Back to Basics

Short of having the President of the United States or Jay Leno deliver the commencement address at your university or college, I would put money on the fact that few graduates can tell you who did give the speech, let alone what they said.

In a faux commencement address by Woody Allen he wrote “More than at any other time in history, humanity is at a crossroads: one path leads to despair and utter hopelessness; the other, to total extinction. Let us pray we have the wisdom to choose correctly.”

Just before I graduated from the University of Miami in 1955 the dean of the graduate school suggested I continue on to secure a master’s and, after that, a doctor of philosophy degree. My only thought at the time was to escape any and all classrooms for the rest of my life!

The U.S. Army accommodated me right after I graduated by inviting me to join its ranks. Well, “invitation” is not exactly the way it was phrased. It turned out to be a far better education than I might have gotten anywhere else.

I recall a sergeant, formerly in the airborne, who told me, “In the airborne they first separate the men from the boys. Then they separate the boys from the idiots. And then the idiots make their first jump.” Life is easier if you can laugh at yourself. I did not join the airborne, but rather spent my time in an engineer battalion, part of an infantry division, assigned to the intelligence section. To those who still question my intelligence to this day, I say nah-nah-nah-nah-nah!

My term of service was extended thanks to Fidel Castro and Nikita Krushchev who thought it was a dandy idea to install missiles in Cuba. John F. Kennedy disagreed. I waited patiently while they all changed their underwear and I was ultimately allowed to go home.

I have never been asked to give a commencement address. In retrospect I realize now why I was also not asked to do a long list of other things, but I have wondered on occasion what I would say to an audience of students and their exhausted, penniless parents.

My speech might begin with, “Guess what? You’re screwed. Other than the days of the Great Depression, I cannot think of a worse time to be thrust out into the world; your newly minted diploma in one hand and your loan papers in the other. Look to your left. Only one of you is going to find gainful employment that even vaguely resembles what you studied to do, if you find any work at all.”

I was spectacularly unprepared for any useful job so naturally I became a journalist.

Back to the speech, “Your parents have invested their hopes and dreams in you—probably somewhere between $50,000 and $100,000. They actually do expect you to get a job and move out. That is not likely to happen. The least you can do is to try to be helpful around the house, but neither of your parents believes this will happen.”

“Earlier generations could aspire to do great things, but your generation and those being born as I speak, can only aspire to pay off your portion of the national debt.

All bubbles burst. This is a law of nature. No matter from what material the bubble arises. No matter what forces propel its expansion. All bubbles burst.

Actually the science of bursting bubbles has recently popped into the forefront of scientific discovery. Conventional wisdom has taught since the beginning of time that when a bubble bursts it simply vanishes. However, recent observations using high speed cameras has revealed that when a bubble bursts it leaves a circle of miniature daughter bubbles that pop so fast the eye cannot catch it. There is even the thought that each daughter bubble leaves a ring and each daughter bubble leaves a ring ad infinitum. All happening so fast it cannot be seen. And yet, each succeeding bubble bursts.

The physics of bubbles tells us that the pressure on the inside works against the tension on the surface and a ratio between the two determines when the bubble will burst. No matter how it bursts, no matter why or when it bursts one thing is certain: all bubbles burst.

In economics a bubble is the term commonly used for a cycle characterized by rapid expansion followed by rapid often dramatic contraction. What causes economic bubbles is often a matter of dispute among economists. Some believe they are a natural part of the economic cycle: everything goes up, and everything eventually comes back down.
Others believe they are caused by inflation. In this scenario everything has a natural price which is the intersection of cost and demand. The Bubble is the artificial rise of price over the natural price. Eventually the economy must correct itself and the inflated product will return to its natural price.

No matter which theory you subscribe to, one thing is certain: all bubbles burst.

Remember the Clinton years? Today the official History as dispensed constantly by the Corporations Once Known as the Mainstream Media is that the wise and benevolent rule of the man from Hope was a time of plenty. There was solid growth and balanced budgets. As the Progressive narrative goes, President Clinton alone was responsible for the growth of the nineties which Bush the Younger proceeded to destroy leaving a mess for President Obama who has fought valiantly to restart the economy and save the day. At least that’s the story as dispensed by the headlines and the talking heads.
The reality is approximately 180 degrees opposite of the spin.

