially competes for resources with real businesses, and makes the wealth creation more expensive. If you plan to build a store - the labor and the materials becomes more expensive, since the government is now using those. When the government borrows a trillion dollars, the loans to private businesses become more expensive and they cannot expand. In other words, the money for the stimulus have to come from somewhere, and this somewhere is your pocket. How could that really help you? Imagine someone (for clarity, let's call him "Obama") inviting you to a most fabulous party with champagne and caviar, and most exquisite meats. You are having a good time, enjoy yourself to the fullest. And the next day you find out that this "someone" used your credit card to pay for the party. Now comes the tricky question - are you better off financially after this party? Of course, this analogy is only partly accurate - while Obama did put all the expenses on your credit card, he did not invite you to the party - unless you are among his core supporters (union leaders, Soros and the like).

In general, Obama's stimulus had no chance to succeed. But what made it worse - it was coupled with myriads of other steps, each one making it more difficult, more risky, more expensive to run a business in America. In short, Obama's stimulus and Obama's policies made the double-dip recession inevitable - and utterly predictable.

From 2009 to summer 2010 I was rather amazed (and amused) by the thousands of economists who proclaimed that a double-dip recession was extremely unlikely. Where are those economists now? What happened to them? What did not surprise me was the reaction of large and small businesses, most of whom stubbornly refused to invest or spend the "record-breaking" profits from the last few years. Apparently, they too understood that the Obama-recovery was built on the sand, and it would soon end. And now it's ending, and the hard times are ahead of us. Very, very hard times are ahead of us. I predict this - don't forget to write it down. The only people who can get us out of these troubled times are the Tea-Party. No one else has the guts and the brains to do the right things.


Anonymous said...

I think you are right that he may be a blessing in the long run, turning us from Marxism. I just hope we can weather the storm.

Hyphenated American said...

The whole welfare-socialism is going down, and Obama was the right man, right time, right place. He was promoted by the MSM, he is an arrogant and ignorant man, and he moved way too quickly. US was slowly sliding into welfare-socialism, and Obama has awoken the sleeping giant. All in all, not too bad.

Sarah said...

Good post