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Obama's Keynesian Zombie Economy   June 3rd, 2011
This was never a recovery, it was unsustainable government spending       

 
QUICK OBSERVATIONS

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The "experts" were wrong about the prospects of Obama's stimulus, Cash for Clunkers, bailouts, QE1, QE2 and have been "surprised" over and over again. At some point I think the public must conclude that the "experts" are wrong and we have the wrong leaders.

They're inevitably wrong because they subscribe to Keynesian economic theory that was discarded long ago.

Some Examples of Keynesian Insanity

"As US economic data continue to surprise on the downside, markets are fearful that the ‘soft patch' becomes something much more serious, despite absurdly accommodative monetary policy. If that happens, the global economy will be as defenseless as Goldilocks would be if she were faced by a big bad wolf.' - Sebastien Galy, senior currency strategist at Société Générale


While Mr. Galy is certainly right that there are no more bullets in the Keynesian arsenal of ineffective tricks, it's the bolded text that once again boggles the mind. It "continues to surprise?" How many times and for how long do these "experts" have to be surprised before they're no longer surprised by reality?

A recent MSNBC article was priceless in that virtually every paragraph contained an absurd economic assertion or assumption.
    Friday's jobs numbers showed that the economy produced a meager 54,000 new jobs in May with weakness across all sectors. The data capped a week of reports pointing to a sudden, unexpected slowdown in the recovery.


    It wasn't sudden. It wasn't unexpected. And there was never a recovery.

    Policymakers, investors and economic forecasters are hoping that a sharp slowdown in economic growth last month was only a speed bump on an already bumpy road to recovery.


    It's not just a "speed bump" (as if the economy were "speeding" in the first place). There has been no recovery. Just artificial and unsustainable government "stimulus."

    "It is now pretty clear that the economy ran into a brick wall last month," said Paul Ashworth, chief U.S. economist at Capital Economics.


    It ran into a brick wall last month? The economy has been stuck in government quicksand since late 2008. The economy didn't hit a brick wall last month. The quicksand is just getting so noticeably thicker that the legacy media can no longer ignore it.

    Prior to this week most data had been pointing to a slow but steady increase in the economy's momentum. What took the wind out of the recovery's sails so suddenly, and will the doldrums last?


    Although the legacy media had been parroting the talking point of a supposed "slow but steady" recovery, it's long been obvious that it was never real. There was never any wind in the sails of the non-existent recovery. Reality just became so overwhelming that it could no longer be easily spun.

    On top of the list is a surge in gasoline prices that has forced consumers to tighten spending on the rest of their household budget... Floods and deadly tornadoes shut down some businesses in the southern half of the nation... Some analysts also pointed to a slowdown in U.S. manufacturing because of a shortage of parts as Japanese suppliers continue to rebuild after a devastating earthquake...

    The impact of those factors should dissipate in the summer and fall... Once those forces are no longer holding back growth, many analysts believe, the economy's underlying strength will restore momentum and get the recovery and job growth back on track.


    The economy doesn't have underlying strength and gas prices, tornadoes, and earthquakes are not the cause of what's happening. But I guess I spoke too soon in the previous paragraph... the legacy media has plenty of practice at spin. Now the spin is "blame the natural disasters."

    There are troubling signs, though, that the recovery faces more fundamental, long-term threats. That list begins with the failure of Congress to give the Treasury legal authority to borrow enough money to pay all the government's expenses.


    Hah! Refusing to increase the debt ceiling is not a "failure of Congress." It is potentially the first step at fixing one of the real underlying problems in our economy: excessive government debt and excessive government spending.

    On Thursday, a second major credit rating agency warned Congress and the White House that if they don't agree on a way to raise the nation's borrowing limit, the U.S. government could lose its top debt rating.


    Sure, but that same credit rating agency also said that "Failure to reach an agreement [in adopting measures to reverse the country's upward debt trajectory] as part of the current negotiations would increase the likelihood of a negative outlook in the near term, because the upward debt trajectory would still be in place."

