Tuesday, August 2, 2011

Has the Double-Dip Arrived?

Now that all the hand-wringing over the debt ceiling has finally ended with the sell-out, the attention now turns to how well the economy is (not) doing. Recently, the Gross Domestic Product (GDP) report an anemic 1.3% gain over the previous quarter, a sure sign that the double dip recession has arrived.

Remember when good ol’ Uncle Joe said 2010 was the recovery summer? Well, that pretty much fell completely flat when unemployment stubbornly remained at or near 9% and home sales and values continued to plummet. A nine percent unemployment rate does not a recovery make. The debt continued to grow at an astronomic rate, which brought us to the last few days. And the housing market remains in an utter funk.

With these factors dragging on that supposed recovery summer, it was only a matter of time before the roof started to collapse. Here are ten reasons why the double dip recession is here. Condensed from and courtesy of 247WallSt.com. Read the report at the link, then read my commentary. Or you could do it the other way; no matter.

1. Inflation. I don’t know how many of you watched Glenn Beck while he was on Fox News, but he was way ahead of the power curve on this subject. His pronouncement might have been a little over the top, but that didn’t make him wrong. A lot of the inflationary pressure can be tied to the stubborn refusal of oil prices to drop despite the decrease in demand.

2. Investments have begun to yield less. The linked article suggests that the recovery was driven in part by the great performance of the stock market over the past two years. I don’t agree. I think it was the primary driving force. Oil prices rose and stayed high, home values continued to decrease, inflation began to take hold, and unemployment just refused to improve. What other economic factor drove the recovery? I can’t find any.

3. The Auto Industry. A very good friend of mine owns a few dealerships and he and I have talked about how well his business is doing. The reports are not good. He is a very benevolent man and he has not had to lay off much of his workforce, but he has taken the cuts on himself. But that could very well change in the next few months.

4. Oil Prices. This is a biggie. If prices don’t come down, people are not going to spend money on the things that drive the economy. Our economy does not run on the necessities (other than homes), it runs on the luxuries. If oil prices stay high, they aren’t going to travel, they aren’t going to buy big ticket items, and they aren’t going to purchase any of the luxuries that drive the economy. Until we take back control of our own resources, we are always going to tied to OPEC, and nearly all of those countries could not be considered friendly to our interests.

5. The Federal Budget. Until we get rid of the man currently occupying the White House, this is not going to improve. The debt reduction is proof of that. I have no doubt that if we had a Republican controlled Senate and White House, the debt ceiling increase would either not have happened or there would have been significant cuts across the board. Until the budget is reigned in, this will continue to drag down the economy.

6. China Economy Slows. I am not economist but I have no doubt that the performance of China over the past three years was what kept the world out of a depression. Speaking only for the US economy, if China had not been able to purchase our debt, the so-called debt crisis would have occurred two and half years ago. They kept us afloat. With the world running on the dollar (which could change), any serious hiccup on our part would have created a very bad situation.

7. Unemployment. This is something that I know about. I retired from the Air Force about a year ago. I was unemployed until Apr of this year, and I would be considered underemployed right now. I was pulling in a little more than $63K a year. My retirement is about half of that. I am now earning $10.00 an hour working retail, part time which comes to less than $10K a year. Don’t get me wrong, I am happy to have the job, but as a former leader of 70+ people and manager of resources valued at well over $2M, it hurts to not be able to get back to doing what I am best at.
  It has been said that there needs to be 300,000 jobs created every month for several years just to get us back to where we once were. As long as there is a person in the White House who is a proclaimed enemy of business, unemployment is not going to improve.

8. Debt Ceiling. Tied directly, as far as I am concerned, to the out of control budgeting and spending by the democrats. Yes, Bush was also out of control, but his deficit spending can’t hold a candle to spending initiated by Obama and the democrat Congress during the first two years of his term. This has caused the deficit to reach a staggering $14T+ level, with little end to the upward spiral in sight. China, an ideological enemy of our form of governance, controls a very large portion of that debt. I am sure the only thing stopping them for calling in the marker is the knowledge that this would create an economic meltdown that would make the Great Depression look like a bump in the road. It would not surprise me in the least if once our economy is humming again (after 2012), China does what it can to slow us down.

9. Access to Credit. Other than the utterly unfriendly atmosphere towards business created by the Obama Administration, this is the single biggest hang up to our recovery. Small businesses are the engine that runs our economy. 70-80% of all job creation comes from small businesses. Unlike the big businesses (IBM, Ford, Exxon, etc.) who have tremendous cash reserves (in the trillions worldwide), small businesses run on credit. As long as credit is hard to come by because banks are scared to lend and businesses are afraid to leverage themselves, the engine cannot get started.

10. Housing. This is what created all the troubles. Banks were forced (by Barney Frank and his boyfriend) to lend to people who should have never purchased a home. And people who purchased homes were also at fault when they should have either stayed as renters or purchased way too much home. Case in point: My lovely bride and I bought a home in a brand new development. I fact, we were the third family to occupy a home in our 100+ home development. Catty-corner to our back yard is the biggest home on the two closest blocks (3100 Sq feet). Using some creative financing, these people bought this big house, got over-extended almost immediately, and were the first people in the neighborhood to lose their home to the bank. They occupied the house for about eight months and made one payment. On the other hand, the bank also offered this kind of financing to us so we could also purchase the 3100 Sq ft home. It was tempting, but we turned them down. Despite the loss in value across the neighborhood, we are still right-side up (but just barely).

There are other factors that are keeping the economy lagging such as the monetary crisis in Europe and the Earthquake and tsunami in Japan, but those listed above are sure signs there could be more pain to come.

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