A Democratic Republic or a Banana Republic? Tomorrow We Decide

On an intellectual level, I’ve known all my life that the U.S. is officially a democratic republic. Tomorrow we will decide if the U.S. is a democracy that  is “of, by, and for the people”, or a banana republic run by money cartels who can convince large numbers of Americans to vote against their own interests through big-money fueled propaganda, lies, and hate.

I fervently hope that after all we’ve been through, enough American voters will give us one last shot at not turning into a banana republic run by a cartel of wealthy individuals who want to continue to raise their own status by stepping on the broken backs and broken dreams of the less fortunate.

Although both Presidential candidates are making their respective cases that their paths and policies are the only way forward to avoid economic (take your pick) 1. Backsliding, 2. Catastrophe, 3. Armageddon, 4.Devaluation of American currency and eventual takeover by China

In my humble opinion, regardless who wins the election tomorrow, November 6th, the economy is probably going to experience faster growth in the next four years as the obstacles that have held it back begin to fall away. Yes, many obstacles will remain. Among them:

  1. The continuing weakness and failed austerity programs overseas stubbornly maintained by our major trading partners in the UK and Eurozone despite near-unanimous agreement by the economic authorities around the globe that this is exactly the wrong course of action at this time.
  2. Extremely high unemployment across the Eurozone (Greece, Spain-25% overall, 50%+ 18-35 yr olds) and 11.6% across all 17 countries (compared to 7.9% in the U.S.).
  3. China’s mounting excess inventories($500 billion in just steel as of September 1st)
  4. China’s worsening middle-class unrest amid pay demands and leadership changes upcoming.
  5. Declining world-wide demand due to lack of demand for goods and services amid sustained long-term unemployment in the UK/Eurozone and lack of pay increases in China, as well as slow rate-of-growth in the U.S.
  6. The upcoming “Fiscal Cliff” in the U.S. which will drastically reduce what little spending the U.S. has been providing.

Positive Economic Signals

Consumers are spending more and saving less after reducing household debt to the lowest level since 2003. The trend is away from savings and is showing signs that spending is becoming a release for pent up demand. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009.

“The die is cast for a much stronger recovery,” said Mark Zandi, chief economist in West Chester, Pennsylvania, for Moody’s Analytics Inc. He is forecasting growth this year and next at about 2 percent before doubling to around 4 percent in both 2014 and 2015 as consumption, construction and hiring all pick up their pace.

The big stipulation, according to Zandi, is how successful the president-elect will be in tackling the task of shrinking the federal-budget deficit. The Congressional Budget Office has warned that the U.S. will suffer a return to recession if more than $600 billion in scheduled government- spending reductions and tax increases (the appropriately entitled fiscal cliff) take effect next year.

As you might recall, the sequestration (fiscal cliff) is an across-the-board 10% reduction in federal budget cuts, including defense and so-called entitlement programs which was a typical “kick-the-can-down –the-road” agreement when last summer’s debt ceiling was made an issue by the House Republicans. At the time, it seemed unlikely that President Obama was going to be re-elected and as he has not trailed to this point beyond the margin of error, I’m certain that a whole lot of Republican nail-biting is going on right now.

Hiring in the U.S. increased more than officially forecast in October as employers looked past slowing global growth and political gridlock at home. In the last jobs report before tomorrow’s election, the Labor Department said a net 171,000 workers were added to payrolls, beating the 125,000 median forecast of economists surveyed by Bloomberg.com.

Lingering Deficit Concerns

According to the NABE, U.S. growth will pick up only gradually during the next few years, to a little more than 3 percent in 2015, held back by a lingering, mainly GOP, concern about deficits and debt.

Almost all reputable economists agree that policy makers must tackle serious economic factors such as elevated youth & long-term unemployment and a broken housing-finance system to enable the U.S. to grow at a more urgent pace. While the president-elect will face an economy in much better shape than four years ago, he and the Federal Reserve will have less leeway to support expansion by employing fiscal and monetary policies.

