Buzz’s Journal---Americans Can Take a Two Year Snooze
The 2010 election was not a game changer. Long before the predictable results, it was clear that any policy initiatives that had a chance of improving America, were doomed by opposition of one kind or another, and that any spirit of compromise that could produce innovative policy was absent from the political landscape. Now that the election is over, Americans can take a two year snooze because, when they wake up in November 2012, either before or after the results of the presidential election are known, America then will look much like the America they knew when they began their snooze. Here’s what they’ll see in 2012:
Benefits and Taxes. Anyone concerned about benefits they are currently receiving, or are scheduled to receive during the next two years, have nothing to worry about. Not one dollar of anyone’s benefit will have been cut. Forget all the talk about reductions, they won’t occur during your snooze. Same for taxes. Anyone who thinks that their taxes will go up can sleep comfortably. There will be no tax increases, even for the super-rich, who have already convinced the country that they should keep the tax breaks handed to them by President Bush. All tax breaks scheduled to expire this year will be extended at least until 2012, and they’ll be no new taxes. Don’t worry.
The Deficit. You can sleep through all the talk about cutting the deficit and saving the taxpayers’ money. Two years from now, the national debt will be higher than it is today. That’s guaranteed. If you want to wake up for some entertainment during you two year snooze, a good place to do so would be when Congress debates increasing the national debt limit. After all the grandstanding, the debt limit will be increased so that when you finally awake in 2012, your country will owe a lot more to China and others.
The Economy. Based on employment statistics from the past three months, it is clear that there will be no double dip recession. While you sleep, the America economy will grow slightly, around 2% per year, plus or minus a few 10ths of a percent. Economists and others will talk about the recovery, but such meager growth means that when you awake in 2012, it still won’t feel like a recovery to you or to any Americans who stayed awake while you slept.
Jobs and Unemployment. Anyone who currently has a job doesn’t have to worry about being laid off for the next two years. Unemployment has probably peaked. However, economic growth will be too tepid to restore the millions of jobs lost over the past few years, and too tepid to provide jobs for college graduates and others entering the workforce. While the unemployment rate might improve slightly, will still be substantially where it is today. That is the saddest part of the Great Recession.
Inflation/Deflation. I fail to see how Ben Bernanke can still be worried about America entering into a Japan-style deflation. Wage inflation in China and world-wide commodity prices, as well as a declining US dollar, ensure that there will be no deflation in America. You can also forget about the hysterics and scare tactics that would lead you to believe that when you awake in 2012, America will be experiencing hyper or run away inflation. In fact, the yearly inflation rate will be around 2%. Oh, while I’m at it: The hysteria over gold will have subsided somewhat and the price of gold will be lower than it is today in inflation adjusted terms, but the price of oil will be higher.
Interest Rates. While the unemployed get most of the attention as victims of the Great Recession, the other great sufferers from America’s excesses which created the Great Recession, are the savers, those tens of millions of citizens who were taught that the way to financial security and a steady income, especially in retirement, was to save and put your money in the bank, CDs, and in US government bonds. Those mostly voiceless victims, who now get no interest to speak of, and have to pay taxes on the interest, are losing the value of their savings on a daily basis and are denied the income on which they thought they could depend. Sorry folks, this situation will essentially continue unchanged during the next two years. The Federal Reserve is determined to keep interest rates very, very low for a long time. When you awake, your savings will be worth less than they are today.
Stock Market. A decade or two ago, economists believed that the stock market was decoupled from the “real economy,” that, in other words, there was Wall Street and Main Street and never the twain shall meet. Then it became fashionable to look at Wall Street as the place where all the action was, that it was, in fact, the real economy. It is now clear, especially with electronic programmed trading with supercomputers, that the former view is the correct one. Therefore, Wall Street can and does prosper even when the real economy languishes. The stock market thrives on low interest rates and on large multinational companies who do well abroad, create jobs in every country other than America, and whose earnings from abroad look great when translated into cheaper American dollars. Besides, with low interest rates, there’s no other place for dollars to find themselves. When you wake up in two years, you will find that the American stock markets are at a higher level than they are today, but don’t expect a bonanza.
Value of the Dollar. The Fed is taking steps through its so-called quantitative easing program of buying Treasuries with dollars that it prints, that the dollar will continue its decline. Actually, the dollar’s decline didn’t need the assist of the Fed; it was going down just fine on its own. You will awake in 2012 to a yet weaker dollar. But, you ask: Isn’t that a good thing because a cheaper dollar means more exports for domestic industry and that’s good for America? You would be right if imports didn’t increase. So, here’s another prediction: Imports will have increased during your two year snooze faster than exports will have increased, thereby wiping out anything beneficial from a weaker dollar. Sorry about that.
