There is a thought that the only economic number that matters for President Obama’s reelection is the headline unemployment rate as of November 6, 2012. Unfortunately, reality is a bit more complex.
I am among the group that believes that a “Budget Grand Bargain” is needed if the country is to avoid effective bankruptcy. Paul Ryan offered his half – Medicare reform; Medicaid reform; discretionary budget cuts; some military spending cuts; cleansing the tax code of loopholes – hoping that President Obama would respond with Social Security reform, more military cuts, and some increased taxes. Unfortunately Obama chose to use Ryan’s opening offer as a foil for his 2012 presidential campaign. Standard and Poor’s responded with a warning that they might downgrade US debt from its AAA status. (A downgrade from AAA would prevent many pension plans and mutual funds from holding Treasuries.) Oy vey.
Polls show that the American public is confused and schizophrenic. They (we) want balanced budgets, and a cap on the authorized debt limit, but oppose changes to Social Security or Medicare, higher taxes on themselves, and many discretionary spending reductions. Obama offers “shared sacrifice” by increasing taxes on the top 2 % with half of the public paying no federal income tax at all, unidentified cuts to Medicare costs, unidentified cuts to military spending, and a trillion dollar reduction in debt service costs. The cynical political bet is that voters will care much more about short term jobs than long term debt, that the “blame Bush” argument has legs, and that he can demagogue the “rich bankers” in public while taking their donations and protecting their profits and bonuses in private.
Even if you can fool 51% of the people often enough, there are several reasons why this “continue to march” approach will likely not work:
1. The game will change. The Fed’s program of buying $600 billion of treasury bills to keep interest rates low will end in June and is unlikely to be extended. Extended unemployment benefits will expire well before the election.
2. Central banks in Europe and Asia are increasing their interest rates to control inflation. As the fed keeps our rate near zero in a futile effort to support housing, the value of the dollar has declined an average of about 10% in the past year and the decline is accelerating. The result – exporters of commodities such as oil which are priced in dollars have increased their prices to maintain revenues. Jimmy Carter got us to 13% inflation by a similar route.
3. Housing will not be robust. We artificially increased the portion of home ownership from its long term 65% to a high of 69% and it will take years to work off the excess. Foreclosures will continue; the “refinancing ATM” is history.
4. Even in the best of times,the twin forces of globalization and technology are helping millions of people around the world, but the American middle class is being hollowed out. With no business experience or perspective in the administration, Obama has nothing to say or do about the central problem. (This is Romney’s wheelhouse.)
With a billion dollar war chest, no international or domestic accomplishments to point to other than passing the unpopular Obamacare, and nothing to say about creating real jobs, it is no surprise that Team Obama is taking the low road of class warfare.
For the full post see www.RightinSanFrancisco.com.