Wednesday, August 3, 2011

More Writing on the Wall...

The Wall Street Journal article ('Consumer Pullback slows Recovery'. p. A4) today, said it all: a preview of what we are headed for in a low aggregate demand environment with massive social spending cuts. Bottom line: people still lack jobs, more people are halting searches altogether, and it will get much worse as the remaining government spending props are pulled out from under them - including extensions of unemployment benefits.

In such parlous, impecunious straits, NO, people won't spend! They will cut back on "everything from restaurants to tax preparation services to school supplies"(ibid.). As this consumer retrenchment goes on, it will be reinforced by government spending retrenchment leading to massive economic dislocation and raging unemployment.

So far, the GAO anticipates $270b lost from GDP or in the vicinity of 1.5% and that's assuming we do get more defense cuts than social spending cuts. They also forecast as many as 1.8 million jobs lost by next summer. As readers will see from the attached graphic (extreme left) this means that GDP will be in negative territory and we'll be in a new recession, if - as I project- it continues for four or more quarters (since the cuts will only increase).

Next, look at consumer spending and its dip for last quarter. This reflects consumers (responsible for 70% of GDP) now increasing their saving rate to 5.4%. This is almost within the range of Japanese citizens throughout the 90s when that nation experienced prolonged deflation and the "lost decade" - in terms of any growth. Of course, that loss of growth, GDP means that the deficit will increase despite this cockamamey debt fiasco plan. In other words, what these idiots who voted for it achieved is comparable to tossing gasoline on a fire, except the dems used unleaded while the reeps used leaded!

Finally, compare personal income vs. 'wages and salaries paid' and note the two trends and especially how wages and salaries have remained essentially flat from the beginning of 2010. This also reflects the drop in consumer spending since as people - workers realized they weren't gaining much more in income, they had no choice but to pare back on spending.

The personal income graph itself is exclusive of "government benefits" which - if included- might more parallel the trend of wages and salaries. However, if school lunches and nutrition programs are cut along with unemployment benefits extensions terminated (as with the immediate "discretionary" cuts) and Medicare providers across the board pay cut in November (likely via the automatic triggered cuts, or by weak-kneed pussified Dems on a weak super committee) then the bottom drops out. You wll likely see the personal income aspect dive below the (-10%) line.

I project by this time next January - after massive provider pay cuts to Medicare - and people are made to pay much more for services, or dropped, we will see consumer saving increase proportionately to at least 8-9%. A cut in provider pay, remember, means that either the costs will be passed on to Medicare beneficiaries, or that there'll be no incentives to take on new ones. Thus, millions of boomers now turning 65 will find they're holding an empty promise or benefit. This is what the rat bastards in DC have delivered to us.

Meanwhile, as consumers pull in their belts, businesses will have to as well. You can't have much of a business if you can't sell to anyone! THAT is the core problem of dropping aggregate demand, which trap I warned more than 30 blogs ago Mr. Obama would fall into if he didn't wise up to the Reeps' plan. (This meant not allowing himself and the nation to be taken hostage, by invoking the 14th amendment. It would have taken titanium balls for sure, but other presidents have stood up and done it when push came to shove, as JFK did in the Cuban Missile crisis.)

Again: that plan is to make the fiscal landscape in the nation so abysmal by next summer that Reeps will be able to hang it all on Obama. Worse, if the guy gives in again and passes all the Bush tax cuts or even the middle class ones. TO allay the worst, we NEED ALL that revenue from those tax cuts! That means ALL further extensions must cease. Let them all finally die!

Obama can't have it both ways: he can't on the one hand carp and stomp his feet for the Reeps to deliver revenue and a "balanced approach" while he keeps playing into their hands by extending the Bush tax cuts for the Middle class! As a Financial Times report observed, from the month of January, 2009, Obama's high minded plans can't work unless he also brings in revenue and that meant repeal of ALL Bush tax cuts. The FT noted it was disingenous to focus only on extending the middle class cuts, since that represented the bulk of revenues! ($2.9 trillion vs. $0.8 trillion).

Obama and his gurus - like the allegedly smart Mr. Plouffe- need to craft a narrative in support of higher revenues starting with repeal of ALL Bush tax cuts. If they can't do that, they're dummies. If they won't do that they're politically cynical manipulators out only for political gain.

If those tax cuts aren't finally retired, we'll all face even more monstrous cuts in the coming years and the attendant pain - all of which could have been avoided if our politicos just had enough balls, courage and principle to do the right thing, as opposed to the politically expedient thing.

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