Real Estate. While you slept, most of the mortgage foreclosures had been accomplished and cleared the market so that some sort of a real estate recovery could begin just at the time you awake in 2012. Prices will have ceased to fall, but new construction, while having picked up some, will still be in the doldrums. But, demand for new housing will be incipient and, with still low interest rates, buyers will start appearing.
Health Care. The Obama health care legislation was a modest attempt to better the system and cut costs over a long period of time. In fact, what it really did was to enshrine the expensive and wasteful private health insurance system within America for at least another generation, probably permanently. Any modest hopes of America doing better under this experiment, required lots of cooperation, which is totally lacking. So, when you awake in 2012, you will find that the health care legislation is still on the books and that efforts to repeal it have been unsuccessful. But, you will also find that it has been sabotaged, especially on the state level, so that nothing will have changed in health care when you awake. In fact, no surprise here, your health care costs will be higher than they are today, the increases being greater than the general rate of inflation. Naturally, that will be blamed on Obamacare, but you and I know, that health care costs would have gone up anyway. The important statistic to look at is the percentage of GDP that goes to health care, currently about 17%. In 2012 that figure will be higher, which means that America will continue its decline in world-wide competitiveness because no other country comes even close to us on the amount it spends for healthcare. Don’t forget, we can’t invest in education, building bridges and repairing roads, etc., at the same time we spend 17+% of our national income on health care. This is known as crowding out: dollars spend on health care crowd out investment in new jobs, etc.
Income Inequality. There is probably no other measurement that has as profound effect on the kind of America in which we live, than the percentage of national wealth in the hands of the very rich, that is the top 1%. Without a large and strong middle class, America will be a much different, and much diminished, society. Unfortunately, this is measure of our society is looking really bad. In 1976, the richest 1% of Americans took home 9% of the nation’s income. Today, the richest 1% of Americans take home nearly 24% of income. From 1980 to 2005, 60% of the total increase in American incomes went to the richest 1 percent. That’s a startling statistic if you stop to contemplate it for a moment. Here’s one way to look at it: Every time you read about some economic good news, 60% of the good news goes to 1% of the country. Unfortunately, the results of the 2010 election mean that this income inequality will increase during your two-year snooze.
Entertainment You’ll Miss. If it weren’t so serious, while you slept, you will have missed a lot of entertainment. There will be increased shouting over gay marriage, abortion, stem cell research, and creation “science.” Those Americans who thrive on those non-issues, have been emboldened and reenergized by the 2010 election results, and they’ll be especially active at the state level. However, when you awake, gays will be openly serving in the military.
Afghanistan and Iran. Even though no one talked about this during the 2010 campaign, I’m going to throw it in anyway. You will awake in 2012 to find that Iran still does not have an atom bomb, and that won’t be because it has changed its mind about acquiring nuclear weapons. A careful reading of the public intelligence reports indicate that Iran is having a much more difficult time than it generally appreciated, in producing fissionable grade uranium. Western efforts at sanctions and sabotage have not been successful in influencing the Mullahs, but they have slowed down the program. There will have been no attack on Iran from either Israel or the US. As for Afghanistan, you will awake in 2012 to find that America has not disengaged from Afghanistan, and at best, there will still be 50,000 US troops fighting and losing their lives there. Even though those numbers will be down from what they were when you went to sleep, casualties will be high because our other allies, who have never been given sufficient credit for fighting there, will have left during your two-year somnolence, and we’ll do all the fighting.
Pretty Good Picture, Right? Well, you say, you paint a pretty good picture of America in 2012, okay, not great, but not so bad either, so I think I’ll have a peaceful two-year snooze. Right? No, wrong. We’re not the only game in town anymore. Irreversible globalization means that what happens in the rest of the world determines what happens in America as well. So, while you slept peacefully, China and the rest of the world were charging ahead, leaving America’s slow decline unabated. Two years have been wasted during which America’s serious long-term problems have not been addressed by the implementation of policies which would support America’s greatest resource, our people. It’s not a pretty picture at all. In fact, if you thought about it too much, you’d have a nightmare.
Wild Cards. There are many unpredictable things that could happen to change the picture for the worst, such as natural disasters, terrorist attacks, war, but the most likely one is a bond market shock. That shock will eventually occur, but there is no reason why it has to happen in the next 24 months. It will be triggered by some unexpected event such as a major state not able to refinance a bond issue coming due, or overseas owners and purchasers of our debt finally demanding substantially higher interest rates for US debt. If that happens, all bets are off and the picture will not be a pretty one.