President Clinton won a three way election with less than 50% of the vote (twice) and called it a mandate both times. The policies he opposed for his entire career had recently won the Cold War, and President Clinton reaped the rewards. He gutted the military and called it a Peace Dividend which he proceeded to spend on social engineering projects pumping up the economy with government spending. Then the Dot-com Boom turned into the Dot-com Bubble and the economy was roaring. Another plus for Clinton was the defeat of Hillarycare which would have torpedoed the economy just as Obamacare is now.

With his reelection bid just months away President Barack Obama is painting himself as a reformer who will continue to resurrect America. Below is an excerpt from an ad released last week: (WARNING, do not watch if you have bouts of common sense or are subject to episodes of depression while seeing your country go down the drain).

“On the day Barack Obama took office, America had already lost 4.4 million jobs — an economic disaster, the worst in a generation. Some said America’s best days were behind us. And like America, he (Obama) dug deep, fought back and never lost faith in our ability to meet the challenge.”

Obama’s Plan

Obama tells us that the Republican Party is the challenge because it is mired in the past. If by the past Obama means America’s wealth and greatness, then he is correct. And make no mistake, if the President is given another four years to work out his schemes and his plans, America’s greatness will be lost and a staggering superpower will be eviscerated.

It is true that the United States was in decline before Obama’s election in 2008. However, the President has managed to cut out America’s economic underpinnings and in doing that he has severely wounded the Nation’s psyche.

One hundred years ago the U.S. was quickly consolidating its position as the richest and most powerful nation. Today it is the world’s largest debtor, and well past its economic apex.

Denial is in full bloom. Obama is commanding the largest U.S. military to wage a war that cannot be won. At the same time, the President continues to spend billions in new tax dollars on unproven clean energy.

How much longer can we support this military monster? What happens when the money flow stops?

History serves up grim answers to these disturbing questions. Rome collapsed after it became overextended and could no longer afford to pay its legions to impose Caesar’s will. Spain collapsed after its vast overseas commitments broke its treasury. And England succumbed when its treasury could no longer finance its ambitions.

To say that this cannot happen to America is to ignore history. Where we are headed is a natural consequence of where we have been.

The United States is falling victim to what historian Paul Kennedy calls “imperial overstretch.” In his bestseller, The Rise and Fall of the Great Powers, Kennedy wrote:

If a state overextends itself strategically by the conquest of extensive territories or the waging of costly wars — it runs the risk that the potential benefits from external expansion may be outweighed by the great expense of it all. This dilemma becomes acute if the nation concerned has entered a period of relative economic decline.

President Obama proclaims that the U.S. is a great power, able to force its will on the world, without regard of the cost. He has perpetuated the illusion. If you listen to the President, you would think that the United States is as much of a superpower today as it was 50 years ago.

By any measure America is in decline:

• In the 1950s and 1960s U.S.

The political pundits all agree that the November elections will be all about the economy. I suspect that most Americans draw their conclusions about the economy from empirical observations such as whether they or someone they know is out of work, whether shops in their communities are closing, and the price of gasoline at the pump.

While the economy is covered by the business media, newspapers, magazines, and cable channels, it tends to get short-shrift in the mainstream media because there well may be a shortage of reporters who actually understand economic trends beyond the very obvious.

For the record, I am not an economist and did not inherit the arithmetic gene from my late father, a CPA. Instead I have made my way with whatever skills I have as a writer. Suffice to say, I am still working to pay the rent. My interest in the economy is personal.

It’s personal for those without a job. A May 3 report by CNN Money, “The 86 Million Invisible Unemployed” said, “There are far more jobless people in America than you might think.” This is a good reason why you should ignore the government statistical reports on unemployment. They are rigged.

As the CNN report noted, “While it’s true that the unemployment rate is falling, that doesn’t include the millions of non-working adults who aren’t even looking for a job anymore. And hiring isn’t strong enough to keep up with population growth.”

“A person is counted as part of the labor force if they have a job or have looked for one in the last four weeks. Only about 64% of Americans over the age of 16 currently fall into that category, according to the Labor Department. That’s the lowest labor force participation rate since 1984.”

Jabba the Government

An April 28 Wall Street Journal editorial, “The Growth Deficit”, took note of the fact that “The weakest recovery on record continued in 2012’s first quarter, with the Commerce Department’s Friday report of 2.2% growth.” Despite the official government view that the recession officially ended in 2009, the “quarterly growth has average 2.4%, That’s slower growth than in every modern expansion, and about half the growth rate of all recoveries since World War Two, according to Congress’s Joint Economic Committee.”

