The Latest Economic Trends, Statistics, And Opinions,October, 2012, Part 3: Out Of Distress Comes Opportunity

Okay, I know I promised we would only spend two days reviewing the latest economic trends, statistics, and expert opinions. However, the bad news keeps coming in so we need to take another day to get all of the pessimistic information covered.

1) According to a Moneynews article from October 8, 2012:

• A CNNMoney survey of 37 investment experts predicted that the S&P 500 Index will end 2012 at 1,440.
• While this will represent an annualized rate of return of about 15% for 2012, none of this stock market gain will be from the fourth quarter.
• The survey found that the experts felt the Fed’s quantitative easing efforts kept stock prices up this year but the impact of these Fed efforts can only go so far for a short amount of time.
• The bigger long term impediment to the stock market will continue to be the uncertainty in business owners mind relative to the unsettled 2013 tax and regulation environment.
• The article quoted Cetera Financial Group markets strategist Brian Gendreau: “I’m not suggesting for anyone to get out of their equity positions, but our view is that most of the gains for the year are behind us.”

That “U” word keeps popping up: uncertainty. There is any doubt left that the incompetence and inability to plan by the political class is a primary driver of our dire economic plight?

2) An October 7, 2012 Associated Press article reviewed the horrid financial condition of local and state governments across the country relative to the high retirement costs and benefits they are facing relative to government employees:

• In total, the fifty states and their local governments are facing a $1.4 TRILLION shortfall in its public employee retirement programs.
• In California alone, public employee retirement plans are underfunded by a whopping $165 billion.
• If state and local governments do not reduce their financial obligations to their retirement programs, they will either have to raise taxes or reduce expenses in other government programs such as roads, schools, social programs, etc.
• Higher taxes will drive away citizens and businesses that will further reduce economic activity which will further reduce the amount of taxes collected which will put additional financial pressure on state and local governments.
• If the state and local governments try to reduce the amount of pensions payouts and benefits (e.g. reduce pension payouts, cut back benefits, raise the retirement age, require employees to contribute more to their retirement plans, etc.) they have promised government and public sector employees, they will face extensive legal fees as current and retired employees along with their unions sue to keep the promised retirement packages intact.
• But if the unions and employees do not except cuts to benefit programs, local and state governments may actually go bankrupt and the public sector employees may end up getting nothing in a bankruptcy proceeding.

Nasty situation, nasty solutions regardless of what they are. Given the political class inability to resolve any problem before it reaches an extreme crisis point, I would be willing to bet that there are going to be some bankruptcy pain from state and local governments before solutions are reached.

As always, when politicians delay making the tough decisions, those decisions are eventually made for them in such a way that it maximizes the pain on Americans.

3) An October 8, 2012 Moneynews article contained an interview with former General Electric Chairman, Jack Welch. Welch reiterated his accusation that the Obama administration’s assertion that unemployment dropped from 8.1% in August to 7.8% in September is suspicious, suspicions that we reviewed yesterday.

Welch pointed out that to have such a large one month drop in unemployment would have required an annualized GDP growth of 5%. Since GDP has never been close to 5% for many years and has been less than 2% for the past few quarters. Additionally, Welch made the following claim in the article: “I’ve been reviewing 14 businesses all week, and not one of them is showing stronger growth in the third quarter than they did in the second.”

Thus, in addition to the information we covered yesterday and the insights of an experienced business leader, the 7.8% looks like a real shaky estimate.

4) One economist may have some additional insight to the 7.8% estimate. Deutsche Bank economist Joseph LaVorgna thinks that the drop in unemployment is a temporary anomaly due to part time hiring by the Presidential and other political campaigns that are underway. His reasoning is that close to 400k of the month;s increased worker estimate was from those Americans aged 20-24, the typical age bracket that works short time, temporary jobs for political campaigns. This might explain the unexpected drop in the unemployment rate and if he is correct, those jobs will disappear in four weeks or so and we will be back over 8% unemployment very shortly.

5) The Associated Press reported on October 8, 2012 that the average price for gasoline in California set a price record of $4.65 a gallon, breaking the previous record that was established the previous day. Some stations were selling gas for over $5 a gallon and one station in Long Beach was selling it for an amazing and depressing $6.65 a gallon. An industry expert stated in the article that the average price in California could go as high as $4.85 a gallon.

Now, the root causes of the latest price spikes are expected to be short term. However, given that the average price of gas was well under $2.00 a gallon nationally when Obama was sworn in, it is highly unlikely that prices will get anywhere close to that level anytime soon, requiring consumers to spend more of their disposable income on transportation and less on other activities that could expand the economy.

