The Coming Depression

-By Dan Scott

Now that it seems Barack Obama has won his prize of being the president of the US, let’s see what that prize entails. Obama has made many promises, bribed (so called refundable tax credit) a significant portion of voters with $500 for their vote, talked a good game, and held close to the vest his unspoken agenda with the blessings of the MSM. Given the exit polling, it is clear none of the truly important issues were even a factor in the race such as energy, terrorism, past responsibility for the mortgage mess, etc. Obama’s victory was one of rhetoric, empty promises and slogans over substance and action backed by a staggering sum of campaign contributions. In short, Obama bought the presidency in a slickly run advertising campaign pedaling hope and change appealing to the lowest common denominator – $500.

If history is a reliable guide and taking Democrats at their word, the current economic downturn with already one quarter at negative GDP will accelerate into another negative quarter thus giving the Democrats and the MSM the bonafide recession they have been claiming the US has been in since Bush took office eight years ago. The reasons for the recession becoming prolonged into a depression will become obvious as we list what Democrats have excitedly talked about doing for quite some time now.

The Democrats are talking up a storm over needing to give another tax rebate in a pump priming effort in order to kick start the economy. Democrats and their Socialist brethren believe government is the center of the economy and thus a centrally planned approach is better than the messy decentralized approach of Capitalism. Where will this money come from, more borrowing, higher taxes or printing money? The Treasury and Federal Reserve are in a bind at this point, if they go to the market place to borrow money in the substantial sums that will be required to fulfill those promises interest rates must rise to attract the over trillion dollars the budget deficit is swelling to this year alone (one of those ugly secrets the MSM kept from telling the public.) The Fed may believe it can dictate interest rates but that must give way to the competition from other countries and financial entities needing to borrow money due to their reduced revenues as well. Interest rates will go up despite the wishes of Democrats, the Japanese learned that lesson the hard way years ago. Rising interest rates increases the cost of doing business for all companies thus an uptick in inflation passed on to the consumer and more unemployment.

Raising taxes on those evil greedy corporations and the wealthy will be the next step. Any raising of taxes is a zero sum game which will increase the cost of goods and services thus cause inflation and consumer purchasing to decline in order to make ends meet. Employers attempting to hold prices down to maintain consumer purchases will be forced to cut expenses and that means layoffs. Eventually, as prices continue to rise businesses must pass on those price increases and then an inflation psychology sets in. Raising taxes on the wealthy is more subtle since investment money is taken away from businesses in which they put their excess earnings not spent. This loss of investment means no future productivity or energy efficiency improvements and that means inflation. If you lived through the 1970s of Jimmy Carter’s failed policies, which is precisely what Barack Obama is committed to in his belief system of Socialism, this will be déjà vu all over again. The Misery Index comprised of adding the unemployment rate to inflation will come back in vogue. In economic terms, a rise in inflation coupled with high unemployment leads to lower consumer expenditures and contributes to an economic slow-down.

Finally, after the Congress, Fed and Treasury exhaust both these two self defeating options of borrowing and taxing, then comes the printing of money which may have already begun given the $750 billion bail out on top of the $800 billion federal deficit. Most people knowing a cursory amount of history remember Germany’s Weimar Republic, what made them famous was the printing of money in such vast quantities to pay their war debt that the Mark became worthless. We have a modern day example of this today in Zimbabwe and also Mexico twenty years ago. No rational person in the US government would do this, however, the exaggerated example of post WWI Germany and today’s Zimbabwe makes a point most Democrats can understand about printing money, however, even with this, the subtle point of inflation will be wished away by the desperation to enact their agendas in order to maintain power at any cost. What most people fail to realize about the US dollar is that it is a fungible commodity, that is, it is convertible to any other form sought by everyone in the world. This being the case, the dollar’s value must move in response to other fungible commodities such as oil. We all know when you print too much money over a short space of time, the value of that money drops due to a surplus in comparison to demand. What Democrats have failed to notice was this year’s recent movements of the dollar’s value against the Euro and price of oil. When the price of oil was high at $120/barrel, the dollar fell against the Euro and now when the price is oil is around $65/barrel, the dollar is gaining value against the Euro. The implication of printing dollars to meet soaring federal deficits and bail outs means a surplus of dollars and the price of oil being denominated in dollars must rise even with worldwide demand down. Any rise in the price of oil and the Euro means increased energy costs to businesses, less competition from higher priced European imports and therefore more inflation.

Obama and his accomplices Harry Reid and Nancy Pelosi are bound and determined to make the economy GREEN, i.e. the panacea of the oil free economy. Obama has promised to declare CO2 as a pollutant to force the EPA into a draconian regulatory scheme the day after his inauguration on January 20th, 2009. They have decided they will renew the drilling ban on domestic oil in an attempt to drive up the price of oil by creating an artificial shortage worldwide. The reason for this is due to the high price of alternative energy sources of solar, wind and geothermal. The only way the government can afford to subsidize so called alternative energy is to raise the cost of oil and coal to minimize the difference. The break even point of these alternatives is in the range of $200/barrel oil. We all know what this means, gasoline in the neighborhood of $9/gallon. Someone must pay the price, either to continue consuming it or reduced economic output as a result of it. Since Obama and the Democrats want to follow the path of the Europeans, we have an example of things to come, namely high unemployment even in the relative good times as demonstrated in Europe during the last decade of 10% or higher unemployment. Now imagine what their unemployment will become during an economic downturn. The US will do the same in the name of being green.

