GOP Politics and Global Economy Still Threaten U.S. Recovery

The politics of GOP obstructionism and the continued contraction of most of the global economy make President Obama’s odds of growing the U.S. GDP and creating jobs that will lead to a sustained recovery all the more challenging. Fiscal Cliff or not, we have a real sticky wicket on our hands no matter what else comes along to challenge our resolve.

The threat of the euro’s collapse has subsided for the moment, but undoing the harm that has been forced upon the Euro zone and the UK by radically reducing the amount of government spending will involve years of pain. The pressure for budget cuts is fiercest in Greece, Portugal, Spain and Italy, which all saw mass strikes and clashes with police this week. But a bigger problem may be brewing in a heretofore unaffected country that could very well dwarf all that has come before, including Spain: and that would be France, Europe’s 2nd largest economy which is stumbling toward its own edge of an economic abyss.

Shaken Confidence

Every time I think our economy couldn’t be standing on shakier footing, something comes along even worse and threatens to tear apart my confidence as if two teams of Clydesdale horses each had a rope attached to it, pulling in opposite directions. If it’s not the blatant obstructionism coming from the Republicans, it’s the accelerating global economic slowdown that, up to now, the U.S. has weathered far better than anyone else. But now France is starting to suffer from the Euro zone economic plague. As big as Spain is, if France’s economy cannot shake the austerity doldrums that has drug the euro into the pits of hell, the euro does not stand a chance; Germany or no Germany. The two biggest KNOWN factors pulling the U.S. economy down:

  1. We’ve dodged numerous economic I. E. D.s planted by the Republican Party content on taking down 99% of Americans as long as it meant they took down President Obama in the process. Just because it didn’t work on November 6th doesn’t seem to have deterred them from continuing their assault on the economic plan that has been working for the U.S., albeit slowly, in favor of their own plan which has proven an abject failure in Europe, the UK and is even taking China towards recession.
  2. France, one of two mega-economies in the Euro zone, has always been at the heart of the euro, and was at the forefront of the formation of the European Union. President François Mitterrand argued for the single currency because he hoped to bolster French influence in an EU that would otherwise fall under the sway of a unified Germany. France has gained from the euro: and by borrowing at record low rates has avoided the troubles of the Mediterranean. Yet even before May, when François Hollande became the country’s first Socialist president since Mitterrand, France had relinquished leadership in the euro crisis to Germany. And now France’s economy looks increasingly vulnerable as well.

GOP Signals Continued Obstructionism

In President Obama’s first term, Republicans refused to negotiate with Obama on health care reform, immigration, the federal deficit, and other issues even when Obama agreed to incorporate Republican ideas into his proposals. In response to President Obama’s re-election, conservative media have declared that the president does not have a mandate to pursue his policies and said Republicans have a mandate to obstruct them.

Unless the President wants to continue to be held hostage, he has to be willing to say no, to let the economy go over the cliff if necessary. The GOP strategy is to distort the legislative process by any means available, and the coming debt ceiling seems to be their next missile they intend to launch at the President, despite the ramifications.

Many economists have stated that January 1st, 2013 is not a real cliff.  The process of economic pain would occur over months, not immediately, which would allow for time to bargain.  They also believe it would hurt the wealthy and corporate types as much as everyone else, which would put pressure on the Republicans to make a more equitable deal. But never doubt the resolve of the GOP to do whatever they can to hurt this President. They will block anything the President has tried to accomplish, even federal appointments, as evident in the most recent preemptive strike by Senators McCain and Graham against Ambassador Susan Rice.

Even seven Republican-appointed judges have sent a letter to GOP senators asking them to stop obstructing Obama judge appointees in an extremely rare instance of judges commenting on the confirmation process.

France and President Hollande Could Be Austerity’s Next Victims

France still has many strengths, but its weaknesses have been laid bare by the euro crisis being severely exacerbated by government spending cuts.  France has been ceding competitiveness to Germany for many years which accelerated as the Germans cut costs and pushed through reorganization. Without the option of currency devaluation due to Euro restrictions, France has resorted to public spending and debt.

The business environment in France has also worsened. French firms are burdened by overly rigid labor- and product-market regulation, high taxes and the euro zone’s heaviest social charges on payrolls. Expectedly, new companies are rare. France has fewer small and medium-sized ventures, which make up the bulk of job-growth engines, than Germany, Italy or Britain. These conditions almost tipped the economy into recession this quarter and France’s economy is widely expected to barely grow next year barring unforeseen circumstances. Over 10% of the workforce, and over 25% of the young, are jobless.

If Mr. Hollande can produce some bold initiatives he could still reform France. His party holds power in the legislature and in almost all the regions. He and his left-leaning party should be more suitable than the right to convince the unions to accept some changes. Mr. Hollande has acknowledged that France lacks competitiveness. The president wants to make the labor market more flexible and has even commented on the disproportionate size of the state, promising to deliver a “competitiveness shock” in order to pull France out of its quagmire.

A “Must Succeed” Situation for Two Massive Economies

Two Presidents, each of whom have opponents hoping that they fail. Two massive economies, each trying to buck the austerity strategies, which, although trendy, have been undeniable failures and proven to be the precisely wrong economic strategy for economies in retreat.

Unless Presidents Hollande and Obama show that they are genuinely committed to changing the paths their respective country has been on for the past 30 years, France and the U.S. will lose the faith of investors.

As several euro-zone countries have found, sentiment in the markets can shift quickly. The crisis could hit as early as next year, as could the U.S. economy unless the gridlock is broken by a loose coalition of Republicans and Democrats that has been absent since President Obama stepped into the White House.

Previous European currency upheavals have often started elsewhere only to finish by engulfing France, as it could this time as well. And this time, too, France rather than Italy or Spain could be where the euro’s fate is decided. Mr Hollande does not have long to defuse the time-bomb at the heart of Europe.

The clock is also ticking on the U.S. economy. Cliff or no cliff, long-term unemployment, a badly-aging infrastructure and increasing costs of natural disasters could reverse any progress President Obama has been able to wring from the U.S. business sectors.

The New Year is looming, and with it the challenge of saving a global economy depending upon the successes or failures of two progressive-minded Presidents on opposite sides of the Atlantic.

Harvey Gold

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  1 comment for “GOP Politics and Global Economy Still Threaten U.S. Recovery

  1. Jim Stark
    December 15, 2012 at 2:52 pm

    There will be no “recovery”. Our economy previous to this correction was an orchestrated bubble engaged in willingly by the credit hungry amrican public, do you know your credit score? A false economy. America’s capacity to be the primary consumer tool for that ruse has played out. China, India or both will be next in line. China has an estimated 50 years of consumer growth ahead of it with far larger potential than America ever had for profit.

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