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Tuesday, August 2, 2011

The Double Dip Recession Has Begun But Obama's Still Fiddling

Two months ago Peter Yastrow who according to CNBC is the “world’s largest LIBOR trader,” (equities, currencies, and interest rates) made a startling prediction
Yastrow,  said he is seeing ‘near panic’ with investors unwilling to punt on unpredictable commodities.

‘Interest rates are amazingly low,’ he told CNBC. ‘We’re on the verge of a great, great depression. The (Federal Reserve) knows it.’

One fund manager said 'almost every bit of data about the health of the U.S. economy has disappointed expectations recently.
While it is still unclear whether Yastrow's prediction is correct, it is clear that we have already sunk into, or at least at the brink of the second  downturn of a double-dip recession. Just take a look at the latest evidence:

  • Jobs: last month unemployment rose from 9.1 to 9.2% and there is every indication that the July number released on Friday will show another rise. A Rasmussen survey of managers released today predicts layoffs are about to rise and hiring, fall.
  • Consumer Income/Spending: The Dept. of commerce released the news today that consumer spending dropped 0.2 percent in June,  first decline since September 2009.Incomes rose 0.1 percent, the smallest gain since September 2010. People who are working are pocketing more of their paychecks. The personal savings rate rose to 5.4 percent of after-tax incomes, the highest level since August 2010.
  • Durable Goods:Consumer spending on durable goods, a good cyclical indicator, has been falling since the end of first quarter. The main reason is the slowing pace of income increases and high level of job insecurity. 
  • Manufacturing: The Institute for Supply Management, a purchasing managers group, said Monday its manufacturing index fell to 50.9 in July, down 4.4 points from June. It marked the sector's slowest growth since July 2009. Economists immediately called it "shockingly weak," "disappointing" and "not encouraging." 
  • Confidence:Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis is now 64.3, just half a point above the lowest levels of the past two years and down ten points from three months ago.  The Investor Index, which measures the economic confidence of investors on a daily basis sits at 68.9, down 17 points from three months ago.
All this is on top of the surprising news announced at the end of last week, the Gross domestic product, the best indicator of the country's  overall economic health rose at a paltry annual rate of 1.3% in the second quarter according to the  Commerce Department said, that number is likely to be revised downward. At the same time the first quarter results were downgraded from 1.9% to an almost nonexistent 0.4%. All of this indicates that the "recovery" we began to see at the end of 2010 has run out of steam.

Put it all together it seems as if our economy is in dire straights.

Today as he announced the passage of the debt ceiling compromise the President spoke about his plans for turning the economy around, an impotent mix of patent reform, maintaining tax rates for what he defines as the "middle class" and loans for construction work that will cost up to 20% more than necessary because of Obama's executive order about only using union shops or shops that give union benefits.

Once again the President is fiddling while the economy burns. Its time for Obama to cast aside his partisan political agenda and do what is necessary to help the economy.  Firstly he has to open up America's vast oil resources for drilling. This will not only put hundreds of thousands of American's to work, but it will lower energy costs freeing up both consumer and industrial money for investment.  Secondly its time to lower America's corporate tax rate, the second highest in the world. Lowing rates will encourage more businesses to remain in and invest in the United States also resulting in job growth.

Sadly that is not likely to happen under the Progressive leadership of Barack Obama.  The only possible good news coming out of the latest economic reports is the "class warfare" approach is likely to end soon.  Not because of any change of heart by the President, but because the ruined economy will leave everyone in the same, poor class.
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