Nancy Pelosi and Harry Reid have not relented concerning ethanol mandates and subsidies. They fully intend to allow the mandates to increase 5 fold in the drive to go oil free. What this means for the poor of the world and us here in the US is the rising cost of food. Democrats have turned a blind eye to the consequences of their actions and worse yet blamed George Bush for the bad economy of the last two years. They won’t have George Bush to blame any more starting January 20th, 2009, so who will they blame then? They control both houses of Congress and Obama being their order taking underling will do as they demand, so there is no one left to blame but themselves. Small consolation for the poor and the middle class.

Obama has promised to bankrupt the coal industry by using carbon cap and trade manipulation of energy usage. This was kept from the public by the MSM until just last week, too late for the public to digest the implications. Electric rates under this scenario will skyrocket since coal provides 50% of the electricity generated in the US. Be prepared for $500 or more a month electric bills. This is no mere idle threat by Obama, he truly believes he can via alternative energy create jobs in retrofitting the entire energy infrastructure of the economy. Let me pop that bubble quickly, most solar cells and compact fluorescent lamps are made in China, not in the US for a reason. If the market penetration of these two products have been limited due to price even with the cheap labor of China, what do you think the price of these two products will be if they are made in the US via import restrictions? Will unemployed people be able to afford them on government handouts? Yes, import restrictions via tariffs will be necessary to “protect” the nascent industry from cheap Chinese labor. What happens when you start throwing up tariffs to other countries? A trade war, which involves ever escalating tariffs in a tit for tat response by politicians protecting their power status. A trade war will further depress the economies of all countries, just like the beginning of the Great Depression in the 1930s. What the current bail out taught us more than anything, politicians will do anything even destructive self defeating actions in order to claim and appear they did something. Sometimes doing nothing is better than doing something. What they needed to do was stop meddling in the economy but they can’t since central planning requires their hand to act.

There will be definite winners and losers under an Obama administration. The winners will be Al Gore, Nancy Pelosi and Warren Buffet investing heavily in so called alternative energy projects subsidized by you, the taxpayer. The government will be the winner using carbon taxes to raise revenue for the Treasury, but you the taxpayer will be the loser as all of these new taxes will lower your standard of living via inflation. The biggest losers of all will be the poor and middle class since they won’t have the disposable income to absorb these massive increases in the cost of living. No amount of government handouts will compensate for those increases to maintain the standard of living people had before Obama took control. Once Obama delivers on his promise for health care for all, everyone will be the loser from long wait times not only to see the doctor but to medical treatments as well and lower reimbursements to medical providers giving further disincentive to practice medicine. Look to Britain and Canada for the results of Obama’s policies.

Due to the escalating budget deficit, dropping tax revenues and rising Social Security and Medicare cost, the Democrats have openly talked about ending private individual retirement plans such as 401ks. Combined Social Security and Medicare will stop having surplus revenue very shortly in 2014, just 5 years from now. That means budget deficits can not come down no matter how much revenue Democrats can gain by taxing, borrowing or printing money. They know this and their partial solution to Social Security holding $3.5 trillion in IOUs of the national debt that is coming due is to save a so called estimated $80 billion in tax breaks due to deferred taxation. In exchange for ending your self directed retirement plan, they will give you a guaranteed 3% return on your money and sell it to you like they did you a big favor since Social Security only returns 1% on the money you and your employer were forced to give from your wages. Where did the $3.5 trillion go that the Democrats now would end your 401k? Social Programs, they were renamed as investments, what return on those investments did we get? Zero, actually worse they cost you your retirement and millions of jobs due to a misdirecting money that should have been invested in the economy creating jobs. While I’m pointing this coming ending of 401ks, what do you think will happen to the economy when individuals stop investing in it? How many millions of jobs were created from trillions of dollars invested in the economy via 401ks? How many billions of dollars of tax revenue were created from people working, buying and selling based on those investments? I leave that for your imagination or nightmare to contemplate.

Since the Democrats have retained control of Congress, those responsible for the mortgage meltdown and subsequent banking bailout will not be held accountable. Barney Frank, Christopher Dodd and Charles Schumer will be running those so called committee hearings finding scapegoats, continue with their meddling in the economy and not repeal the CRA or any of it’s provisions requiring banks to lend to unqualified borrowers. Given their noises regarding write down of mortgage principals and interest, most banks will get out of the home mortgage business. (This is why Democrats are now insisting banks be forced to make those loans, having been forced to receive bailout money in some cases.) The consequences for the residential real estate market will be a prolonged economic disaster for current home owners who wish to sell but can’t and borrowers who can not finance a purchase.

Senator McCain said the failure was not ours but his for not winning the election. Yes, John McCain, the failure was all yours, you failed to inform the public regarding the consequences of Obama and the Democrat’s plans. We, on the Right, warned you and the public repeatedly about the consequences, now you will have to experience them instead of avoiding them. Instead you let Obama tempt the voter with a $500 refundable tax credit for their vote because you didn’t spell out how much his policies would far in excess cost them in the years to come. You refused to hold Democrats responsible for their failures, especially for the mortgage meltdown, all in the name of bipartisanship and having to work with them in the future. Your campaign staff failed in it’s duty to vet what Obama said and did over the years (the MSM deliberately refused to do so) but instead it was the volunteer bloggers who discovered the truth of the matter albeit too late and even when they did you threw away golden opportunities to differentiate yourself from Obama. In 2010 we are looking forward to a GOP that has been chastened and purged of the remaining liberal/centerist members who were complicit in your failure to inform the public. It’s time for a new Contract With America, 2.0. The rallying cry will be the reinstatement of the Tax Cuts the Democrats let expire and drill baby drill.
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.

Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.