Apr 22 2009
I know a lot of people think it is way to early to declare the Democrats efforts in DC a total failure, but it really isn’t. Things have been put in motion which cannot be reversed, even if the Democrats were willing to admit their screw ups and try and undo them. The economic forces at work, along with the glacial pace of the Federal Government, are pushing things into a direction that cannot be avoided. The momentum here is immense and unstoppable
The big Democrat mistake was, at its core, believing naive socialist theories that government can out perform the private market. They gambled the government could create jobs faster than the economy could if it was unleashed by tax cuts. It seems Democrats are going to have learn that lesson the hard way, and we are the ones who will feel all the pain (which we will gladly reflect back in the voting booths come next year).
The bleak future outlook for the world economy is a clear sign that the Democrats took a wrong, left turn this year when they decided to rely on the slow moving government spending over the fast action we have seen many times in response to tax cuts. That decision point is past, now we get to be slowly tortured over this summer as it plays out.
Here is the current outlook for the global economy – and it is not just bad, but historically bad:
The global economy is set to decline by 1.3% in 2009, in the first global recession since World War II, the International Monetary Fund (IMF) says.
In January, the IMF had predicted world output would increase by 0.5% in 2009.
It now projects that the UK will see its economy shrink by 4.1% in 2009, and by a further 0.4% in 2010.
But other major economies are predicted to shrink even more, with Germany declining by 5.6%, Japan by 6.2%, and Italy by 4.4% in 2009.
The prospects for the advanced economies are not much brighter in 2010, with an overall forecast of zero growth.
That alone is going to be a nasty headwind against economic growth. But in addition to this, Liberals were hoping there spending would fix economy, but the problem is their stimulus spending is still stuck in the Federal Bureaucracy, a situation I have been tracking with this graph (click to enlarge):
As I noted in the last post on the recovery, there is basically no money coming out of the government and into the economy (this would shoe up in the last set of columns under “Disbursements”). There is no stimulus happening, which means things are continuing to degrade. BTW, the chart covers the two big beneficiaries of the stimulus money – Dept of Energy and Dept of Transportation. The 5 departments and one agency in the graph, coming in at Â combined $105 billion,Â represent a third of all spending in the plan:
The economic stimulus package proposed by Democratic House leaders totals $825 billion and includes three broad pieces: aÂ $365.6 billion spending measure for such brick-and-mortar projects as highways and bridges; a $180 billion measure to boost jobless benefits and Medicaid, among other things; and a $275 billion tax-relief package, which includes a plan to give a $500 payroll tax holiday to all workers, a proposal from Mr. Obamaâ€™s presidential campaign.
This was the plan at the proposal stage.Â I found this great graphic below (click to enlarge) at the DoD Recovery Status site, which shows the enacted plan and where the money was supposed to go (or ‘is not going’ to be precise):
The DoD is getting less than 1% of the money meant to stimulate the economy. Too bad, the DoD has tons of projects in progress it could have expanded quickly. It also has the procurement staff to handle a lot of simultaneous procurements, as well as the staff to manage them. The bottle neck is the admin staff. They just don’t move fast (they have libraries full of laws and processes that have to followed) and cannot handle this large a bulge of new projects. The truth is seen in the second column of my graph, showing how slowly the money is being tagged to projects, let alone spent.
Here’s the problem. A third of this stimulus package money Â is stuck in the federal bureaucracy, and the tax refunds are just not doing anything ($13 a week?). The rest is aimed at the safety net money that only helps when you are so far gone financially you need to welfare. The government is stalled. It is just impossible to fathom the Democrats in Congress were ignorant of the snail’s pace of federal acquisition (especially outside the DoD, which due to its mission is nimble and well staffed). It was either historic incompetence or fraud on their part to claim the plan would impact the economy.Â
With no stimulus money and shrinking global economies the government revenues are going to continue to fall, the deficits continue to sky rocket. Look at the following graphs of (a) federal revenues and (b) federal spending and deficits.
One thing to note is how revenues were growing just fine under Bush, even with the blow we took on 9-11. Also note how Clinton left a declining economy to Bush, who took office in 2001, but was only able to get some initial tax cuts in place during the summer of 2001 (when Dems turned a GOP senator and took control of the Senate for the next two years). Even with the Clinton downturn he inherited and the blow on 9-11, President Bush’s low tax policies were slamming revenues through the door for years.
But now look at 2008, 2009 and the prediction for 2010. Lots more red ink than during the Bush years (recall, Dems took hold of the purse strings of Congress in 2006). Revenues are dropping like a rock, with a rosy assumption they will turn up again later this year. I would say, given the global outlook, that is probably way too optimistic.
And if that doesn’t happen, if revenues don’t turn around, the spending will continue out the roof and the red ink will flow like a tsunami. Worse, the stimulus money will still be stuck in DC and the job market will be horrible. The people will be getting really, really, pissed off.
Forces are in play which cannot stop a massive failure by the Democrats, because I just can’t see what will lift the economy in the coming months. There is nothing there to pull it off.