Posted by: Dr Churchill | April 1, 2011

W economy stupid

A big Senate fight is booming in America for control of the upper House of parliament.

The Republicans contest the Democratic leadership of the Senate in 23 closely held races and they only need to gain four of these to take control of government…

Seems like we are heading in the direction of a Tea party heaven.

A bit of lunacy mixed up with irresponsible politicking and federal spending cuts.

But what the good Republicans fail to heed is the Economy again. Their medicine is wrong with a capital W.

With their divisive beliefs and ”cut the spending” and ”gut the government” rhetoric they are forgetting intelligent people are listening. Namely voters. Smart American voters who can sort out the lies from the truth even if Fox news serves them up looking like hotcakes.

And in another of those frozen anxious moments of ”It’s the Economy stupid” the eager beaver Republicans forget that we are heading for the big bad ”W.”   No I don’t mean Cheney’s bush — little w. Little Bush left the US economy is shambles and these daft little bushies and tea party gay Republican folks want to repeat the mayhem still. But what I mean here is the real deal. The dreaded big W.

Cause we are moving for a double dip recession ”W.”  And for that instance their economic recipe is one for a disaster of gigantic proportions and should they win the Senate the Capital flight from America and the Dollar would give a new meaning to the sound of whoosh…..

Of course you’d never know of these bad omens, if you listened to the upbeat messages coming out of the Tea partiers, or even from the mainstream Republicans. You couldn’t figure it out if you heard the Tories either, or their equivalent in Berlin the Christian Democrats… It’s all hushed up.

Not if you listened to the economic and finance minds from the City, Wall Street or FSB & the Bunt, nor from the central bankers from London, Berlin or Washington. Never mind Tokyo and Beijing…

But go granular for a moment and you might see a different picture. No microscope required for this physical science observation. Follow along as we do an economic biopsy:

Let’s take a bit of the biggest world economy and see where it falters. That’s a good leading indicator because the rest of the world’s economies quickly follow it.

Observe: In America, consumers of the middle class represent 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Depression.

A recent Reuters/University of Michigan survey shows a full 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead. And as a rule pessimistic consumers buy less. Unless they are on anti depressants… in which case they blow the budget and then have no money left to buy anything. End result is the same.

Fewer sales spell economic troubles ahead for all manufacturers and sellers of goods and services which quickly reverberate within the economy.

But what about the 192,000 jobs added in February or the 23o K jobs added in March?

With 8.8% constant national unemployment this is nothing compared to what’s needed. Let’s remember, that 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the US has lost so many jobs over the last three years that even at a rate of 200,000 a month they wouldn’t get back to 6 percent unemployment until 2017 or later.

But you might be tempted to say: Isn’t the economy growing again by an estimated 2.5 to 2.9 % this year. Yes, it is but that’s even less than an anemic growth. Because the deeper the economic hole we’ve fallen into, the faster the growth needed to accelerate us out of the hole and get us back on track for recovery. It’s what we call the take-off speed of the airplane that a national economy is. And, by this point in the so-called recovery we’d expect growth rates of 4 to 6 % just to get even tempered between inflation and growth for jobs and paying down the debt. And if we consider that back in 1934, when America was emerging from the deepest hole of the Great Depression, the economy grew 7.7 % you get the picture of what we need now in terms of growth for lift-off. We need a robust 5-7 % growth. Back in the thirties, the next year in 1935, the economy grew over 8 %. Eight whole percent. In 1936 it grew a whopping 14.1 %. Fourteen percent. Indeed that’s what lift-off looks like.

It’s a tough sell for the errant Republicans but they need to see the light, come as it may they will control both houses soonest. Because if we add two other ominous signs about the US economy — we get a real bust picture. Simple Maths: Real hourly wages continue to fall, and housing prices continue to drop. One and two make a handy pair of shoes to throw at your favourite lawmaker and tea party candidate. 1) Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. 2) Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes are the biggest asset most Americans own — as home prices drop most Americans feel even poorer.

And this worsening picture is fair because there’s no possibility the government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation under pressure from blood thirsty Republicans. State and local governments are slashing their budgets too, by roughly $110 billion this year alone. The incoming Republicans are thirsty for blood and gore and slashing all federal and state budgets is their favourite past time now. But it’s a bloody silly game.

Even the federal stimulus and QE2 is ending, and the federal government will end up cutting some $30 billion from this year’s budget alone without the benefit of the Republican knives.

America is tottering on the brink of a big nasty W… on the edge of the precipice of the dreaded double dip. Same as in old England and elsewhere around Europe, Latin America and Asia.

Seriously, the economy is slowing ominously, and the training wheels are falling off the trike.

Yours,

Pano

PS:

In other words: Watch out. We may avoid a double dip but not easily.

Or we might just slide back into one easily with daft economic controls. Especially of the Republican sort…

But why we are not getting the truth about the economy at this stage from nobody?

Wall Street is buoyant – and most financial news you hear comes from the Street.

Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. That gain more than offset a drop in the profits of non-financial domestic companies.

Washington, meanwhile, doesn’t want to sound the economic alarm but wants to slog it through. And given enough time and leverage they just might…

The White House and the Democrats want Americans to believe the economy is on an upswing in order to create a virtuous cycle and pull us all out of the doldrums.

Republicans, however, simply lie through their teeth. They worry that if they tell the truth, the Americans will boot them, because they will want their government to do more rather than less.

So the Republicans would rather not talk about real economic growth.

They would rather fib about growth and economic stimulation, and they won’t talk about jobs and real level wages.

But would rather put the focus instead on BS and fake deficit reduction by spreading the lie that by reducing the deficit we’ll get more jobs and higher wages.

Maybe – just maybe – these antidepressants they take, make them hallucinate or at least make them way too happy for their own good.

PS2:

Methinks they should lay off the breakfast of Champions and dig into their Wheaties, for the old truth still holds:

It’s the economy stupid.

PS3:

And in old Blightey the same holds true. Only the Tories and Nick seldom venture that far in their economic thinking. Only Mervyn King does apparently…

I would heed his call any day and so should all prudent long term value Investors.


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