Benefits and Taxes. Anyone concerned about benefits they are currently receiving, or are scheduled to receive during the next two years, have nothing to worry about. Not one dollar of anyone’s benefit will have been cut. Forget all the talk about reductions, they won’t occur during your snooze. Same for taxes. Anyone who thinks that their taxes will go up can sleep comfortably. There will be no tax increases, even for the super-rich, who have already convinced the country that they should keep the tax breaks handed to them by President Bush. All tax breaks scheduled to expire this year will be extended at least until 2012, and they’ll be no new taxes. Don’t worry.
The Deficit. You can sleep through all the talk about cutting the deficit and saving the taxpayers’ money. Two years from now, the national debt will be higher than it is today. That’s guaranteed. If you want to wake up for some entertainment during you two year snooze, a good place to do so would be when Congress debates increasing the national debt limit. After all the grandstanding, the debt limit will be increased so that when you finally awake in 2012, your country will owe a lot more to China and others.
The Economy. Based on employment statistics from the past three months, it is clear that there will be no double dip recession. While you sleep, the America economy will grow slightly, around 2% per year, plus or minus a few 10ths of a percent. Economists and others will talk about the recovery, but such meager growth means that when you awake in 2012, it still won’t feel like a recovery to you or to any Americans who stayed awake while you slept.
Jobs and Unemployment. Anyone who currently has a job doesn’t have to worry about being laid off for the next two years. Unemployment has probably peaked. However, economic growth will be too tepid to restore the millions of jobs lost over the past few years, and too tepid to provide jobs for college graduates and others entering the workforce. While the unemployment rate might improve slightly, will still be substantially where it is today. That is the saddest part of the Great Recession.
Inflation/Deflation. I fail to see how Ben Bernanke can still be worried about America entering into a Japan-style deflation. Wage inflation in China and world-wide commodity prices, as well as a declining US dollar, ensure that there will be no deflation in America. You can also forget about the hysterics and scare tactics that would lead you to believe that when you awake in 2012, America will be experiencing hyper or run away inflation. In fact, the yearly inflation rate will be around 2%. Oh, while I’m at it: The hysteria over gold will have subsided somewhat and the price of gold will be lower than it is today in inflation adjusted terms, but the price of oil will be higher.
Interest Rates. While the unemployed get most of the attention as victims of the Great Recession, the other great sufferers from America’s excesses which created the Great Recession, are the savers, those tens of millions of citizens who were taught that the way to financial security and a steady income, especially in retirement, was to save and put your money in the bank, CDs, and in US government bonds. Those mostly voiceless victims, who now get no interest to speak of, and have to pay taxes on the interest, are losing the value of their savings on a daily basis and are denied the income on which they thought they could depend. Sorry folks, this situation will essentially continue unchanged during the next two years. The Federal Reserve is determined to keep interest rates very, very low for a long time. When you awake, your savings will be worth less than they are today.
Stock Market. A decade or two ago, economists believed that the stock market was decoupled from the “real economy,” that, in other words, there was Wall Street and Main Street and never the twain shall meet. Then it became fashionable to look at Wall Street as the place where all the action was, that it was, in fact, the real economy. It is now clear, especially with electronic programmed trading with supercomputers, that the former view is the correct one. Therefore, Wall Street can and does prosper even when the real economy languishes. The stock market thrives on low interest rates and on large multinational companies who do well abroad, create jobs in every country other than America, and whose earnings from abroad look great when translated into cheaper American dollars. Besides, with low interest rates, there’s no other place for dollars to find themselves. When you wake up in two years, you will find that the American stock markets are at a higher level than they are today, but don’t expect a bonanza.
Value of the Dollar. The Fed is taking steps through its so-called quantitative easing program of buying Treasuries with dollars that it prints, that the dollar will continue its decline. Actually, the dollar’s decline didn’t need the assist of the Fed; it was going down just fine on its own. You will awake in 2012 to a yet weaker dollar. But, you ask: Isn’t that a good thing because a cheaper dollar means more exports for domestic industry and that’s good for America? You would be right if imports didn’t increase. So, here’s another prediction: Imports will have increased during your two year snooze faster than exports will have increased, thereby wiping out anything beneficial from a weaker dollar. Sorry about that.
