Tuesday, October 19, 2010

Our economic outlook

Doug Kass is a hedge fund manager who writes informative articles and appears on financial shows frequently. He's a very respected person in our nation's investment circles. Doug has a knack for taking the complex and making it simple. In this article, Doug does a better job than I could ever do in expressing a credible opinion as to what will unfold in our economy as a result of Republicans coming back into power in Washington DC.

A few key excerpts:

"After spending like drunken sailors during the Bush administration, Republican legislators have acknowledged that it will block even the most sensible stimulus programs, and the Democratic administration and its legislators have lost the will to fight their adversaries. As a result, the responsibility for turning around the domestic economy now lies squarely on the shoulders of the Fed."

"The implementation of QE 2 by the Fed [Quantitative Easing - printing money and injecting liquidity into our economy] during the first week of November is now a virtual certainty. The general belief in its efficacy has vaulted stock markets around the world considerably higher."

"As I have written previously, I don't believe QE 2 will meaningfully move the needle of domestic economic growth and will only have a limited impact on:
  • the jobs market, which is plagued by structural unemployment;
  • housing, which that is haunted by a large shadow inventory of unsold homes and in which mortgage credit will likely be further reduced by the moratorium on foreclosures; and
  • confidence, which is still mired in uncertainty regarding regulatory and tax policy (and that is undermined by high unemployment)."
"We are not on a road to the stagflation of the 1970s, but we may very well be on the road to screwflation. Screwflation, like its first cousin stagflation, is an expression of a period of slow and uneven economic growth, but, its potential inflationary consequences have an outsized impact on a specific group. The emergence of screwflation hurts just the group that you want to protect -- namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices. Importantly, quantitative easing is designed to lower real interest rates and, at the same time, raise inflation. A lower interest rate policy hurts the savings classes -- both the middle class and the elderly. And inflation in the costs of food, energy and everything else consumed (without a concomitant increase in salaries) will screw the average American who doesn't benefit from QE 2."

Doug believes as I do, as I have written previously in this blog (here and here). With Republicans back in control, the only alternative left to fix our economy will be for the Fed to print money. It's a mistake to vote for Republicans right now. They'll shut down fiscal spending. Our Executive and Legislative branches of Government will be taken totally out of the effort to repair the economic damage done by the Republican Bush Administration. The Federal Reserve Board will be our only hope, our last hope. The Fed will be forced to print massive amounts of money in an effort to inflate our way out of this mess. Middle class America, the elderly, savers, and the unemployed will be the losers. But our nation's wealthy will grow even more wealthy.

Middle class America are preparing to flood to the polls and vote the very party [Republicans] back into power that laid this crappy economic situation on our doorsteps in the first place. Middle class America are preparing to flood to the polls to vote the very party back into power who will kick middle class America in the teeth and shove them off the cliff.

Welcome to America, the land of the free, the home of the brave, the nation of ignorant, naive voters.

North Carolina deserves better than Republican Senator Richard Burr.

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