A Double Dip Recession may be the least of our concerns...

There are a number of factors that signal that a “double-dip recession” maybe on the horizon. This is not paranoid dribble; this is a straight look at the markets and determining what they are trying to tell us. I am not, by a long shot, the first to claim that a double dip recession is on the horizon. This has been said by some of the sharpest economic minds in the country, including those that predicted the housing crisis (Peter Schiff, Ron Paul). But more than double-dip recession fears, I believe there is a bigger problem on the horizon, Stagflation. There are three reasons why I believe this country is in danger of going through a Stagflation period.

1               1)   Growth of the current economy

2               2)   The power of centralized banks

3               3)   Our Debt.

There is little growth as an economy in its entirety. The last report that came out of the Commerce Department shows that the national economy only grew at a 1.9% annual rate. This does not keep consistent with the rate of inflation, which will obviously draw the ire of political talking heads on the right. The ire is deserved, as a slow growth rate after billions in stimulus programs, tax cuts and 2 rounds of quantitative easing tells us that employment may suffer further. There is also a low national savings rate (leading to a large percentage of private debt). When private debt gets to be this high, consumers are less likely to spend and when this happens the economy slows further. There is virtually no incentive for Americans to save as the bond market is abysmal and interest rates are at all time lows. When a government works in a Keynesian fashion to try and stimulate an economy and is met with lagging growth numbers, Stagflation becomes an immediate concern. The 2 rounds of quantitative easing brought on by the Fed only produced gains in the equities market, this is not the answer going forward and actually brings me to my second point. We need to reign in the Central Banking system.

This is what I find most surprising about the current progressive argument. They claim to blame big banks for the failure in the housing market, yet they don’t want to audit the very entity that allows them to control loans and apparently the American people. What rubs people the wrong way about TARP, should rub them the wrong way in regards to the Federal Reserve. The biggest political blunder, to me, in regards to TARP was the fact that the oversight committee that was tasked with keeping accountability of TARP has no idea where all of the money went. This is obviously frustrating as the American taxpayers see it as the Government losing track of 900 Billion dollars of their hard earned money. Who could blame them?  The Federal Reserve has initiated two rounds of quantitative easing while keeping interest rates low, virtually giving away free capital. This is the reason I believe that we’ve seen growth in the equities market but not anywhere else. If progressives are so angry at big banks, they should be willing to audit the Federal Reserve. If they are angered by the lack of transparency coming from big banks, they should be more concerned with the hand that feeds. It is absolutely baffling to me that the Democrats would stand against auditing the fed on partisan grounds. When we give an institution to control our currency and then not have any oversight of that institution, we are asking for corruption. The Congress has a blank check at the Federal Reserve to appropriate funds, and they have had little to no hesitation to do so.

The third reason why Stagflation could be on the horizon is our rising debt. Rising debt is not only a sign of poor financial policy, it is also a metric as to how big the government has gotten. A government that spends more money has more reach. A government that spends in agricultural subsidies ends up controlling the agricultural industry.  “We want you to do this, this and this or else we will cut your subsidy”.  This is controlling an industry. We keep hearing terms like “stimulus” and “enabling the private sector”. The problem with these strategies are that neither one details how our elected officials plan on reducing the size of the national debt. Taxing the 1% is not going to do enough to tackle our current Trillion dollar plus deficits and cutting taxes without cutting spending will only make the debt issue a bigger deal. Both sides have played ring-around-the-rosie and have grown our national debt at an unsustainable trajectory. The debt has already had its toll on the global economy. Treasuries and bonds are getting killed in this market. China is reevaluating its financial outlook and India is also following suit. The problems in the EU have been well documented (and even have been used to foreshadow what maybe to come for the US). History has shown us that cutting spending usually leads to a political candidate suffering in the demographic that was hurt most by the cut in the following election. Our Congress has very little to gain politically by actually making real cuts in the budget. Whenever a cut is brought up, the government reacts with fear mongering. They tell you what disasters will occur if “program x” is scrapped, but take little time to explain what disasters are pending if we don’t cut “program x”.  The growth of the economy isn’t keeping up with the rate of inflation, interest rates are bottomed out, and we keep spending money, A formula for Japanese style stagflation.

It’s a tax, it’s not a tax…..whatever.

It all amounts to the same thing. It is a mandate to trade with private organizations that currently make up an Oligopoly. This particular Oligopoly was created BECAUSE of government regulations in the first place. So first, they deny us the right to buy health insurance across state lines; and now they are forcing trade with those same health insurance companies…. I smell a rat. But beyond healthcare, we need to take a close look at what just happened at the Supreme Court. Here are a couple of thoughts I had regarding their precedent.

The first thought I had is that we no longer have the right to choose who we do business with. If the government deems the industry important in the scope of the American economy, Congress will use their new found power. When Congress is granted power, they use it. I am forced to think back to the auto bailouts, TARP and other extensive overreaches by the government designed to “stimulate” a failing industry in the name of “a sound American economy”.  What should happen if these industries start failing again? What happens if demand for American cars dries up? Under the new Supreme Court precedence it is theoretically possible that Congress can demand that the American people buy American cars or else pay a “tax/fine/whatever”. I can hear the spin now, “We need to support these American companies to help the American economy. If you are buying foreign automobiles, you are killing the American auto industry and should be fined/taxed/whatever….” This is simply not American and is certainly not free market capitalism. The only question is, “Do the people in power realize it?” My guess is yes.

The second thought is in regards to the reactions from my fellow “Liberty Minded” individuals. Many of them brought up the possibility of nullification. While I would support such an attempt, it is almost certain to fail. Every time nullification has been on the table it has been stricken down with the
Supremacy Clause of the Constitution. We would have to convince the Supreme Court that the 10^th amendment trumps the Supremacy Clause in regards to participation in a federally mandated program. This isn’t likely. The only way any the legislative branch of government can “overturn” or “nullify” a Supreme Court decision is through a Constitutional Amendment and given the current nature of politics, I don’t see that happening either. The Supreme Court has been known to give contradictory opinions on cases, but that can only happen if the case reaches the Supreme Court. The politicization of the Supreme Court is just another step on the road to Totalitarianism.

My third and final thought on the Supreme Court precedent is this. In NO, way, shape or form is this decision “good” for the Republican party. $4 mil to the Romney campaign doesn’t change this drastic change to our market. Even IF Romney repeals ObamaCare the precedent has already been set. Similar legislation will be up again, and we will not be able to rely on the Judiciary Branch of government to protect us from Constitutional violations from the Congress. One of the scariest points that Chief Justice Roberts made in his opinion is that he believes it’s not the job of the Supreme Court to protect the American people from Congress. He needs to understand that in the system of Checks and Balances it IS his duty to keep congress in line with the Constitution regardless of how many votes the representatives that created the bill received from the America electorate. If congress wants to change fundamental principles in the Constitution, they must do so with a Constitutional Amendment. The idea of Constitutional Amendments being so difficult to pass is to ensure that the American people are not divided on an amendment to the root law of this country. It is not right for Congress to use the powers of the judicial branch to change the principles in the constitution because it’s expedient to do so. Many pundits have missed this point.

“A republic, as long as you can keep it.” - Franklin

In Liberty,

Jake Severance