Reading the Tea Leaves

Neil Snyder

Wednesday's business news revealed some unnerving developments:

Crude oil prices are tumbling.

Corporate executives are uneasy about Eurozone problems.

Eastern European countries are shying away from helping Western European countries.

The euro is under pressure.

The Eurozone crisis will impact the U.S. economy negatively.

Breaking up the European Union is being discussed as a reasonable solution to the problems Europe faces.

·Treasury bonds are fetching a record-low yield.

·Corporate CEOs foresee no pickup in hiring.

 China plans to ramp up tariffs on U.S. automakers.

These aren't totally new developments, but people are beginning to take them more seriously.  It's easy to understand why economists are predicting another global recession, but this isn't 2008 so buckle your seat belts because this could be a wild ride.  For instance,

The Fed has very little wiggle room with interest rates already at historic lows.  I suppose the Fed could resort to negative interest rates, but that's not likely -- I hope.  Paying people to borrow money would be a catastrophe, but who knows what the bright lights in Washington might propose.

Based on the best estimates available, U.S. deficits will be at $1 trillion and above level into the foreseeable future.  That means a dramatic increase in deficit spending is much less likely than it was in 2008.  I won't say that increasing deficit spending significantly at this juncture is totally out of the question because our political leaders in Washington have proven time and time again that we can't underestimate them.

Europe is collapsing and political leaders in Europe are just as inept as political leaders in the U.S. -- maybe even more incompetent if that's possible.  Their house is on fire, and they are arguing about who should carry the fire hose.

China is forecasting slower growth.  That's a problem because China is the engine that's pulling the global economic train right now.  This is the bottom line: no China, no engine.  If Chinese leaders wanted to stimulate the global economy, they would put some of their surpluses to work by ramping up domestic consumption.

Corporate CEOs are becoming increasingly concerned about inflation.  Even though gold prices are falling at the moment and investors are moving into dollars -- the opposite of what you would expect if inflation were a looming threat -- that could change in the blink of an eye.  Oil prices are falling and oil producers are increasing production.  Those facts suggest that they see a slowing economy.  Under normal conditions, a sluggish economy produces lower inflation, but conditions aren't normal.  We may be heading for another round of stagflation -- inflation during recession.  If we are, the parallels between Obama and Carter will become obvious to all but the diehard Obamanistas by Election Day 2012.

Economic forecasting is fraught with difficulty.  Even so, I'll go out on a limb and predict that President Obama's political fortune is about to change for the worse -- much worse.  Very soon, he may have no alternative except to blame President Bush for his economic mess.  Obama has never accepted responsibility for his actions, but if he moves aggressively in the direction of blaming Bush, he's finished because voters are in no mood to hear President Obama blame his predecessor after he spent three years and more than $2 trillion of our hard-earned and borrowed money to pay off individuals and groups that supported candidate Obama in 2008. 

President Obama can count on support from roughly 20% of the electorate no matter what, but 80% of us are thinking people, some more so than others.  Maybe that's why we're beginning to hear rumblings from Democrats about Hillary Clinton running for president.  If prominent Democrats are wondering aloud about the wisdom of nominating Obama for a second term, you can expect the president to do some desperate things -- things like trying to manufacture a government shutdown.  The president may believe that a shutdown will win him popular support, but the 80% of us who know how to think will see it for what it is, a desperate man behaving desperately.

 

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.

 

Wednesday's business news revealed some unnerving developments:

Crude oil prices are tumbling.

Corporate executives are uneasy about Eurozone problems.

Eastern European countries are shying away from helping Western European countries.

The euro is under pressure.

The Eurozone crisis will impact the U.S. economy negatively.

Breaking up the European Union is being discussed as a reasonable solution to the problems Europe faces.

·Treasury bonds are fetching a record-low yield.

·Corporate CEOs foresee no pickup in hiring.

 China plans to ramp up tariffs on U.S. automakers.

These aren't totally new developments, but people are beginning to take them more seriously.  It's easy to understand why economists are predicting another global recession, but this isn't 2008 so buckle your seat belts because this could be a wild ride.  For instance,

The Fed has very little wiggle room with interest rates already at historic lows.  I suppose the Fed could resort to negative interest rates, but that's not likely -- I hope.  Paying people to borrow money would be a catastrophe, but who knows what the bright lights in Washington might propose.

Based on the best estimates available, U.S. deficits will be at $1 trillion and above level into the foreseeable future.  That means a dramatic increase in deficit spending is much less likely than it was in 2008.  I won't say that increasing deficit spending significantly at this juncture is totally out of the question because our political leaders in Washington have proven time and time again that we can't underestimate them.

Europe is collapsing and political leaders in Europe are just as inept as political leaders in the U.S. -- maybe even more incompetent if that's possible.  Their house is on fire, and they are arguing about who should carry the fire hose.

China is forecasting slower growth.  That's a problem because China is the engine that's pulling the global economic train right now.  This is the bottom line: no China, no engine.  If Chinese leaders wanted to stimulate the global economy, they would put some of their surpluses to work by ramping up domestic consumption.

Corporate CEOs are becoming increasingly concerned about inflation.  Even though gold prices are falling at the moment and investors are moving into dollars -- the opposite of what you would expect if inflation were a looming threat -- that could change in the blink of an eye.  Oil prices are falling and oil producers are increasing production.  Those facts suggest that they see a slowing economy.  Under normal conditions, a sluggish economy produces lower inflation, but conditions aren't normal.  We may be heading for another round of stagflation -- inflation during recession.  If we are, the parallels between Obama and Carter will become obvious to all but the diehard Obamanistas by Election Day 2012.

Economic forecasting is fraught with difficulty.  Even so, I'll go out on a limb and predict that President Obama's political fortune is about to change for the worse -- much worse.  Very soon, he may have no alternative except to blame President Bush for his economic mess.  Obama has never accepted responsibility for his actions, but if he moves aggressively in the direction of blaming Bush, he's finished because voters are in no mood to hear President Obama blame his predecessor after he spent three years and more than $2 trillion of our hard-earned and borrowed money to pay off individuals and groups that supported candidate Obama in 2008. 

President Obama can count on support from roughly 20% of the electorate no matter what, but 80% of us are thinking people, some more so than others.  Maybe that's why we're beginning to hear rumblings from Democrats about Hillary Clinton running for president.  If prominent Democrats are wondering aloud about the wisdom of nominating Obama for a second term, you can expect the president to do some desperate things -- things like trying to manufacture a government shutdown.  The president may believe that a shutdown will win him popular support, but the 80% of us who know how to think will see it for what it is, a desperate man behaving desperately.

 

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.