They’ve rescued Obama once. After 2012 he’ll try to get rid of them again.
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But the economy today has received a reprieve, not a permanent stay of execution. President Obama, if reelected, is still pledging to impose his tax increase tsunami in 2013, which is when the Obamacare tax increases become effective in addition to the scheduled expiration of the Bush tax cuts. This will impose a hefty double whammy in increasing the tax rates of virtually every major federal tax on precisely those who create new jobs and invest in the economy.
Then there is still another major storm on the horizon. The Fed’s incredibly loose, indeed bordello-style, monetary policy first caused gold prices to start to spike. Then it caused a declining dollar. Now it has caused commodity prices to soar, with oil climbing over $100 a barrel.
For those who do not know how to read the monetary policy smoke signals, which includes everyone miseducated in Ivy League schools, that spells coming inflation. Worse than inflation for the economy will be what the Fed will have to do to stop it.
By this summer, the Fed will have worked America into a 1970s style monetary policy trap. Inflation will be surging into the 4-6% range. If the Fed continues into the 2012 election year with its easy money, zero interest rate policies, inflation will continue surging higher and higher.
But if the Fed finally reverses course with a tight monetary policy to stop inflation and restore stable prices, interest rates will at first rise. Without the Fed available to buy up federal debt with newly printed money, the government will have to bid up market interest rates further to sell its blizzard of federal bonds, bills, and notes. That will secondarily cause a downturn in the stock market.
The full contractionary effect of such monetary policies has been shown to arrive with long lag times of a year to a year and a half. The only question will then be will the resulting recession occur before the election or after. Either way, if President Obama is reelected, in 2013 the contractionary effect of his across the board tax rate increases on the nation’s employers and investors will add to the monetary policy downdraft to create one horrendous double dip recession.
But even this is not all that President Obama is doing to ensure that Coming Crash of 2013. He is carrying on a regulatory jihad against American energy production. He is shutting down drilling both offshore and onshore. We can’t even drill today in the National Petroleum Reserve! Coal and even natural gas are under assault. And despite President Obama’s occasional rhetoric, no new nuclear power plant construction is anywhere in sight in the U.S., though 60 new reactors are being built around the world, from Brazil, to Argentina, to Lithuania, to India, even Sri Lanka, with 20 being built in China alone.
In addition to the direct loss of jobs and economic production they’re causing, these policies are depriving the American economy of reliable, low cost energy supplies. The resulting rising price of energy, represented by $100 oil, is like an additional tax on the economy.
With the deficit today already at $1.645 trillion, if we suffer another serious recession in 2013, how high will the deficit soar then? Well over $2 trillion? With the Fed out of the debt monetizing business, will America even be able to borrow that much on world markets? Or will America effectively be bankrupt then, just like Greece? The European Union addressed that with a trillion dollar bailout package. But who will bail out America? Who even could try?
The Tea Party to the Rescue
This nightmare scenario can still be stopped, and America’s world leading economic prosperity restored. The first step on the road to real recovery is for House Republicans to pass a permanent extension of the Bush tax cuts, ASAP.
But that is just a small down payment on what is needed. Full reform to restore global competitiveness to the American economy requires fundamental tax reform for both the individual and corporate income taxes, establishing a flat 15% rate for both while closing loopholes. That would include a 15% capital gains tax rate and a 15% rate for corporate dividends as well. The Alternative Minimum Tax (AMT) and death tax must be abolished as counterproductive additional layers of taxation. Capital investment in plant and equipment must be allowed an immediate deduction, as under “expensing,” rather than arbitrary, stretched out depreciation.
Federal spending must then be shoehorned into the revenues produced by this tax code designed to maximize long-term economic growth. That will not be as hard as might seem, with the resulting booming revenues from a booming economy. The key to permanently balancing the budget is fundamental, structural entitlement reform that changes from the ground up how the programs work and achieve their goals. (This is explained in detail in my forthcoming book from HarperCollins this spring, America’s Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream, and How We Can Turn the Tide Before It Is Too Late.)
For Social Security, that means empowering working people with the freedom to choose to pay some of their payroll taxes to start in their own family savings, investment and insurance accounts to finance part of their future retirement benefits. Over time that option would be expanded so that the personal accounts can ultimately finance all of the benefits financed by the payroll tax today, replacing the payroll tax entirely. That would result in dramatic long-term reductions in federal spending, as all of those benefits would go off the federal budget, and be financed through the private sector instead. Because of the much higher long-term market investment returns, those personal accounts would provide working families with higher benefits, rather than lower benefits. The accounts would contribute further to booming economic growth with ultimately trillions in new savings and investment for the economy.
For Medicaid, that means block granting the program back to the states as was done in 1996 with the old Aid to Families with Dependent Children (AFDC) program, with astounding success. The states could then provide the poor with vouchers for the purchase of private health insurance. That would greatly benefit the poor with the same health care as the middle class, as they would enjoy the same health insurance as the middle class.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?