CBO has prepared (as it does under its routine procedures) baseline projections that incorporate the assumption that current laws generally remain in place; those projections are designed to serve as a benchmark that policymakers can use when considering possible changes to those laws. However, the outlook for the budget deficit, federal debt, and the economy are especially uncertain now because substantial changes to tax and spending policies are scheduled to take effect in January 2013. Therefore, CBO has also prepared projections under an alternative fiscal scenario, which embodies the assumption that many policies that have recently been in effect will be continued.

Optimistic Households

Households seem increasingly inclined to side with the optimists, preferring to see the economic glass as half-full rather than half-empty. Consumer confidence, in a positive sign for President Obama, climbed in October to a more than four-year high as Americans took comfort from an improving job market, according to figures from the New York- based Conference Board.

Romney disagrees. He told supporters in Ames, Iowa, on Oct. 26 that Obama has the nation headed in the wrong direction, with “trickle-down government policies that have failed us.

Obama has said Romney is the one proposing policies that have failed, such as lower tax rates for all Americans, including the wealthiest.

“We just tried that philosophy in the decade before I took office,” the president said in Cleveland, Ohio. “And we know what happened.”

Pent-up demand, more than presidential policies, will drive the expansion forward in the next few years. Households that put off purchases during the recession and its aftermath are starting to buy amid rising optimism about their prospects.

Retail sales jumped 1.1 percent in September as Americans snapped up goods from cars to iPhones, according to Commerce Department data. The gain followed a 1.2 percent increase in August, the best back-to-back showing since late 2010.

While U.S. sales of cars and light-duty trucks will suffer temporarily from the disruption caused by Hurricane Sandy, the industry “will have a strong fourth quarter and continue growing next year,” Kurt McNeil, vice president of U.S. sales for General Motors Co. (GM) in Detroit, said in a Nov. 1 conference call with analysts.

Easier credit terms are certainly contributing to the rise in consumer spending as quantitative easing does what little good it can do. Banks reported that they continued to ease standards on auto loans and credit cards last quarter, according to a Fed survey of senior lending officers.

Also in that survey, financial institutions are well capitalized and expect lending standards to slowly but surely return to lower levels that encourage business and individual spending(demand).

Increasing Demand

Demand for auto loans and residential mortgages also increased last quarter, the Fed survey found. Households are feeling more comfortable about credit after reducing their cumulative debt as a share of disposable income to 113 percent in the second quarter, the lowest in nine years, Fed figures show.

“Clearly, demand conditions have changed for the better,” Richard Dugas, chief executive officer of PulteGroup Inc., the largest U.S. homebuilder by revenue, told analysts on Oct. 25.

The last time residential construction contributed to growth over the course of an entire year was 2005, when it accounted for 0.4 percentage point of the 3.1 percent increase in GDP. From 2006 to 2009, the homebuilding slump subtracted an average of 0.8 percentage point from the economy. Through the first three quarters of 2012, it’s contributed 0.3 point.

Given all of the above, one w3ould think that there are enough positive factors to return President Obama to office. One would think. But those that follow politics knows that this is an unusual year.

Citizens’ United, under a severely politically activist Supreme Court, has once again thrust itself into the election business and has turned the country’s elections into money free-for-alls with the wealthy trying their best to buy this election. Having given us the Bush-era, one would also think that SCOTUS would show more restraint in usurping the power of the American electorate by inserting their own political agendas into the political arena.

As I have stated in numerous ways, in numerous articles preceding this one, it would be a shame that a wealthy and less-than-honest candidate, might win this election. It’s highlighted by the fact that the GOP campaigns, that have been backed by shady billionaires and their fortunes, might unseat President Obama, who has done all the heavy lifting that has made this recovery slow, but steady, while the rest of our trading partners fall deeper into ill-conceived economic no-man’s land.

In GOP-controlled states, Governors have pulled every dirty trick out of their hats imaginable to stop President Obama from being re-elected by suppressing targeted voters. The 112th Congress has spent more time out of Washington that any other in history hoping to add weight to President Obama’s demise.

If the money cartels in the U.S. succeed, we will have cemented the foundation of a new era where “news” is no longer trustworthy, money trumps truth, democracy is a failure, and integrity is for suckers.

Harvey Gold

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