David Leonhardt New York Times Bellwether For Disaster

July 11, 2010 Global Economy, Politics, Predictions No Comments

David Leonhardt and the New York Times are the bellwether for disaster in the world’s economic systems. There is always at least one seminal moment that lets you know that the status quo is about to change inexorably. David Leonhardt’s New York Times article on Saturday July 10, 2010 is truly the moment that is sounding the bellwether for economic disaster.

Today, I want to take you through Leonhardt’s article and point out the inconsistencies that spell disaster if the U.S. follows the guidelines that the Keynesian’s are promoting. Make no mistake about it, The New York Times is on a mission here to promote Obamunism at any cost. The New York Times makes a pronouncement and the word is spread all over the country by the mindless zealots that have over taken the “Fourth Estate”.

Before looking at Leonhardt’s article, it is essential to understand what a bellwether is and where the term came from. The bell has started ringing in earnest and it is warning you to seek shelter in gold and silver.

“A bellwether is any entity in a given arena that serves to create or influence trends or to presage future happenings.” Wikipedia

The term is derived from the Middle English bellewether and refers to the practice of placing a bell around the neck of a castrated ram (a wether) leading its flock of sheep. The movements of the flock could be noted by hearing the bell before the flock was in sight.

The perils of pulling back, amid echoes of the 1930s

By DAVID LEONHARDT

The New York Times

July 10, 2010 12:07AM

The world’s rich countries are conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policymakers are betting that the private sector can make up for the withdrawal of government stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

Last week, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth. Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.

The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries today are big enough that their growth can lift the economies of other countries.

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once. From 2009 to 2011, the U.S. tightening will equal 4.6 percent of GDP, according to the International Monetary Fund. In Britain, even before taking into account the recently announced budget cuts, it was set to equal 2.5 percent. Worldwide, it will equal a little more than 2 percent of total output.

Today, no wealthy country is an obvious candidate to be the world’s growth engine, and the simultaneous moves have the potential to unnerve consumers, businesses and investors, said Adam Posen, a U.S. expert on financial crises now working for the Bank of England. “The world may be making a mistake, and it may turn out to make things worse rather than better,” Posen said.

But he added — after mentioning China, India and the relative health of the financial system, today versus the 1930s — “the chances we’re going to come out of this OK are still larger than the chances that we aren’t.”

The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood. In the 1932 presidential campaign, Franklin D. Roosevelt vowed to outdo Herbert Hoover by balancing the budget, and much of Europe was also tightening at the time.

If anything, the initial stages of our own recent crisis were more severe than the Great Depression. Global trade, industrial production and stocks all dropped more in 2008-9 than in 1929-30, as a study by Barry Eichengreen and Kevin O’Rourke found.

In 2008, though, policymakers in most countries knew to act aggressively. The Federal Reserve and other central banks flooded the world with cheap money. The United States, China, Japan and, to a lesser extent, Europe, increased spending and cut taxes.

It worked. By early last year, within six months of the collapse of Lehman Brothers, economies were starting to recover.

The recovery has continued this year, and it has the potential to create a virtuous cycle. Higher profits and incomes can lead to more spending — and yet higher profits and incomes. Government stimulus, in that case, would no longer be necessary.

An internal memo from White House economists to other senior aides last week noted that policymakers “necessarily tend to focus on the impediments to recovery.” But, the memo argued, the economy’s strengths, such as exports and manufacturing, “more than make up for continued areas of weakness, like housing and commercial real estate.”

That optimistic take, however, is more debatable today than it would have been a month or two month ago.

As is often the case after a financial crisis, this recovery is turning out to be a choppy one. Companies kept increasing pay and hours last month, for example, but did little new hiring. Last week, the Conference Board reported that consumer confidence fell sharply this month.

And just as households and businesses are becoming skittish, governments are getting ready to let stimulus programs expire, the equivalent of cutting spending and raising taxes. The Senate has so far refused to pass a bill that would extend unemployment insurance or send aid to ailing state governments, though it appears poised to do so soon. Goldman Sachs economists last week described the Senate’s inaction as “an increasingly important risk to growth.”

The parallels to 1937 are not reassuring. From 1933 to 1937, the U.S. economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.

Given this history, why would policymakers want to repeat those actions today?

The reasons vary by country. Greece has no choice. It is out of money, and the markets will not lend to it at a reasonable rate. Several other countries are worried — not ludicrously — that financial markets may turn on them, too, if they delay deficit reduction. Spain falls into this category, and even Britain may.

Then there are the countries that still have the cash or borrowing ability to push for more growth, such as the United States, Germany and China, which happen to be three of the world’s biggest economies. Yet they are also reluctant.

China, until recently at least, has been worried about its housing market overheating. Germany has long been afraid of stimulus because of inflation’s role in the Nazis’ political rise. In responding to the recent financial crisis, Europe was much more timid than the United States, which is one reason the European economy is in worse shape today.

The reasons for the new American austerity are subtler but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its direction (better) with its condition (bad) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed the stimulus from the get-go — laissez-faire economists, congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.

Finally, the idea that the world’s rich countries need to cut spending and raise taxes has a lot of truth to it. The United States, Europe and Japan have all made promises they cannot afford. Eventually, something needs to change.

In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that.

Instead, we are left to hope that we have absorbed just enough of the 1930s lesson.

This is an homage to big government and Keynesian economics. The arrogance and that lack of understanding of basic economics is astounding. The first paragraph speaks of the “rich countries” following the “economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.”

It is quite clear Leonhardt has sidestepped a huge difference in the two economies. The 1930′s economy had a dollar that had not yet been diminished by the printing presses and and a strong base in capitalism. Under the Busch administration and under Obamunism capitalism has been castrated by the ever growing government that is swallowing up one industry after another. The private sector could make up for the withdrawal of government stimulus if enough of the private sector is still in existence after the reign of Obama.

“The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly.”

Where is Leonhardt getting these numbers? They don’t reflect the unemployment numbers or the confidence numbers. Wages and total hours worked rising? You would think that if you write for The New York Times you would at least have to include some facts in your article. This is what happens when ideology over takes reality. Welcome to the summer of recovery.

Grey Lady Down!

When The New York Times is parroting the Obamunist’s Keynesian, “quantitative easing” policies, you know that the lemmings are lining up to go over the cliff. The problem with this article is not the distortion of the facts as much as it is the signal that it sends around the country because the majority of news outlets don’t research anything when it is handed to them on a silver platter by The New York Times. The rest of the world is stupid and only President Obama (the least qualified man in any gathering) and his Harvard educated minions know what is right for the U.S. and the world’s economy. Give me a break!

“Today, no wealthy country is an obvious candidate to be the world’s growth engine, and the simultaneous moves have the potential to unnerve consumers, businesses and investors, said Adam Posen, a U.S. expert on financial crises now working for the Bank of England.”

If November plays out as it should, the Obamunists and their government growing policies should be drastically reduced which would provide confidence for what remains of the private sector in the U. S. to start investing and growing. The U.S. is still the world’s last best hope of becoming the growth engine that starts the world’s economies on the road to recovery. All it needs is for government to get out of the way.

“The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood.”

This is probably the most arrogant part of this piece on how to fix the world’s economies and it is based on the faulty assumption that Keynesian economics works. The European countries have it right: You can’t solve a debt problem by creating more debt. There comes a point where you have to pay the piper. The longer you postpone it, the higher the price you pay.

“An internal memo from White House economists to other senior aides last week noted that policymakers “necessarily tend to focus on the impediments to recovery.” But, the memo argued, the economy’s strengths, such as exports and manufacturing, “more than make up for continued areas of weakness, like housing and commercial real estate.”

Not to mention layoffs and a larger percentage of the population on some sort of assistance than ever before in U.S. history. Housing in the U.S. is not experiencing “weakness”, it is imploding in on itself! Commercial real estate is headed for the cliff right now and will be a major part of the “double dip”. Wait till the new Obama tax hikes take hold in January and then will see how many people are running out to invest in the “American Dream”.

“The reasons for the new American austerity are subtler but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its direction (better) with its condition (bad) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed the stimulus from the get-go — laissez-faire economists, congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.”

Where is this “new American austerity” that Leonhardt is talking about. Obama’s $1.3 trillion deficit sounds pretty austere to me. Yeah right!

“laissez-faire economists, congressional Republicans, German leaders”

I love this part. What would we ever do without the elites to lead us?

Live and let live economists: those that are not progressive enough to want to change the system so that Marxism can finally be implemented correctly.

Congressional Republicans: evil rich businessmen that want to exploit the “lumpen proletariat”.

German leaders: do I sense a veiled reference to the Nazis?

“In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that.”

On the surface he got two out of three in this one. Government caused the problem and government should be reduced in size until it cannot create any more. Government should be rolled back to its original roll of providing for the common defense and regulating commerce. Tax increase will only feed the growth of the beast.

Leonhardt’s piece is truly a bellwether for disaster in the U.S. economy. When you wake up and read The New York Times and they are promoting this pap, you realize that time is running out on the dollar and possibly the U.S. economy. Heed the warning and accumulate gold and silver bullion and stocks on this dip. “Quantitative easing” as espoused by David Leonhardt and The New York Times is signaling the beginning of the collapse of the dollar.

If the New York Times is backing it, you know it must be wrong.

This articles proves that David Leonhardt and the New York Times are the bellwether for disaster. Gold and silver are set to soar before the end of the year. Look for $1,350 per ounce on the low side before January, 2011. If any world events are thrown into the mix, $1.600 may be too conservative as well.

Till next time, good luck and good trading!