Politics and the Economy

Well readers I’ve been quiet for a while, reassessing and recalculating. I’m not done but current events make me believe that we are headed for a bit of trouble.



On the political front, we were promised change but not much positive change has happened. Blame whoever you want. The bottom line is unemployment is still high, the economy is still weak, improving yes, but still weak. Unemployment may not be totally the result of bad governmental policy over the last 10 years. Productivity has increased (partly due to technology) so that it now takes 30.5 hours to produce what took 40 hours 10 years ago.

Congress is about to legislate new minimum down payment criteria for home purchases which won’t speed the real estate recovery any. On the plus side interest rates remain low. Probably because we still look like the safest bet for storing wealth in the world.

Wealth is still very divided. Of the 51 Million households in the country that own a home, 27 million are mortgaged (average $220,000) while 24 million are paid for.

The political landscape is reflective of the people’s recognition that times are tough. Overly generous pensions owed to Federal, State and Municipal employees are choking governments who are struggling to keep up current services. Their only choice to date has been to raise taxes. Raising taxes in a recession is a bad idea… so now what? The political choice is cut services or start cutting pensions. Many states are cutting retirement benefits for future employees. This will help over time but their crisis is now. Future cuts won’t help today. Colorado has taken the bold step of reducing pension growth by reducing the annual cost of living raise from 3.5% to 2%. This will save them a considerable amount of money THIS year. Are they the only state with political courage to deal with the problem? What about Uncle Sam? Some states are selling the rights to collect tolls on bridges and highways to private investors just to raise capital today. What will they do when they’ve effectively pawned all their valuables?

This year’s election cycle should prove interesting. It will be a vote of confidence (or no confidence) in the current administration AND current Congress. The latter has had continuously lower ratings than George Bush had, and he managed to set the bar for limbo not high jump.

The economy is getting stronger but it is doing so VERY slowly. It will take another 6 or 7 years to fully recover. At least to get unemployment back down to 5.5%. In the past I have said its housing, housing, housing. It is still not fixed and neither is the economy. The debt we have incurred and are continuing to incur (The government is spending $1Billion every 2 hours and 20 minutes) is going to have to be repaid. There will be no federal short sales or credit forgiveness. There is only pay or default, the latter is the worst nightmare you can image times 10. Look at Greece and what is happening there. To avoid default, debt Interest payment on 11 Trillion dollars at 4% would be about $3,666,666,000 per month. That includes no principal repayment. We’d still owe $11 Trillion. Add that to the costs of Social Security and Federal Pensions yet to be claimed, future military needs and ever growing social programs and our children and their children unto many generations will be saddled with these payments. Their taxes are going to be outrageous.

Now the Federal government is suing Arizona over there state legislation regarding illegal aliens. The Governor of Arizona is a strong woman who is ready for a fight. It will be a very exciting battle to watch unfold because it will establish new ground rules regarding states rights. My guess is it is decided by the Supreme court sometime between the 2010 elections and the 2012 elections unless either side flinches in the mean time.

We fought the bloodiest war in our history in the late 1800’s over states rights and established that secession was not permissible. I wonder how this challenge will be answered and decided.

Politics and the economy. The two things many Americans hate to think about are becoming dinner table discussion (argument) material. Hopefully it will make the country better. They say, ” that which doesn’t kill you makes you stronger”. Let’s hope that goes for countries as well.