RE: Does anyone genuinely believe...
I don't.
I think there may be the referenced placebo effect at some point, although I had thought it would have started by now and that doesn't seem to be happening. I originally thought the markets would crest around 12 before the end of the summer, then fall back to 6 by year-end, hang around 6 for most of 2010, and then crater in 2011. By mid-2011, if we continue with these plans, I expect to see the rest of the world start to come back. We will lag behind, as once Obamanomics are fully in place, I can't imagine any reason why anyone would choose to manufacture anything here, except for itms to be sold in the domestic market. We will be out of the export sales business entirely, as the extra tax and overhead load being placed on our businesses and entrepreneurs will simply make us uncompetitive with other countries for export sales. The impact of losing the export business should push unemployment somewhere in the 20 to 50 million range by mid 2011. The impact of the dollar drain to pay for imports (which we will still need), plus the dollar outflow to service the debt we incurred to finance the "stimulus," will start to tank the dollar, and I expect to see inflation in the 20% to 50% range by late 2011 to 2012. The falling dollar won't help export sales, because nobody will be making anything here to export, and that will enable high rates of unemployment and high rates of inflation to coexist.
What happens next? I really don't know. These seem to be the options that I can see. You may be able to foresee others.
1. Anarchy, as roving bands of unemployed marauders terrorize the streets in search of food. This does not strike me as desirable, but other options might be worse.
2. A breakup of the US as various regions blame each other for the problem and feel that they could do better going alone. This is probably the best of the avaialable outcomes, IMO. Not a good outcome, but better than the rest. At least parts of the country could support some semblance of an economy and a life.
3. Some kind of totalitarian government takeover. I think this one would be hard to push onto the American people, but not impossible.
4. A military coup. Impossible, we'd like to think. But if dissatisfaction runs as high as I anticipate, it might slip into the realm of possibility. Would it lead to 3? I hope not.
5. Stay the course, and watch the American lifestyle decline until we are Nicaragua. I actually think this is the most likely case. "Not with a bang, but a whimper."
The whole approach is prefaced on Keynesian economics. There are a few problems with that approach:
1. Despite what proponents say, there is no clear-cut case that Keynesian economics has ever worked. FDR's ending the Great Depression with the New Deal is claimed as a triumph by Keynsians, but modern research suggests it's a mixed bag at best.
2. Keynesian economics assume something of a closed system. Their big talking point is the mulitiplier effect. Government gives me money, I spend it. The guy I spend it with buys something else. The guy he spends it with buys something else. That dollar turns into multiple dollars of economic activity. When I took Eco 200, the literature of the day suggested that the multiplier could be as high as 7 times the original expenditure. In today's global economy, there is no closed system. This model doesn't work as well to help the US economy if, by the third iteration, the money is in China. There was a lot of economic debate about multipliers and spending while the "stimulus" was under consideration. Proponents of the "stimulus" took great pride in pointing out that various studies suggest that the greatest multiplier effect comes from direct government spending, as opposed to tax cuts and other measures. To me, the most telling part of that analysis was that most of the multipliers hovered around 1, and none of them were higher than 2.
3. Keynesian economics assumes that supply and demand are in some reasonable balance. Since at least the 1960s we have been overstimulating demand and understimulating supply to the extent that supply and demand are now so far out of balance that we have to be the largest net importer in the world (with greater net imports than the other 100 importing countries combined) in order to meet demand. It's supply that needs stimulating, not demand. Shrub didn't help with tax cuts that didn't do much to stimulate supply. So long as other governments adopt tax and regulatory approaches designed unabashedly to stimulate domestic industry, and we view the main function of domestic industry as providing tax revenues to run our government, we'll remain in a supply deficiency. That means fewer jobs, which means higher unemployment, in case you have trouble connecting the dots.
4. Americans save less, and consume more, of their incomes than any other people in the world. Our government sucks up a disproportionate share of what we do save to finance its budget deficits. We ship dollars overseas at a rate that challenges the size of the federal budget deficit. This means there is no money going into the market. That's why stocks are tanking. Without investment capital, domestic industry cannot grow. It's a shortage of investment capital that sank the banks, and it will sink one industry at a time over the next few years until we fix this (auto industry next? airlines after that? who's after that?). Stimulating demand without stimulating supply just means that we will import more.
5. The increased debt to finance the federal budget deficit, plus the increased debt to finance our imports, will eventually put a huge strain on the dollar. Worse, the creditors are all overseas, which puts some incredible strains on our foreign policy. When the dam breaks, the dollar may well start to free-fall. We could easily become Argentina, very easily.
That's my take. It's long enough as is, but in an attempt not to write War and Peace, I may have skipped over some things that need further explanation--or discussion. I would like to hear what others think.
I'd really like for someone to give me a compelling analysis indicating that this thing will work. Because otherwise I really don't see any alternative for me personally but to leave the country, and that's something I'd rather not do if I don't have to.
|