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Thursday, July 2, 2009

The 2010 Republican Play Book: Res Ipsa Loquitor

The main characteristic of the so called W shaped economic is that the economy shows signs of recovery for a while and then suddenly begins to pull back. This can happen over and over. As such, words like choppy, stop start, and uneven are often used during a W shaped recovery. That's exactly the language used by George Soros earlier this week.




Billionaire investor George Soros on Tuesday predicted a "stop-go" economy for the United States, saying fears of inflation will drive up interest rates and choke off growth.

In this AP story, we find similar language.




Employers cut a larger-than-expected 467,000 jobs in June, driving the unemployment rate up to a 26-year high of 9.5 percent, suggesting that the economy's road to recovery will be bumpy.

In my opinion (and interestingly enough in the opinion of George Soros), the W shaped recovery is caused entirely by the borrow and spend policies of the Obama administration. Politically, that is beside the point and ultimately such a connection doesn't need to be made explicitly. In fact, all the Republicans need to do is state the facts, because the facts speak for themselves. (Res Ipsa Loquitor)

This past month's jobs report was the first clear sign that we are looking at a W shaped economy, and that is a political gift for Republicans. First, it turns the President into a bit of a pollyanna. For instance, here's what he told the AP today.

we have successfully stabilized the financial markets," and "started to see some stabilization on housing."

I would venture to guess that anyone who has tried to sell their property, get a loan, and certainly are in the business of securing home mortgages would beg to differ with that characterization. In fact, credit has gotten progressively more difficult to get since he came into office.

For the last couple months, he has been touting his stimulus as contributing to a bottoming out of the economy. He used the reduced job losses as evidence. Of course, job losses are no longer being reduced. After four months of seeing job losses shrink, they ballooned this month. By November of next year, the president will have likely claimed a bottom more than once only to have jobs numbers differe afterwards.

As such, not only are we still losing nearly half a million jobs monthly, but it's unclear which direction the job losses are heading. We could have a couple more months of improving jobs numbers only to have that momentum stopped like we had this month. What this means is that there is absolutely nothing redeeming about the economy.

All the so called green shots, anecdotal evidence of improvements, are nonsense. That was proven in one fell swoop with not only awful jobs numbers but increasingly awful. Since the stimulus was put into effect, we've lost more than 2 million jobs. If we only lose 300,000 jobs monthly till the end of the year (that would be herculean given that our best month was 350,000 lost jobs), that would be 1.8 million more lost jobs until the end of the year. There are no signs of recovery. Those signs are nothing more than illusions. We are still in the middle of a terrible recession and there's absolutely no evidence the end is near.

In the meantime, we have run our deficits from about half a trillion dollars to nearly 2 trillion dollars. This has caused a sudden rise in interest rates. I don't think it's mere coincidence that June's jobs numbers came at exactly the same time that mortgage rates rose nearly a full percentage point. Just think about it. With such an awful economy, we should see record low interest rates. That would reduce borrowing costs and help spur the recovery. Instead, all of the president's spending has put pressure on interest rates and stunted that avenue of recovery. Think about that for a minute. While our deficit has ballooned to nearly two trillion dollars, our economy will lose about four million new jobs. Meanwhile, the only thing we can say for sure that all of this spending has done is balloon interest rates which only stunts the economy even more. How's that for res ipsa loquitor?

Meanwhile, the president is working on cap and trade and health care. The PPIP, which was supposed to be critical in removing "toxic assets", has now been scaled back so that it is currently insignificant. So, while our economy continues in free fall, our president is determined to battle global warming and socializing medicine.

We will certainly hit 10% unemployment. We might hit 11%, and it might even get worse than that. Meanwhile, the president has spent nearly two trillion dollars, burying the country in debt, in hopes of creating jobs. It is this debt that has lead directly to higher rates and a weak dollar. While our economy continues in free fall, he's working furiously to combat global warming and socializing our health care system. Those are the facts and they are indisputable, and that's the story Republicans need to start saying now.

1 comment:

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