Unemployment is still unnecessarily high for an economic recovery. More than ten million Americans are unemployed or under employed. Every week about 370,000 Americans are filing for first time unemployment benefits. Our national debt continues to skyrocket. Overall economic growth limps along at far below the historical average. The numbers are not good.
Since the President and Congress seem more concerned on getting reelected than serving the country in 2012, the following opinions and views of various experts are more likely to happen than not, to the detriment of all of us:
- Unless the political class takes action, a number of major financial, tax, and economic hits will occur early next year. These hits include the raising of taxes as the Bush tax cuts expire, the imposition of new taxes under Obama Care, the return of the income tax marriage penalty, the expiration of the temporary payroll tax reduction, government spending cuts, and a host of other issues.
According to the Congressional Budget Office, the U.S. economy would contract at an annual rate of 1.3 percent for the first half of 2013 if politicians take no action to prevent the looming tax hikes and spending cuts. This is in turn would likely push the economy into a recession in the first half of 2013.
Now ask yourself: what are the odds that the Washington political class will develop a coherent economic plan, approve a plan, and implement a plan between the election in early November and the end of the year? Given that they will have to contend with Thanksgiving, Christmas, a lame duck Congress, and the lingering bitterness of the election losers, I think it is a good bet we are looking to slip back into a recession shortly after the dawn of 2013.
- As U.S. national debt is fast approaching a mind numbing $16 TRILLION, the bond rating agencies are beginning to hint that they are not ruling out the very real possibility that they will downgrade the quality of our Federal government debt. Standard and Poors already did the first downgrade in the history of the country last August and Moody's and Fitch may follow that lead, according to recent news reports:
- “If Congress doesn’t put in place a process that assures people that this [national debt] will be addressed in a real manner . . . then there is no doubt in my mind that our sovereign debt will be downgraded,” said Steve Bell, the senior director of economic policy at the Bipartisan Policy Center. “Markets throughout the world are going to be looking at the action of the United States government.”
- Newsmax reported that "Fitch identified 2013 as a crucial year for the United States to take action on its debt. Currently, it sees better-than-even odds that it will downgrade the United States."
- Senator Tom Coburn was recently quoted in an interview with CBS News: "We’re going to get another downgrade. I can tell you right now. You can have a great legal case for suing the rating agencies for not downgrading us again because we have not demonstrated the political will to solve the problems."
- Confirming the thought that the United States economy is "queen of the pigs," i.e. well thought of only because every other economy is in worse shape, Euro Pacific Capital president Peter Schiff recently stated in a Business Insider interview the only reason the dollar hasn't collapsed yet is that people think that Europe is in worse shape than the U.S.: "It doesn't mean that we're not going to have a day of reckoning. It just means when it comes, there's a lot more to reckon with. Things always happen to delay the inevitable. Since the dollar is still the perceived safe haven, we benefit from (Europe’s) problems. We end up with more rope to hang ourselves.”
Queen of the pigs and having enough rope to hang ourselves, two phrases you never want to hear that accurately describe our economic situation.
- Speaking at a recent Johns Hopkins University commencement event, Treasury Secretary Timothy F. Geithner said “paralysis” in the U.S. political system has worsened the nation’s economic challenges:
“Our economic challenges are tough, but the critical test we face is a political challenge. We just need to rediscover the political ability to just need to rediscover the political ability to solve the big problems still ahead of us.”
Given that the political class over the past four decades has not shown the "political ability" to resolve the lost war on drugs, implement a coherent and effective national energy policy and strategy, seal our leak borders and address the illegal immigration problem, tame escalating health care costs, or solve any other major issue in our life times, do we really think that this current set of politicians has the political ability to formulate and implement coherent economic policies and programs? Doubtful.
- Speaking on CNBC recently, Swiss money manager and "Gloom, Boom and Doom" editor Marc Faber predicted the chance that the global economy falls into a recession is a 100% certainty. His expert view is that while investors are currently focused on Greece and impending Euro debacle, there are bigger economic threats beginning to form around the world, most importantly, China and India: "As an observer of markets — whenever everyone focuses on one thing — like Greece and Europe — maybe they miss issues that are far more important — such as a meaningful slowdown in India and China."
He pointed out that factory output in China has been slowing which will have a much greater negative impact on the world economy than the Greece situation. As an example, he quotes the HSBC Flash Purchasing Managers Index which showed that it decreased to 48.7 for China in May, down from 49.3 in April. This became the seventh straight month that the index has come in below 50, a level indicating a contracting Chinese economy.
All right, enough negative news today. We will continue with the gloom and doom tomorrow but maybe provide some solutions so that the Washington political class finally finds some "political ability" to at last understand basic economics and find ways to get the economy rolling again. I am getting tired of being queen of the pigs and am getting real worried about that rope the political class has in their hands, a rope that is definitely long enough to economically hang the entire economy.
Also, keep the following thought in the back of your mind: since we theoretically came out of the recession over three years ago and on average, recessions historically appear every four to six years, if we do not get our debt and economic house in order soon, probability and statistics predict we will enter the next recession in the near future without ever fully recovering from the last one.
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