A recent poll commissioned by Generation Opportunity, a non-profit think tank that concerns itself with young Americans, found that “just 31% of 18-29-year-olds approve of Obama’s handling of youth unemployment while 69% say the current leadership in Washington fails to reflect the interests of the younger generation.” That is very bad news for Obama and, if they vote, very good news for Romney.

The current issue of Business Week has an article, “The Stuck-in-the-Middle Recovery” asks “What if the economy comes back but leaves millions of middle-class Americans behind?” noting that “Ninety-five percent (95%) of the net job losses during the recession were in middle-skill occupations such as office workers, bank tellers, and machine operators, according to research by economists Nir Jaimovich of Duke University and Henry Siu of the University of British Columbia.”

Calling it the Great Recession to differentiate it from the 1930’s Great Depression, Business Week reported that “employers aren’t about to go back to their larger, less efficient workforces.

The country’s debt has increased over $5 trillion since President Obama took office, so I’m not sure where Krugman gets the idea that the US government has been pinching pennies. Maybe Krugman’s just baffled because nobody in the White House has yet implemented his “mobilizing for a space alien attack” suggestion.

Transcript from Real Clear Politics:

“Look at what’s happened in Europe. Look at how austerity policies have worked. Look at those countries, mostly not in the West, look at countries like South Korea that have had effective stimulus programs. We’ve had an acid test of different economic theories — Keynesian economic doctrine. The economic doctrine that says now is the time for the government to spend more, not less, has been overwhelmingly confirmed by experience,” economist Paul Krugman said on the Friday broadcast of MSNBC’s “Hardball”

“We could end this depression now. We could end it fast, 18 months probably if we did the right thing, but nobody believes it,” Krugman said.

Robert Reich and Joe Biden agree with Krugman — but I wouldn’t trust any of those three to balance my checkbook.

This philosophy on government spending reminds me of that old joke about shampoo instructions: “Lather, rinse, repeat? It doesn’t say when to stop.” Krugman’s version is “spend, spend, repeat.” When do you stop? Why would you want to do that?

Visit msnbc.com for breaking news, world news, and news about the economy

The Washington Times published an Editorial on April 20, 2012 titled, “Where’s the recovery?”  It mirrored all the bad news on our supposed “getting healthy” economy along with the discouraging views of the economic fundamentals and new jobless claims creating long faces and nervous hair pulling, while smiles abound in our anti-American White House and among its inhabitants.

Believe it or not, all this bad news about the country that less than four years ago was considered the greatest nation in the world, is pleasing to our White House staff and all of its minions, czars and secretaries. Obama’s mission is to totally destroy America as the world has known it for the past two hundred and thirty plus years and see poverty and hardships abound where once the fruits of our forebears’ diligence and INTELLIGENCE (a commodity that is sorely lacking today) created prosperity and leadership for the entire world to follow.

People SHOULD be asking, where the recovery is; it is certainly costing the taxpayers huge sums of money to keep this charlatan in the Oval Office in spending money for his communist, socialist and Islamist buddies in the depths and pestholes of the world.  He is determined to put all of us along side those sand-flea-bitten cretins he calls peaceful and enlightened.

The Times editorial announces that new jobless claims are the highest they’ve been since late January, the four-week average stubbornly hovering around the 375,000 mark.  They also say that “Though we’re technically in a recovery, nobody believes it. A Rasmussen Reports survey earlier this week shows a majority is under the impression America is still in recession.” And why not?  Recoveries see indicators of increased employment, more consumer goods being manufactured and purchased and costs of consumables dropping instead of rising as they are today.

One can imagine the smiles on Obama’s and his staff’s faces when they hear about another huge increase in the cost of a gallon of gas at the pumps. Just like the mythical Midas whose magic touch turned the item touched into gold, probably smiling until he died of hunger these greedy thieves will get their just dues one of these days.

As the editorial states, the country needs an explosion of industry but all Obama is producing is a fizzle.  The Philadelphia Reserve Bank found manufacturing output growth slowed slightly in the mid-Atlantic region, with its index of general business activity for the factory sector falling from 12.5 in March to 8.5 in April.  Numbers such as those do nothing to restore the confidence in America’s economic indicators. They tend to keep people wondering when the great “messiah” they foolishly elected in November 2008 will begin delivering on his failed promises of “change for a better America.”

