Wednesday, January 5, 2011

Waiting For The Other (Economic) Shoe To Drop

NEWS FLASH – In its first disappointing action for 2011, the Obama Administration has reversed its decision to include references to annual end-of-life counseling in the ground rules for Medicare's new annual checkup. (See End-of-life Planning Is Back – December 28, 2010). According to an administration official, “This should not affect beneficiaries’ ability to have these voluntary conversations with their doctors.” The administration said the reversal was based on procedural reasons. Not political? Ri...ght. In similar news Lindsay Lohan has permanently quit drinking.

      At the beginning of a new year it is customary for writers to prepare one or more of three lists: (1) Resolutions for the New Year, (2) Noteworthy Events of the Previous Year, (3) Predictions for the Upcoming Year.
     In spite of my good intentions, my New Year's Resolutions usually wind up as a list of things to do (or more likely not do) for the first couple of weeks, or less, of the new year. Therefore I have narrowed the resolutions for this year down to one: Make no resolutions this year(?).
     As for noteworthy events of 2010, I shall review them as occasions arise in which such a review would be of value. For example, if I wish to discuss shortcomings and disappointments of the Obama administration, I may bring up past events as illustrations. In the meantime, if anyone is interested in reading such a review, there is a myriad of such lists available from countless commentators on the internet.
     That leaves me with a list of predictions. I will make only one: The United States is heading toward a double dip recession, and recent developments have ratcheted up the likelihood that its occurrence is immanent.
     Although some of our most prominent economic spokespersons are heralding an increasingly speedy recovery from the recession, there is a chorus of background economists who are saying otherwise. Why the disagreement?
     As usual, the best way of getting to a source is to follow the money. Generally the “optimists” are working for large financial institutions or the government - organizations which have a vested interest in prosperity. In order to (a) get reelected, or (b) sell stocks, bonds,mutual funds, etc., the dissemination of optimism is an absolute necessity.
     Most of the “pessimists” (realists?) are university professors whose primary objective is to understand their area of expertise; in this case, the financial universe. They are tenured – they have nothing to sell except knowledge. Their warnings are drowned out by the resources of the salesmen.
     Let's do something that some economists, particularly the “optimists,” either have not done, or have chosen to ignore: Take a look at history.

     In 1929 the economy was bustling along, and the Gross Domestic Product value was at an all time high of $103.6 billion. Then the depression hit, and by 1933 GDP had sunk to $56B.
     At that point the New Deal took hold, and the government began spending money on job creation projects: highways, dams, conservation, construction, etc. By 1937 the GDP had climbed back to $102B, and FDR decided it was time to submit a balanced budget. Expenditures were cut back, and over the next 13 months the GDP dropped back to $87B – a decline of 15%. Spending for lend lease and military supplies started at that time; the GDP took off and never looked back.
     From 1942 through 1945 the biggest deficits in the history of the country, ranging from 12% to 28%, were accumulated. How could we ever hope to recover from this period?
     The answer: prosperity. Johnny came marching home to shortages, which led to mass employment. The standard of living rose drastically over the next 35 years. (From June 23, 2010, Recovery or Double dip?)
     Let me emphasize - The New Deal and its spending programs were working until the budget hawks took over. And that is indicator number one that the second dip is on the horizon. President Obama was on the right track with his stimulus plans, and then he began listening to advisers who insisted on budget cutbacks. And the problem is going to be intensified by the recent election to office of those who insist on a balanced budget. Hopefully they will enjoy their two years in office.
     The Republican House of Representatives, where revenue bills must originate, has taken aim at “non-security discretionary spending”: such things as highways, dams, construction and research, as well as departments and agencies such as the Center for Disease Control, Law Enforcement and the Courts.
     Additionally the new Congress is prepared to throw money at big business. It's not as if corporations are low on cash - just the opposite, they are sitting on more cash than they have had in many years. The money to be received from Congress plus their cash on hand will be used for automation equipment and software, and the export of labor intensive jobs to areas of the world where people are willing to work for $5 per day instead of $30 per hour.
     The second indicator of a looming double dip is the pressure of promises made by the Federal Government in the form of Social Security and pensions, the so-called non-discretionary expenses.
     Bernie Madoff is sitting in jail for running a Ponzi scheme almost exactly like the government is running with Social Security. Previous patches to the system have been similar to putting a Bandaid on cancer, and the present Congress has no more guts to apply a permanent fix than any previous one. And in addition to Social Security there is the tremendous pressure of pensions promised to government employees without providing reserves to cover the cost – a second Ponzi scheme.
     A third indicator is the predicament of the States. Governors, even GOP governors, are counting on the Federal Government to bail them out. According to an estimate by Reuters they are sitting on, not a pension liability, but a pension shortfall, of over a trillion dollars. That's over $1,000,000,000,000. It takes the assets of a million millionaires to total one trillion. Highway maintenance, education – all state services will be drastically cut, and even then it is doubtful if the states will be able to meet their liabilities.
     It is for these reasons that I predict a second economic dip, perhaps even deeper than the first one, in 2011. We have not learned a simple lesson from the past: governments need to level the economic cycle by spending on job creation projects when times are bad, and cutting back, especially on promises, when times are good.
     Will we learn this time? Perhaps, but in the process the United States may be forced into becoming a developing nation.
     When we look at constructs which require both cooperation and a limitation on component size, the idea of creative interference needs to replaced by a more subtle construct. What controls the size of organs within a human body? Why would not the Spirit continue to increase the size of a kidney, liver, pancreas, etc. until the organ crowds out all the surrounding organs? Is there some organizing center that controls the construction of the various body parts?
     An In-Depth Look At the Spirit's Activity – The Spirit Runs Through It.

The book or a free download is available in paperback or on Kindle at Amazon.

No comments:

Post a Comment