Real Estate. While you slept, most of the mortgage foreclosures had been accomplished and cleared the market so that some sort of a real estate recovery could begin just at the time you awake in 2012. Prices will have ceased to fall, but new construction, while having picked up some, will still be in the doldrums. But, demand for new housing will be incipient and, with still low interest rates, buyers will start appearing.
Health Care. The Obama health care legislation was a modest attempt to better the system and cut costs over a long period of time. In fact, what it really did was to enshrine the expensive and wasteful private health insurance system within America for at least another generation, probably permanently. Any modest hopes of America doing better under this experiment, required lots of cooperation, which is totally lacking. So, when you awake in 2012, you will find that the health care legislation is still on the books and that efforts to repeal it have been unsuccessful. But, you will also find that it has been sabotaged, especially on the state level, so that nothing will have changed in health care when you awake. In fact, no surprise here, your health care costs will be higher than they are today, the increases being greater than the general rate of inflation. Naturally, that will be blamed on Obamacare, but you and I know, that health care costs would have gone up anyway. The important statistic to look at is the percentage of GDP that goes to health care, currently about 17%. In 2012 that figure will be higher, which means that America will continue its decline in world-wide competitiveness because no other country comes even close to us on the amount it spends for healthcare. Don’t forget, we can’t invest in education, building bridges and repairing roads, etc., at the same time we spend 17+% of our national income on health care. This is known as crowding out: dollars spend on health care crowd out investment in new jobs, etc.
Income Inequality. There is probably no other measurement that has as profound effect on the kind of America in which we live, than the percentage of national wealth in the hands of the very rich, that is the top 1%. Without a large and strong middle class, America will be a much different, and much diminished, society. Unfortunately, this is measure of our society is looking really bad. In 1976, the richest 1% of Americans took home 9% of the nation’s income. Today, the richest 1% of Americans take home nearly 24% of income. From 1980 to 2005, 60% of the total increase in American incomes went to the richest 1 percent. That’s a startling statistic if you stop to contemplate it for a moment. Here’s one way to look at it: Every time you read about some economic good news, 60% of the good news goes to 1% of the country. Unfortunately, the results of the 2010 election mean that this income inequality will increase during your two-year snooze.
Entertainment You’ll Miss. If it weren’t so serious, while you slept, you will have missed a lot of entertainment. There will be increased shouting over gay marriage, abortion, stem cell research, and creation “science.” Those Americans who thrive on those non-issues, have been emboldened and reenergized by the 2010 election results, and they’ll be especially active at the state level. However, when you awake, gays will be openly serving in the military.
Afghanistan and Iran. Even though no one talked about this during the 2010 campaign, I’m going to throw it in anyway. You will awake in 2012 to find that Iran still does not have an atom bomb, and that won’t be because it has changed its mind about acquiring nuclear weapons. A careful reading of the public intelligence reports indicate that Iran is having a much more difficult time than it generally appreciated, in producing fissionable grade uranium. Western efforts at sanctions and sabotage have not been successful in influencing the Mullahs, but they have slowed down the program. There will have been no attack on Iran from either Israel or the US. As for Afghanistan, you will awake in 2012 to find that America has not disengaged from Afghanistan, and at best, there will still be 50,000 US troops fighting and losing their lives there. Even though those numbers will be down from what they were when you went to sleep, casualties will be high because our other allies, who have never been given sufficient credit for fighting there, will have left during your two-year somnolence, and we’ll do all the fighting.
Pretty Good Picture, Right? Well, you say, you paint a pretty good picture of America in 2012, okay, not great, but not so bad either, so I think I’ll have a peaceful two-year snooze. Right? No, wrong. We’re not the only game in town anymore. Irreversible globalization means that what happens in the rest of the world determines what happens in America as well. So, while you slept peacefully, China and the rest of the world were charging ahead, leaving America’s slow decline unabated. Two years have been wasted during which America’s serious long-term problems have not been addressed by the implementation of policies which would support America’s greatest resource, our people. It’s not a pretty picture at all. In fact, if you thought about it too much, you’d have a nightmare.
Wild Cards. There are many unpredictable things that could happen to change the picture for the worst, such as natural disasters, terrorist attacks, war, but the most likely one is a bond market shock. That shock will eventually occur, but there is no reason why it has to happen in the next 24 months. It will be triggered by some unexpected event such as a major state not able to refinance a bond issue coming due, or overseas owners and purchasers of our debt finally demanding substantially higher interest rates for US debt. If that happens, all bets are off and the picture will not be a pretty one.
posted by Buzz at 11:02 AM
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