The Media is aflutter these days about the imminent return of the economy. Of course, it marks a stark contrast to the manner in which they covered the Bush economy. In the months leading up to the 2008 election, the Media was talking the economy down. Now they are attempting to talk it up. No amount of Media optimism, however, will change some basic dynamics which will keep the economy in its weakened state or worse for years to come. As you go through these reasons, keep in mind that consumer spending makes up, and has for years, approximately 70% of the US economy.
1. Historically High Unemployment. The unemployment rate remains historically very high. History also tells us that unemployment takes longer to recover than other economic indicators. That certainly applies to our current economic troubles. Despite Pelosi's claims about how unemployment checks create jobs, the magnitude of our unemployment translates directly into a historically high lack of consumer purchasing power. That's true for the 9.8% of unemployed Americans and their families – not to mention those affected by the much higher underemployment rate of 17+% – and those dependent on consumers. No one expects unemployment to fall rapidly and therefore this will continue to hurt the US economy for years.
2. The Foreclosure/Mortgage Crisis. The magnitude of the continuing foreclosure/mortgage crisis continues to be grossly under-reported by the press. (Surprise). Many believe that foreclosures will actually increase in 2011 over the approximately 1.2 million that occurred in 2010. Combined with the 2009 numbers, that means over 3 million foreclosures in a three year period. That depresses housing prices and hurts the housing industry overall which, historically, has led the way in past recoveries. Worse yet, estimates of the number of mortgages "under water," (homes whose mortgage is higher than the value of the home) continues to rise – not to mention those homes which have less equity than the costs of sale.
Looking at it another way, the Federal Reserve believes Americans have lost $6 trillion in home equity since 2006. All of that translates into nervous homeowners with much lower – if not lost – purchasing power. That won't turn around in time for Obama either given his policies.
3. Rising Gas Prices.
This too is a grossly under reported story. Gas prices are up over 60% under Obama. Higher gas prices act like a tax on the American economy that hurts consumers and businesses alike. Obama's policies (like shutting down gulf oil production resulting in an 11% drop in supply) are certainly to blame and some are predicting gas shortages and $5 dollar a gallon prices by 2012. That too robs Americans of purchasing power.
4. A Rising Regulatory Burden. American business is facing more regulations and government mandates virtually every day. The biggest, of course, is the massive health care mandate. That same program is resulting in higher consumer costs as well.
5. A Large Troubled State. The overall troubles of the national economy can also be directly traced to problems within individual states. California is the biggest and best/worst example. Unemployment is over 12.5%. Underemployment is estimated at over 25%. California's foreclosure/mortgage crisis is, not surprisingly, much worse than the national average. How bad? 6 of the 10 worst cities for foreclosures in the country are in California.
Incredibly, Californians have lost $1.7 trillion in equity since the height of the market in 2007. How bad is that? It is a number nearly equivalent to California's entire GDP! In other words, California consumers have lost purchasing power equivalent to an entire year of economic output for the entire state – a state said to be the World's 8th or 9th largest economy.
Then there is the man-made California agriculture depression. Agriculture used to be 17% of the state's economy. It is depressed due to government policies that have all but SHUT OFF water to the Central Valley. Liberal government policies have elevated the needs of a tiny bait fish over farms – dealing a huge blow to farm production. But that is not all. Now California is implementing global warming laws that will hurt the employment sector even more not to mentioned threatened tax hikes.
California's economy used to equate to over 16% of the nation's economy. Presuming it still does, ask yourself: if 16% of the nation's economy is crippled – who can rightfully expect the overall economy to recover?
Given all of the above – the answer is we cannot. In July of 2008, on a radio program, I predicted that the national economy would be bad for a minimum of 6 years if Obama was elected. I am standing by that prediction because government policies continue to hammer our fellow consumers and the economy overall.
Of course, it does not have to be this way. The key to economic recovery requires less government regulations and taxes and more economic freedom. The midterms elections were step one in that process. The Presidential election of 2012 will be step two.
