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Obama's Policies Will Cause Economic Stagnation

Economics / Double Dip Recession Jul 19, 2010 - 02:44 AM GMT

By: Gerard_Jackson

Economics

Best Financial Markets Analysis ArticleGrim is one word that surely sums up the state of the US economy. Without a doubt the Obama administration is the most incompetent since the lamentable Carter sat in the Oval office. Now there are some who sincerely believe that Obama has deliberately set out to destroy the economy. What else could explain his 'economic policies'? Ideologically-driven ignorance, for one.


When Obama first emerged into the political sunlight I warned that this character is a committed leftwing ideologue and a profoundly ignorant man. Americans are now -- apart from the true believers who evidently live in an alternative universe -- beginning to face up to the reality of the man and the magnitude of their electoral folly.

Obama did not cause this recession: the lousy monetary economics of the Fed did that. What he did is retard the potential for recovery while feverishly working to impose a regulatory structure and debt burden on the economy that could cripple it for a generation or more. (One need look no further than once-prosperous Argentina to realise what an ignorant political bigot can do to an economy in a very short time.)

Some conservatives think that once the economy picks up Obama might be able to garner enough credit to win a second term, particularly if Republican-controlled houses have kept him in check. Obama, however, is not Clinton and this is not the 1990s. Republicans were able to rein Clinton in before he could do too much damage. (It's a pity there was no one around to rein in the Republicans during the Bush administration.)

Should the Democrats get a well deserved shellacking in November the Republicans will have to confront the consequences of Obama's criminal spending and borrowing policies while rabid Democrats and their lying mates in the media tear at their heels. (Democrats can be accused of many things but never of putting the interests of the country above their lust for power.)

Furthermore, there is the Fed to consider. Back in February I warned that "the economy is shaping up to be a disaster for the Democrats". Democrats soon hit the keyboard, accusing me of being bigoted (pretty rich from those in a political party based on bigotry) and "twisting the economic facts and history". (A clear case of projection.) It's now July, the economy has turned into a disaster for the Democrats and the emails have ceased.

While the commentariat were running around in a state of confusion about the economy some conservatives were solid in their opinion that manufacturing was heralding a V-shaped recovery, albeit one that Obama's tax policies would probably snuff out. Nevertheless, a recovery had emerged. Well, one swallow and all that stuff, except that I couldn't even see a swallow. For a start, the monetary aggregates were indicating a slowdown and not a recovery. The chart shows the money supply rapidly climbing from September 2008 until peaking in June 2009, and then falling until the following February, after which it started to climb again and then apparently start falling again.

It was my opinion that this 8 per cent contraction would cause manufacturing to slowdown, and a slowdown is exactly what is happening, with last month experiencing sudden falls in the manufacturing indexes. Once we omit increased output from utilities, which was mainly due to weather conditions, the production index hasn't moved. In fact, it's performance has been pretty bad overall. Desperately in search of an explanation some commentators are blaming inventory restocking coming to an end. It's true that during a recession manufacturing sometimes finds it has rundown its inventories excessively.

At this point firms obviously try to replenish their stocks. But manufacturing doesn't stop restocking in lockstep. And there is no way that the inventory explanation can account for the New York Federal Reserve Bank's "Empire State" general business conditions index falling by 15 points to 5.1, a drop of nearly 75 per cent. This situation could very well be signalling stagnation. Nevertheless, the Democrats' anti-growth juggernaut continues to thunder along, promising more of the same, including a wave of tax increases.

Seeking out more excuses for the absence of recovery Obama's media lackeys argue that the weak labour market is holding back recovery. Fewer jobs means less spending which means less growth, and so on. These hacks wouldn't recognise a circular argument even if you used it to string 'em up, which is what they thoroughly deserve.

The fact remains that given present conditions there is no way that Obama's policies could restore full employment without cutting real wages. And surging inflation is the only means by which he can do that, assuming Americans would stand for it. Even if full employment was restored Obama's policies would suck the life out of the economy leaving the vast majority of Americans without any hope of bettering their lives.

For those Obamatrons who believe that government spending is the road to prosperity they need look no further than Nazi Germany for a refutation. When Hitler became Chancellor in 1933 the official unemployment rate exceeded 25 per cent. Six years later there were acute labour shortages. As the demand for German labour rose real wages fell and personal consumption was severely cut. This fact at least refutes the popular idea that cutting consumption reduces the demand for labour. The point remains that public spending only appears to work when the government or the central bank can successfully engineer a sufficiently large inflation rate.

By Gerard Jackson
BrookesNews.Com

Gerard Jackson is Brookes' economics editor.

Copyright © 2010 Gerard Jackson

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