When the people don’t feel good about their future they don’t invest in homes and as stated in the editorial, with a significant chunk of the market still in the process of foreclosure, housing won’t recover anytime soon.

Bill Whittle and Andrew Klavan have performed a running overhaul of the Obama campaign’s recently released campaign video, which was narrated by Tom Hanks and put together by Davis Guggenheim, the director of Al Gore’s magnum opus of misinformation “An Inconvenient Truth.”

In a clever cross between Mystery Science Theater 3000 and Pop-Up Video, “The Road We Traveled” becomes “The Road We Really Traveled”:

(h/t Allahpundit at Hot Air)

It’s downbeat economic news today.

The government’s report is here: “National Income and Product Accounts Gross Domestic Product, 1st quarter 2012 (advance estimate)” (via Memeorandum).

And see the New York Times, “U.S. Economic Growth Slows to 2.2% Rate, Report Says,” and MarketWatch, “Mediocre GDP report even worse in the details: Commentary: Final sales up less than 2% for 4th quarter in last 5“:

WASHINGTON (MarketWatch) — It should not be a surprise to anyone that the U.S. economy continues to struggle. The evidence is all around us, but the hawks on the Federal Reserve are clinging to false hopes.

The economy grew at a 2.2% annual rate in the first quarter of the year, down from a 3% growth rate in the last three months of 2011, the government estimated Friday. Read our full news coverage of the slowdown in U.S. growth.

Growth of 2.2% is mediocre, but it’s worse than that once you peel away a few layers — about a fourth of the growth in gross domestic product was accounted for by a buildup in inventories, and half of it came from the building and selling of motor vehicles.

Strip away the inventory growth, and final sales in the economy increased 1.6%, the fourth quarter in the past five that was below 2%. Although all the headlines report on the GDP numbers, the number to watch is final sales, because that gauges demand for our products, not merely how much we made.

Consumers continue to outperform. Consumer spending rose at a 2.9% annual pace, the best in more than a year. Yet disposable incomes increased just 0.4%, the seventh quarter in a row in which spending growth outpaced income growth.

You don’t need a Ph.D. from MIT — as Fed Chair Ben Bernanke in fact possesses — to know that’s not sustainable.

Plus, from James Pethokoukis, “Weak GDP report clouds Obama’s reelection chances“:

With six months to go until Election Day, time just ran out for Team Obama to run any sort of plausible “Morning in America” reelection campaign. And it’s not just that the U.S. economy grew at a subpar 2.2% annual rate in the first quarter, according to the Commerce Department.

It’s that this may be about as good as it gets for the economy this year. Most analysts have been looking for the second quarter to be no better—if not worse—than the first. So we could end up having a first half of the election year with GDP growth near 2% or below. As Citigroup puts it: “… 1Q GDP data should limit remaining optimism that U.S. economic growth will accelerate significantly this year.” And IHS Global Insight says it’s “looking for second-quarter growth to be similar to the first—around 2%”….

Even if growth perks up a bit from here, it seems unlikely that it will be enough to dent the unemployment rate or boost incomes.

President Obama could still win, of course. But given the current economic trajectory, he will be defying historical precedent if he does.

Exactly.

Obama can only win by changing the subject and demonizing the opposition.

Both of them are dead wrong.
Fed chairman Ben Bernanke and New York Times liberal-progressive polemicist Paul Krugman disagree about the Fed’s monetary policy.

Krugman continues to expound the view that, if the Fed accelerates its rate of creating phony dollars, consumers will go on a spending splurge and businessmen will put their excess cash reserves into expanding their operations and hiring more people.  Earlier he advocated multi-trillion dollar increases in government stimulus spending, i.e., fiscal policy, for that purpose.  To answer the fact that such policies have never worked, Krugman and his fellow Keynesian economists always say that, however huge government spending may have been, it wasn’t big enough.

There may be a short-term flare up of business activity, as with Obama’s cash-for-clunkers or subsidies for home purchases, but such stimulus spending merely pulls already-intended purchases into the immediate term.  As soon as the stimulus spending or subsidy ends, purchases drop below their earlier rate.

There is no historical precedent for a government spending its economy into prosperity.  The ultimate result is inflation and fundamental dislocation of the sectors of its economy.  It was tried, in a major way, in the 1960s and early 70s.  We got stagflation: soaring unemployment and the highest rate of inflation in peacetime history.  Franklin Roosevelt tried it in the 1930s.  After twelve years of the Great Depression, unemployment was still at 17% in 1940.