    In other words the credit rating agency would not look kindly on a technical default. But nor would it look kindly on raising the debt ceiling without addressing our deficit.

    The solution itself could spell trouble. At roughly $1.5 trillion, the federal budget deficit represents about 10 percent of gross domestic product. Closing that deficit too quickly, with either deep spending cuts, tax increases or both, could send the economy back into recession.


    And not closing it quickly enough could result in bankruptcy and economic collapse, hence Moody's concern of raising the debt ceiling without making real progress on reducing the deficit.

    Perhaps the biggest force holding back the recovery is the housing market, still mired in its deepest downturn since the Great Depression. There was no improvement in May, as home builders sat on the sidelines for the fifth spring since the housing market collapsed in late 2006.


    As I wrote previously, the housing market will not be driving this recovery. We have too many homes and not enough demand. It's good that home builders are apparently "sitting on the sidelines." We have too many homes already and building more homes would just make matters worse.

    Economists are still debating why the current recovery has been so sluggish.


    If economists are still "debating" this issue, it's only because they have a stubborn, undying, irrational faith in the discredited religion of Keynesian economics.

"We Told You So"

Many of us conservatives have been arguing against the Keynesian scam of bailouts and government deficit spending for years. And many of us predicted years ago the very things that are now transpiring.

We knew stimulus wouldn't work. We said so. (here, here, here, here, here).

We knew printing money wouldn't work. We said so. (Here, here, here, here, here, here).

We knew bailing out companies wouldn't work. We said so. (Here, here, here, here).

We knew that the economy wasn't really recovering. We said so. (Here, here, here, here).

I say "we told you so" because I most definitely wasn't the only one saying these things. None of what is happening in today's economy should come as a surprise to anyone.

And over two years ago I specifically wrote that the consequences of liberal economic policy would be:

  1. Higher interest rates.
  2. More downward pressure on housing prices.
  3. A stunted recovery in the private sector.
  4. Less international interest in U.S. Government debt.
  5. And if we continue to print money we'll see a devaluation of the dollar, higher commodity/oil prices, decreased foreign investment, increased inflation, and more international interest in moving away from the dollar.

I was correct on every one of those predictions--except higher interest rates, but those are coming soon.

And as long ago as 2009 I was highlighting the fact that the then-hoped-for recovery wasn't real, but rather just artificial government stimulus:

'We certainly are going to see positive growth in the third and fourth quarter, but only because of government stimulus,' said Lindsey Piegza, an economic analyst at FTN Financial.

Piegza predicts GDP to tick up in the third and fourth quarter, but worries about a possible return to negative growth once the impact of the stimulus wears off.


Time For Conservative Solutions

While it may be easy to look at the things that I (and others) write as gloom and doom, it's just reality. Keynesian "experts" have been wrong 100% of the time and conservatives have been right 100% of the time.

This isn't gloom and doom. This isn't partisan. This isn't hype. This isn't particularly hard to understand. This is simply proven common sense economic logic and observable fact.

It seems eminently clear that too many "experts" are actually just practitioners of the Keynesian economics scam--the nearly religious faith in the belief that the government can print money (and borrow from our adversaries) in order to spend our way out of debt and into prosperity. It's the belief that if we're engaged in deficit spending to the tune of $1.5 trillion per year and we're not recovering, it's because our deficits aren't big enough (I joked about that in November 2008 only to have the illustrious Paul Krugman say it in all seriousness two years later. ).

The reason Obama's economy has zombified is precisely because there are too many Keynesian practitioners (like Obama) managing the world's money and controlling government policy.

We tried Keynesian economics in the Great Depression, it didn't work, and we got the Great Depression. Now, despite the warnings of conservatives, we appear to be in the process of trying it all over again. And the result will be the same (or worse) unless we change course very soon.

Now is the time we must abandon the failed Keynesian policies of the last century and look for leaders who will advance and institute conservative economic policies to see our country through a real recovery.



Obama's Zombied Economy:

Image H/T: Thomas Shafer

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