First quarter GDP was revised down to 0.4% mostly because business investment was dramatically down from the estimated annualized rate of $52.4 billion to $16.4 billion. Economists are "surprised" as usual. The second quarter growth rate was an anemic 1.3%, which will also probably be estimated down in the future. Inflation has continued to increase at "higher than expected rates" even using the governments fucked up methodology of not including food or fuel (both of which are the essential products a human needs to live). Again, "economists" are "surprised"
So now what? That idiot, Ben Bernanke is talking about QE3*, because obviously QE1 and QE2 worked so wonderfully...... About the only thing QE is good for is the stock market and commodities because it tends to lead to hedging, higher commodity prices and a weaker dollar. How long are we going to continue this insanity? How long will we continue to listen to these "expert economists" who are constantly "surprised" that doing the same thing over and over doesn't produce different results?
QE works like morphine. It increases the monetary supply and temporarily makes the financial market feel richer. Sure, the stock market will go up for a bit, but when the QE wears off and is absorbed into the economy the weakness of our economy will resurface. It is sort of like taking morphine when you have a broken leg, it might make you feel better but if you walk around your going to cause more long term damage. It is simply an extension of the addiction we had to low interest rates throughout the 90's that brought us to this mess.
If you want to improve the economy, you have to provide a climate that encourages businesses to invest and hire. Right now, business investors are scared. Whether you agree with them or not, they view the current administration as anti-business. Investors are hesitant to invest in new enterprises because
1. We know that the tax burden is going higher. Our deficit is growing, our debt is growing and sooner or later it has to be payed back. It is clear that very few in DC are even the slightest bit serious in cutting government spending, that means that within the next 5 years or so higher taxes will probably come down the pike, we just don't know how much.
2. We know that Bamacare is going to cost us a bunch of money but have no idea exactly how much. A lot of Bamacare law has "at the secretaries discretion" and the secretaries decisions can have a massive effect on how much cash needs to be on hand to cover healthcare costs. Any business large enough to face having to deal with Bamacare needs to have cash on hand to cover the costs or they will be faced with having to take out debt to cover payroll, fire employees or go out of business. Smart businesses are preparing now by building up large cash reserves and will continue to do so until the exact cost of Bamacare to businesses are known.
3. Subsidies. Why bother risking your own money in investing in a business and risk losing everything when you can simply sit around, wait for a government subsidy and risk the tax payers dollar? (Which you will naturally be more willing to gamble with.) If your sole goal is to make personal money, it makes more sense to spend your money lobbying congress to get your piece of whatever stimulus is passed next or to get "waivers" from government regulations. Why invest in an attempt to make a profitable business in an uncertain economy when you can simply collect from the government, make a half assed attempt and pocket the money?
4. Government interference in the marketplace. Whether you're Boeing attempting to build a factory in a state that Bama & Co. don't approve of or a coal miner who can't get a mine started because environmentalists block the permits (after you have already invested significant money), a car company that doesn't build cars "green" enough, or a hotelier in Las Vegas who has the President saying people shouldn't come to your town or someone in the private jet industry who finds that their consumers are ostracized government involvement in the market place is at extremely high levels. It is difficult to predict which industry is going to be targeted for more regulation, which will be attacked on national tv and which the government is going to decide to get involved in by "bailing out" your competition. When any one of these things can change a profitable investment into a loss, it makes investors more cautious.
Steve Wynn probably said it best,
I'm telling you that the business community in this country is frightened to death of the weird political philosophy of the President of the United States. And until he's gone, everybody's going to be sitting on their thumbs.
I'm afraid to do anything in the current political environment in the United States. You watch television and see what's going on, on this debt ceiling issue. And what I consider to be a total lack of leadership from the President and nothing's going to get fixed until the President himself steps up and wrangles both parties in Congress...
I'm saying it bluntly, that this administration is the greatest wet blanket to business and progress and job creation in my lifetime...
Those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don't want to say that. They'll say, "Oh God, don't be attacking Obama." Well, this is Obama's deal, and it's Obama that's responsible for this fear in America.
The guy keeps making speeches about redistribution, and maybe we ought to do something to businesses that don't invest or holding too much money. We haven't heard that kind of talk except from pure socialists. Everybody's afraid of the government, and there's no need to soft peddling it, it's the truth.
When the people fear the government there is tyranny, when the government fears the people there is liberty.
Business people who are not well connected are afraid of their government. And until that problem is rectified, our economy will remain weak.
*For those who don't know QE is quantitative easing and is a technique used by the federal reserve to create money out of thin air and inject it into the financial markets by purchasing US treasuries.
I just usually go with my own taste. If I like something, and it happens to be against the law, well, then I might have a problem.- Hunter S. Thompson