Tag: recession

MLLG

Annus Horribilis at the Midway Mark

George Noga

The gates are down and the lights are flashing but there is no train coming.

Annus Horribilis at the Midway Mark

By: George Noga – July 10, 2022

I published a special posting on January 1, 2022, (read it at www.mllg.us) warning that this year would bring unprecedented geopolitical, economic, political and financial horrors. Never before in 15 years and 600 posts did I make any such forecasts. Rarely in human affairs have predictions come true so quickly, accurately and completely.

Geopolitical Horrors

I predicted that if Putin intended to invade Ukraine, it would be in 2022; Putin invaded in February. I wrote Putin and Xi would form an entente; they issued a statement stating, “their friendship has no limits“. I said Iran would race toward a nuclear weapon and threaten its neighbors; they have enriched uranium to weapons grade and threaten Saudi Arabia. I predicted North Korea would act up; they have resumed test firing ICBMs, threatening Japan and even the USA, and testing nuclear weapons. I wrote if Xi intended to invade Taiwan, it would be this year. I now assess this as less likely due to the unexpectedly robust global opposition to Putin’s Ukraine invasion.

Economic Horrors

I forecasted inflation would exceed 10%. The Producer Price Index is up 11% and other indices are up 8.6%. The real rate of inflation is 15% if computed on the same basis as the last time the US had high inflation. I predicted the Fed would surge interest rates leading to a recession. The Fed is now increasing rates three-quarters of a point at a time just as I predicted. They are doing too little too late. The economy shrank by 1.5% in the first quarter. Throughout US history when this has occurred, there is a 94% chance of a recession. The United States likely is already mired in a recession.

Per Barack Obama “elections have consequences“. Indeed they do!

On the economic front, the worst is yet to come. I expect inflation to remain stubbornly high and intractable. The Fed will be forced to raise rates much more than they now contemplate. There will be a prolonged period of stagflation, i.e. inflation combined with stagnation. Ultimately, getting control over inflation will result in a severe recession. The recession, in turn, will lead to out-of-control spending and deficits in a futile attempt by Biden and the Democrats to salvage their tattered political prospects.

Political Horrors

In January I predicted a Biden horror show. The ineptitude of his Administration has exceeded my worst fears. They have hit rock bottom (and are still digging) on every issue: inflation, immigration, energy, supply chain, pandemic, crime and foreign affairs. Identity politics has resulted in widespread incompetence. The following were selected based solely on identity: Harris, Austin, Yellen, Buttigieg, Raimondo, Becerra, Granholm, Cardona, Mayorkas and a slew of lesser lights. Sadly, the gates are down; the lights are flashing; the whistle is blowing, but there is no train coming.

Financial and Investment Horrors

I wrote that in December 2021 I moved my investments into a highly defensive posture with over 70% in cash, cash equivalents and ultra-short duration bonds. I also doubled my holdings of gold, commodities and TIPs. Thus far, the NASDAQ is down over 30% and the S&P 500 over 20%. Commodities are up 30%, but gold is up only slightly due to the strength of the dollar and higher interest rates. The markets are not likely to hit bottom until 2023 or even 2024, but the worst is yet to come. In the immortal words of Barack Hussein Obama “elections have consequences“. Indeed they do!

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Next on July 10th: Soaking the rich and fat cat corporations.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

Balanced Budget Amendment No Holy Grail

George Noga

By: George Noga – Updated March 10, 2014

     A balanced budget amendment (“BBA”) is favored by 80% of all Americans in the belief it will, once and for all time, force fiscal discipline on the government. They are putting way too many eggs in the BBA basket. Watch out what you wish for. If there is a BBA, all those eggs will end up scrambled into a rather unpalatable omelet.

  There are myriad paths through, over, under and around a BBA. In short, it would not be worth the paper it was written on – assuming it can garner two-thirds majorities in Congress and ratification by 38 states. Following is a partial list of ways a BBA could be eviscerated.  

  1. A BBA appears simple but is complex. How do you define budget; what does balanced mean; what is a tax? It would be the only part of the Constitution that could be waived.
  2. What are allowable exceptions such as for military actions and natural disasters? There will be escape hatches big enough to drive a truck through. Whatever exceptions are carved out for some things, expect many more of such things. How would waivers work?
  3. How would a BBA deal with economic cycles? Revenues can both skyrocket and plunge from year to year. Are we to slash spending in a recession and be profligate in a boom? How do we define recession and boom? How is a BBA to be managed over the course of an entire economic cycle without opening to door to great mischief?
  4. Lawsuits will tie up a BBA for decades and federal judges will wind up with enormous power to change it. Consider how the federal bench has dealt with desegregation and busing; they still are entangling themselves over 60 years after the initial ruling.
  5. How do we distinguish capital expenditures from annual expenses? Surely, the argument will go, a BBA was not meant to include infrastructure spending that has a life of 50 years. If capital is treated differently, more expenditures will be classified as such.
  6. How do we address off-budget spending such as by Fannie, Freddie, USPS and the Federal Reserve? Who will prevent government from creating scores of new off-budget entities? Do we exempt interest on the debt; what happens when interest rates skyrocket?
  7. Watch out for so-called special taxing districts; these are favorites of local government with 50,000 nationwide. If they are not under the BBA ambit, they will mushroom.
  8. Are Social Security, Medicare, Medicaid and civilian/military pensions to be part of the regular budget? Are they no longer to be considered off budget entitlements?
  9. User fees will sharply increase and the government will be creative in imposing new ones. Be prepared to pay handsomely for everything you get from Washington – how about $100 to file a paper income tax return or $50 to get into a national park?
  10. Loan guarantees will become de rigueur as a way to fund programs off budget. After all, a loan guarantee is not an expenditure – is it?
  11. Instead of direct taxation, costly new regulations will flourish. Rather than spend tax money, Congress will bypass taxes and accomplish the same result through regulation.
  12. The tax code can be used for far more than raising taxes subject to a BBA. It can be larded with tax expenditures, incentives, penalties and all sorts of tomfoolery.
  13. Don’t forget mandates. Since the ObamaCare mandate survived judicial scrutiny, what is to stop government from substituting mandates for taxes or spending? The feds could   mandate that states, counties, cities (and even people) spend money not subject to BBA.
  14. A budget can be balanced with tax increases. This would strictly comply with a BBA but tax increases are certainly not what BBA proponents intended.

     Reluctantly, I have come to the view that a BBA is not the answer because: (1) we would expend lots of energy (perhaps for naught) enacting a BBA better spent elsewhere; (2) it will not work for all the reasons noted supra; (3) it would beguile us into falsely believing the problem is solved once and for all; (4) many of us would declare victory and move on while the other side would keep fighting; and (5) you can’t take the politics out of politics.

     The solution is to remain engaged permanently, albeit this is contradictory to human nature. Once a problem appears solved, we tend to go back about our private business. But big government and its acolytes never stop and neither must we. As seductive as it may seem, a balanced budget amendment is fool’s gold; it is not the Holy Grail.