Monday, February 22, 2010

Is reality being pessimistic,or just facing facts?

The deck chairs on the Titanic analogy has never been more appropriate than today.Obama continues on his march to implement his agenda that supports his ideology regardless of public opinion or professional analysis to the contrary.The focus on healthcare and cap and trade and immigration are all misguided at best and reckless more likely.

He makes token resolutions to our jobs situation thru so called stimulus bills that do nothing of the sort.$13 a week in your paycheck does not create jobs.That's your so called tax break.Tax credits to hire workers that aren't needed is another bad idea.The stimulus is what it is.The Pelosi and Reid formula to empower unions and promote green technology with billions available for fraud,waste and abuse.No private sector job growth of any significance.

Meanwhile,we have massive time bombs with ever shorter fuses just ticking away without anything being done about them.This years primary crisis area is state budgets.$194 billion short nationwide.The states used stimulus money in 2009 and again this year to delay the inevitable bankruptcies.This really is a crisis that must be addressed immediately,not healthcare.Media reports about the worst being behind us due to the stimulus and TARP bailouts are flat out wrong.We have merely bought time.If the states don't undertake massive and painful cutting of their budgets (which Granholm here in Michigan has no interest),the fallout is going to be devastating to economies.

The commercial real estate crisis has been discussed for some time now.It will start in earnest in 2011 and run thru 2014.There are $1.4 trillion in loans that will need to be refinanced.Many of these are underwater with the assessed value less than the loan value.Even those with stellar credit won't be able to get a new loan under that scenario.The nations smaller banks have the largest exposure to these loans and many will fail when the foreclosures accelerate.The larger banks had their dog and pony show last year called the stress tests.Unfortunately,it only went thru 2010 when this problem has only begun to materialize.Of course,the administration was well aware of this and rigged the tests accordingly.

For years,we have talked about the debt and the long term costs of entitlements.It was always a far off problem that some generation would have to tackle.It appears that we are that lucky generation.Our politicians don't speak of it in those terms.We hear that we are spending our kids inheritance and this will be their problem to deal with.Wrong.These problems are progressing at breakneck speed to be dealt with much sooner.Remember,just a couple years back,we were told that social security would reach the tipping point in 2019.This is when outlays would exceed revenue.Well,that point is already here today.Not only are the trust funds empty,we are now spending more on benefits than we are taking in.The difference must come from the general fund.Seen any extra in there,lately?

It's frightening when you look at what levels are required just to keep our heads above water.With unemployment,we must create,not save,over 100,000 brand new jobs each and every month just to keep with the birth rate and new immigrants entering the country.This doesn't factor in illegal immigrants either.So when Obama touts his stimulus as creating 95,000 jobs each month this year,we aren't keeping up with the growth rate,let alone recovering the 15 million American jobs for people out of work.

With GDP growth,this is similar.Due to our debt of over $12 trillion,our trillion dollar plus deficits projected each year to add to it,and the unfunded liabilities of social entitlement programs that some say exceed $100 trillion,we have a similar scenario to unemployment.We need a large amount of GDP growth each year for decades just to address these accumulated debts.The Congressional Budget Office says 2.6% over each of the next 50 years and 3.2% when extended out to 75 years.These are conservative estimates based on a historically growing economy and they don't include interest.Several studies have been done and conclude that just to return to our 2005 level of GDP and also address our debt and liabilities,we would need between 7 to 10% annual GDP growth rates all the way thru 2050!Every year for 40 years!Again,not including interest on the debt.No one is projecting growth numbers even remotely close to this in their most wildly optimistic scenarios even over the short term,let alone for 40 years.

Frankly,this situation is out of reach.Many say we can still turn things around if we just do...,yeah,right.Nobody likes to talk about us being past the point of no return.But that's exactly what our government has done.Both parties and generations of politicians are at fault.It's impossible to predict when this will all come to a head,so I won't even try.But the simple fact remains that we will have to make fantastically unpopular decisions on both the debt and entitlement programs someday soon.Our standard of living will be drastically altered.But it's the only way our country will not end up just a chapter in the history books.Sound too dramatic?Study the numbers yourself and try to find a solution.And don't forget to factor in our politicians who have no willpower to be the ones to make those hard choices because their primary concern is re-election.The 'let the next guy fix-it approach' has run it's course.More to come...

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