In our last major engagement with phony-money inflation, during the 1970s’ stagflation, not only did businesses not expand, many shut down entirely.  The Midwest, formerly the industrial heartland of the nation, became known as the Rust Bowl because of its abandoned manufacturing plants.  Inflation made American businesses uncompetitive with foreign producers, wiped out more than half the purchasing power of people’s savings and incomes, and dislocated huge swaths of capital investment and jobs.  People’s investible funds were plowed into inflation-proof assets like jewelry, precious metals, and art, none of which did much for employment.

The phenomenon of leveraged buyouts led to the liquidation of long-established businesses and the discharge of their workers.  Why?  Inflation had reduced corporate profits to such an extent that the entirety of company could be bought by tendering for all of its common shares at depressed prices on the stock market.  Take-over entrepreneurs than sold off pieces of a company’s least profitable business and used the proceeds to pay off their acquisition debt.

All of that was the consequence of the Federal Reserve’s hubristic presumption that they could create just a little bit of inflation and keep it under their control.

Even Bernanke recently has stated that the Fed’s mandate to stabilize the dollar outweighs, at the present time, its duty or ability to create full employment.

Let it be noted that Fed’s announced intention to create inflation at the rate of 2% per annum contravenes its mandate to stabilize the dollar.  A stable dollar, by definition, means zero inflation.  And inflation is, also by definition, increasing the supply of fiat, paper money faster than the increase in output of real goods and services (before Nixon took us off the gold exchange standard in 1971, inflation meant the Fed’s creating dollars out of thin air in excess of the government’s gold holdings).

During and after his 2008 campaign, Barack Obama was hailed as the second coming of Franklin D. Roosevelt. History records that Roosevelt presided over the Great Depression, begun in the previous administration of Herbert Hoover who got most of the blame. Roosevelt’s policies extended it well beyond the normal recovery from a recession.

In his book, “Dupes”, historian Paul Kengor, wrote “Roosevelt won in a landslide in November 1932. To liberals and traditional Democrats everywhere, he was more than just a new face at 1600 Pennsylvania Avenue. He was a kind of political savior at the most desperate time in their lives.”

Roosevelt was immediately assailed by the Communist Party USA as he launched his New Deal stew of programs intended to reverse the effects of the economic crisis. As Kengor notes, “No president had ever moved so far to the left, and so quickly, but it was not enough for the comrades.” They portrayed Roosevelt “as a warmonger bent on wreaking havoc on the poor USSR (Soviet Russia)” because they feared the U.S. might go to war against it.

As we now know, some of Roosevelt’s closest advisors were either Communists or extremely sympathetic to Communism. Harry Hopkins was one of them and was later exposed as a likely Soviet agent. The Venona transcripts of secret communications between U.S. Communists and their Soviet handlers revealed this.

Obama came into office following the 2008 financial crisis which, as we know, he blamed entirely on George W. Bush. Triggered by Fannie Mae and Freddie Mac, two government sponsored enterprises, the crisis reflected the many “subprime” mortgages they had pressured banks to make. Bush’s efforts to rein them had fallen on deaf ears.

Like Roosevelt, Obama initiated a number of policies and legislation, not the least of which was his “stimulus” package to turn around the economy, but which has left it with a higher level of unemployment today than in 2009-10. His other initiative, stimulating Green energy has cost taxpayers billions.

In “New Deal or Raw Deal?” historian Burton Folsom, Jr., wrote of Roosevelt’s National Industrial Recovery Act (NRA) documenting that it and other measures did nothing more than balloon the federal government while interfering with the normal action of capitalism to recover—as it had many times before—from financial crises.

Oklahoma Senator Thomas Gore, first elected in 1907, summed up Roosevelt’s efforts saying at the time, “No depression can be ended by gifts, gratuities, doles, and alms handed out by the Federal Treasury, and extorted from taxpayers that are bleeding from every pore.”

As Folsom put it, “Capitalism had failed in Roosevelt’s view of the world and that opened the door for new experiments in government ownership and government direction of the economy. Private enterprise would become public enterprise.”

Why anyone would think that Barack Obama, a “red diaper baby”, raised by leftists and mentored in his youth by a card-carrying Communist, Frank Marshall Davis, would act any differently than Roosevelt, repeating all his mistakes, is to be ignorant of history.

The Worst Recovery Ever

Writing in the April 3rd Wall Street Journal, Edward P.