6) In a Bloomberg News report from October 9, 2012, the International Monetary Fund (IMF) proclaimed that it saw ‘alarmingly high’ risk of deeper global economic slump. The provide new forecasts and opinions what they see happening in the global economy over the next year or so, most of it is not pretty:

• It predicts the world economy will grow 3.3 percent this year, the slowest growth rate in three years, and 3.6 percent next year, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013.
• It now predicts there is a one in six chance of a global economic growth slipping below 2% in 2013.
• The IMF stated in the article that “confidence in the global financial system remains exceptionally fragile.” and “bank lending has remained sluggish across advanced economies.”
• Continued economic sluggishness or recession in the U.S. or Europe will reverberate back through developing countries who rely on those markets for their goods and services.
• “Confidence in the global financial system remains exceptionally fragile,” the IMF said. “Bank lending has remained sluggish across advanced economies.”
• 2012 total economic growth of the 17 countries that use the Euro is now expected to decrease by .4%, a slightly worse estimate than the last IMR forecast, grow only .2% in 2013, down from the last forecast of a .7% growth in 2013.
• The IMF expects U.S. economic growth to be only 2.2% this year and down to 2.1% in 2013, reductions in both numbers from the previous IMF forecast.
• The IMF expects Japan’s economy, the third largest in the world, to only grow 1.4% in 2013.
• It sees decreasing economic growth in emerging markets such as China.
• The IMF also stated that it expects 2012 oil prices to be higher than forecast back in the summer and for 2013 oil prices to be just as high, over $105 a barrel.

Not good news from around the world.

7) A recent Reuters report, as summarized in the October 12, 2012 issue of The Week magazine, estimated that global trade growth will drop this year to just 2.5% according to the World Trade Organization. This compares to 5% in 2011, and 14% in 2010. The annual average growth over the past 20 years is 5.4%, double what is expected to happen by the end of 2012. Just another sign and trend that economic growth will become more and more difficult to attain in the coming months.

8) Getting back to Japan, the third largest economy in the world, an article from The Atlantic was summarized in the October 12, 2012 issue of The Week magazine. The article put forth the notion that Japan will be the source of the next global economic crisis because:

• The Japanese working class population is declining so fast that retirement pension benefit payments will soon consume a whopping 50% of the national government’s budget.
• Japan’s national debt is about 236% of its annual GDP, putting it on a par with Greece.
• Most experts expect the Japanese economy to get worse rather than better this year and next, putting more pressure on the government’s deficit spending.

All of these factors will result in the eventual realization that the Japanese political class, shortly followed by the American and European political class, has been promising checks that it will not be able to cash.

Sorry for the bad news, but as you can see, the trends, statistics and expert opinions are almost all pointed in a negative direction, both domestically and around the world.

However, out of distress comes opportunity. There are simple yet bold steps that we can take to ensure we minimize our economic and financial pain and actually benefit from those that continue to not make the right decisions around the world. These steps include the following steps proposed in “Love My Country, Loathe My Government:”

1. Step 1 - Reduce Federal government spending by 10% a year for five years in order to finally get to a balanced budget and get our skyrocketing national debt under control.
2. Steps 10, 11, 12 - reform the Social Security processes and requirements to avoid what is already happening in Japan by reducing the Social Security tax rate but uncapping the maximum amount that is taxed, raise the retirement age, with a hardship exception, to 70 years old, and prohibit anyone with a net worth of over $3 million from ever getting a Social Security check until their net worth dips below $3 million.
3. Step 28 - implement the process proposed in this step to finally get our every rising national health care costs under control, a process that will require the repeal of Obama Care which makes our health care cost situation and our national debt worse than before.
4. Steps 23, 24, 25 - implement these three steps to finally implement a coherent national energy strategy in place that aims to get the U.S. significantly more energy independent using new technologies that exploit ALL of our energy resources including, coal, oil, natural gas, solar and conservation. These steps would reduce our balance of payments, creating tens of thousands of jobs, and allow us to reduce our military expenditures since we would no longer really care what happened in the Middle East.
5. Step 39 - this step would implement term limits for all Federal politicians because all of the previous steps we just listed are unlikely to happen with the current set of inadequate politicians in Washington. They would have happened already if we had real leaders runing the Federal government, not politicians sitting in office who only care about their next reelection campaign, their own personal wealth, and their next vacation.

Out of distress comes opportunity. We can start the process next month by dumping out every incumbent in office, from Obama down to the freshman Congressional people since: If you are not part of the solution, you are part of the problem.

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of our times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedomfor both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment