The Global Economy at Cliff's Edge

President Obama is stoking a fire that can rage out of control in the blink of an eye if he continues with his class warfare agenda.

As November 2011 has drawn to a close, the global economy still has a long way to go before it's out of danger.  That's why it pays to be careful when you see stock market activity like we witnessed yesterday.  At 4:00, when the market closed, the Dow Jones Industrial Average was up 484.98 points, or 4.23%; the S&P 500 was up 51.59 points, or 4.33%; and the NASDAQ was up 104.83 points, or 4.17%.  People who don't understand the situation may be tempted to believe that our economic problems have been solved.  They haven't, and we are at the edge of an economic cliff.  Yesterday's stock market activity means just one thing.  Investors think that a major economic catastrophe has been averted in Europe, but only time will tell if that's the case.

In a nutshell, this is what's happening.  One European country after another is coming to grips with the fact that their socialist policies have led them to insolvency.  First it was Greece; then it was Italy.  France is in trouble, too, but so are Spain, Ireland, and a host of other European Union (EU) member-states.  Finally, Germany's political leaders have acknowledged that Germany has a critical role to play if the EU is to be saved, but it is by no means certain that the people of Germany who will be asked to pay the bills are willing to pony up for the excesses of their fellow Europeans.  Still, Germany's belated admission that it must step forward contributed greatly to the stock market euphoria that we experienced yesterday.

On Tuesday, President Obama said that the United States is willing to help Europe with its debt crisis but that we won't send them any money.  That's laughable since the U.S. has more than $15 trillion in debt; our debt-GDP ratio is 100%, far above the 80% level where rating agencies become concerned about the ability of a country to meet its financial obligations; we are forecasting trillion-dollar deficits as far as the eye can see; and we would have to borrow money if we wanted to help Europe solve its debt problems.  Ironically, China is the only country in the world today with the financial wherewithal to keep the global economy from falling off the cliff, and its desire to help out is motivated by the fact that its exports are declining as a result of the global economic sluggishness.

Yesterday's stock market jubilation was inspired by coordinated activity by the U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank to lower the cost of borrowing in order to stave off disaster.  There is an inflation consequence associated with monetary easing, but paraphrasing Scarlett O'Hara, "we'll worry about that tomorrow."  In effect, central bankers are making money cheaper in hopes of buying time for European countries to get their fiscal houses in order, but make no mistake: the European crisis is far from over, and given the reactions of Greeks and Italians to recently announced austerity measures, there is plenty of room for doubt about the willingness of ordinary Europeans to face the economic facts.

For that matter, the failure of the congressional super committee to deal with our looming fiscal crisis doesn't bode well for the United States.  It's anybody's guess as to what might happen when U.S. citizens finally realize that we are spending money we don't have on things we don't need and that we can't continue down the path we're on and survive as a nation.  When we impose austerity measures, and that's assuming that China doesn't do it for us, the Occupy Wall Street crowd and likeminded souls may take to the streets with weapons instead of pup tents.  I'm not kidding.  It could happen, and if it does, we'll see things that we haven't seen in this country in my lifetime.  It could make the Vietnam War protests look tame by comparison.

On Monday, Dr. Leon G. Cooperman, Chairman and CEO of Omega Advisors, sent President Obama an open letter in which he said, among other things:

It is with a great sense of disappointment that I write this. Like many others, I hoped that your election would bring a salutary change of direction to the country, despite what more than a few feared was an overly aggressive social agenda. And I cannot credibly blame you for the economic mess that you inherited, even if the policy response on your watch has been profligate and largely ineffectual ... But what I can justifiably hold you accountable for is your and your minions' role in setting the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as 'class warfare'. Whether this reflects your principled belief that the eternal divide between the haves and have-nots is at the root of all the evils that afflict our society or just a cynical, populist appeal to his base by a president struggling in the polls is of little importance. What does matter is that the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them. It is a gulf that is at once counterproductive and freighted with dangerous historical precedents. And it is an approach to governing that owes more to desperate demagoguery than your Administration should feel comfortable with.

I think Cooperman was too kind.  President Obama is responsible for the mess we're in because he squandered more than $2 trillion of our hard-earned and borrowed money to accomplish little more than payoffs for groups and individuals that supported candidate Obama in 2008.  That was more than enough money to get our economy moving, but Obama blew it.  Even more, he has done everything in his power to drive up energy costs and to prevent development of energy resources that we have in abundance.  The cost to U.S. citizens in dollars and national security is staggeringly high.

This is the bottom line.  We can't afford to be sanguine about the economy -- be it European, U.S., or global.  We need change at the top badly, and we need change in Congress, too.  The United States can't afford four more years of President Obama or members of Congress who won't do their job.

Neil Snyder is a chaired professor emeritus at the University of Virginia.  His blog, SnyderTalk.com, is posted daily.  His latest book is titled If You Voted for Obama in 2008 to Prove You're Not a Racist, You Need to Vote for Someone Else in 2012 to Prove You're Not an Idiot.

President Obama is stoking a fire that can rage out of control in the blink of an eye if he continues with his class warfare agenda.

As November 2011 has drawn to a close, the global economy still has a long way to go before it's out of danger.  That's why it pays to be careful when you see stock market activity like we witnessed yesterday.  At 4:00, when the market closed, the Dow Jones Industrial Average was up 484.98 points, or 4.23%; the S&P 500 was up 51.59 points, or 4.33%; and the NASDAQ was up 104.83 points, or 4.17%.  People who don't understand the situation may be tempted to believe that our economic problems have been solved.  They haven't, and we are at the edge of an economic cliff.  Yesterday's stock market activity means just one thing.  Investors think that a major economic catastrophe has been averted in Europe, but only time will tell if that's the case.

In a nutshell, this is what's happening.  One European country after another is coming to grips with the fact that their socialist policies have led them to insolvency.  First it was Greece; then it was Italy.  France is in trouble, too, but so are Spain, Ireland, and a host of other European Union (EU) member-states.  Finally, Germany's political leaders have acknowledged that Germany has a critical role to play if the EU is to be saved, but it is by no means certain that the people of Germany who will be asked to pay the bills are willing to pony up for the excesses of their fellow Europeans.  Still, Germany's belated admission that it must step forward contributed greatly to the stock market euphoria that we experienced yesterday.

On Tuesday, President Obama said that the United States is willing to help Europe with its debt crisis but that we won't send them any money.  That's laughable since the U.S. has more than $15 trillion in debt; our debt-GDP ratio is 100%, far above the 80% level where rating agencies become concerned about the ability of a country to meet its financial obligations; we are forecasting trillion-dollar deficits as far as the eye can see; and we would have to borrow money if we wanted to help Europe solve its debt problems.  Ironically, China is the only country in the world today with the financial wherewithal to keep the global economy from falling off the cliff, and its desire to help out is motivated by the fact that its exports are declining as a result of the global economic sluggishness.

Yesterday's stock market jubilation was inspired by coordinated activity by the U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank to lower the cost of borrowing in order to stave off disaster.  There is an inflation consequence associated with monetary easing, but paraphrasing Scarlett O'Hara, "we'll worry about that tomorrow."  In effect, central bankers are making money cheaper in hopes of buying time for European countries to get their fiscal houses in order, but make no mistake: the European crisis is far from over, and given the reactions of Greeks and Italians to recently announced austerity measures, there is plenty of room for doubt about the willingness of ordinary Europeans to face the economic facts.

For that matter, the failure of the congressional super committee to deal with our looming fiscal crisis doesn't bode well for the United States.  It's anybody's guess as to what might happen when U.S. citizens finally realize that we are spending money we don't have on things we don't need and that we can't continue down the path we're on and survive as a nation.  When we impose austerity measures, and that's assuming that China doesn't do it for us, the Occupy Wall Street crowd and likeminded souls may take to the streets with weapons instead of pup tents.  I'm not kidding.  It could happen, and if it does, we'll see things that we haven't seen in this country in my lifetime.  It could make the Vietnam War protests look tame by comparison.

On Monday, Dr. Leon G. Cooperman, Chairman and CEO of Omega Advisors, sent President Obama an open letter in which he said, among other things:

It is with a great sense of disappointment that I write this. Like many others, I hoped that your election would bring a salutary change of direction to the country, despite what more than a few feared was an overly aggressive social agenda. And I cannot credibly blame you for the economic mess that you inherited, even if the policy response on your watch has been profligate and largely ineffectual ... But what I can justifiably hold you accountable for is your and your minions' role in setting the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as 'class warfare'. Whether this reflects your principled belief that the eternal divide between the haves and have-nots is at the root of all the evils that afflict our society or just a cynical, populist appeal to his base by a president struggling in the polls is of little importance. What does matter is that the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them. It is a gulf that is at once counterproductive and freighted with dangerous historical precedents. And it is an approach to governing that owes more to desperate demagoguery than your Administration should feel comfortable with.

I think Cooperman was too kind.  President Obama is responsible for the mess we're in because he squandered more than $2 trillion of our hard-earned and borrowed money to accomplish little more than payoffs for groups and individuals that supported candidate Obama in 2008.  That was more than enough money to get our economy moving, but Obama blew it.  Even more, he has done everything in his power to drive up energy costs and to prevent development of energy resources that we have in abundance.  The cost to U.S. citizens in dollars and national security is staggeringly high.

This is the bottom line.  We can't afford to be sanguine about the economy -- be it European, U.S., or global.  We need change at the top badly, and we need change in Congress, too.  The United States can't afford four more years of President Obama or members of Congress who won't do their job.

Neil Snyder is a chaired professor emeritus at the University of Virginia.  His blog, SnyderTalk.com, is posted daily.  His latest book is titled If You Voted for Obama in 2008 to Prove You're Not a Racist, You Need to Vote for Someone Else in 2012 to Prove You're Not an Idiot.