For nearly thirty years I’ve studies various tax, trade and regulatory actions analyzing, in part, their effects on economic cycles reporting my findings and recommendation to a Client with the hope that the effort would lend to a positive outcome. Over the years I have compiled data and anecdotal references to what I observed as cyclical-patterns; it would take nearly twelve years before I would begin to discover their value as an affirming and prognosticative tool.
Whether working on a review of proposed tax legislation, repairing one that has been passed, proposed trade agreements, banking/lending/monetary policy or analyzing currency flows across the broad and varied arbitrage (currency trading) schemes the truth is that I moved from one analytical task to another never considering the broader effect of these routines on the U.S. Economic System; I wasn’t hired to render a prognosis, I was called to study a certain scenario and offer or design strategic solutions.
My transition from analyst to policy-pugilist began in mid-1993 with my baptism into the cloth-of-consequence when preparing an analysis of the World Trading Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) Treaties. The WTO/GATT treaty was passed (76 to 24) by a lame-duck Congress and signed into law by President Clinton in 1994. At that time, and again after the passage of the Trade Act of 2002 (which gave the President the authority to negotiate trade agreements and limited the Senate to a mere up/down vote), I wrote that these Treaties where “…the single greatest plundering of U.S. Economic Sovereignty since the Federal Reserve Act of 1913”. For the record only one Senator, Hank Brown (R-Co), actually took the time to read the entire 28,000 page GATT Treaty.
The analysis I prepared made specific pronouncements, twenty-two of them to be exact, identifying social, political and economic sovereignty-conflicts that would result should the U.S. align itself with the WTO/GATT Treaties (as it would turn out every Trade Treaty that followed would only serve to affirm my assessment). All but one of my predictions has proven accurate and the only reason I am not 21-for-21 is due only to the fact that the lone hold-out has yet to fully resolve:
“…it is inevitable that from the loss of economic capacity we will witness the Federal Government (and many of the States) resorting to a toxic mix of debt accumulation and tax revenue generation. This pattern will most certainly occur as a routine vehicle for funding an exponentially increasing gap in spending, due in part to increases in social spending (a predictable consequence of broad displacement of the U.S. Productive Workforce) and plunging tax revenues. Again, these represent the most predictable components associate with a comprehensive loss in domestic productivity however as previously referred there is a component risk associated with these pronouncements that requires further refinement and yet one need not posit recklessly as the effect is certain; with no domestic economic agenda in place it should be expected that the banking and financial services markets will become increasingly risk-adverse as they redirect their domestic resource away from productive domestic investment and broaden their scope and measures in search of returns. The systemic damage of this yet to be defined epistemological void and its quotient of excess cannot be overstated.” In 2002 I added the following: “…;with the passage of this affirming legislation by the Senate we may have removed any means for reversing the Senate’s malfeasance.”
Today we refer to this “epistemological void” as a Black Swan while the “quotient of excess” is cured by an even greater abuse; the Bailout.
I possess no extraordinary talent or clairvoyant gift; the simple truth is that the outcome was predictable. Economic Policy varietals are well established as are their cyclical patterns and for this reason there was no reason to believe that following the track of proven failure would not produce a similar result; Globalism (a.k.a., Fiscal-Tyranny, Socialism, Marxism etc.) has been around for quite some time occurring always where conscientious objections do not rally to void the interests which promote them. With this underlying theme in mind what remains is one very serious question: Will (can) the next Administration lead in crafting a strategy for Reversing the Trend? To be sure, there is a great deal at stake!
Tale of the Tape:
A fundamental component of the American Ideal is the distinction of sovereignty; you are distinct in the entire universe and in possession of each and every unalienable right associated with it. You are endowed with the privilege of potential and the liberty to freely execute choice pursuing the same to the unknown reaches of outcome; an unending opportunity society that has been set aside for one very basic reason: Americans have lost interest in the mechanics of opportunity preferring instead the entitled mindset of privileged-unearned-outcome and we’ve so thoroughly bastardized the fundamentals of earned-outcome I dare say one will have a difficult time identifying the name of the contemporary equivalent of Henry Ford, a Jack Northrop, Edison, G.W. Carver, O. Boykin and so on.
“…preferring instead the entitled mindset of privileged-unearned-outcome….”
Wealth is not a function of inflation it is a function of creative productivity applied to the crafting of the fungible/tradable/exportable byproduct of non-severable output; a process that is either growing or it is exhausting. Inflation is not growth; it is in fact a component of exhaustion and excess scarcity of productive output and precisely describes the pathology of U.S. Economic Decay. Consider, if you will, a few symptoms of adverse consequence:
- From 2002 thru 2011, just to keep pace with the growth in U.S. population, the economy required approximately 14 million new jobs however as of the end of last year (2011) there were only 1 million more jobs than in 2002 (Source: BLS).
- Of the 1 million new jobs 426,000 of them were in the private sector, the balance in the public sector (Source: BLS).
- Over the same 9 year period employment in food/hospitality industries increased by 1,188,000 while health and social services increased by 3.1 million (Source: BLS). None of these forms of employment are productive-capacity-generating occupations; they are, as you intuitively know, consumers of personal wealth.
- During the same time 9-year period the U.S. surrendered 3.5 million manufacturing jobs (Source: BLS). Now then, to give you a comparative example of the significance of this one fact let us compare it to the Obama Administration’s argument that the “…rich should pay a little bit more”; the Presidents sentient class-warfare solution. In simples terms, based on my own calculation, the tax revenues generated from the equivalent output of 3.5 million manufacturing jobs would be approximately 8 times (annually) that of what the President proposes and unlike the same, the tax revenues generated would not be limited to the Federal Government but to the States and Local Governments as well.
- The Last year the U.S. generated a Trade Surplus was 1975. From 1976 thru 2011 the U.S. as amassed a cumulative Trade Deficit of approximately $11.7 Trillion. Do not be mistaken; there is a direct correlation between the U.S. Governments increase in Debt (est. $16.3 Trillion) and the growth in Trade Deficits.
The so-called new economic-model of Globalism is nothing more than the leveraging of humanity for selective economic gain; attempting to relieve the individual of a noble virtue (and its burden of conscience) by labeling it as a mere function of business and one where the inanimate corporate form has, in some cases, greater standing than a human being or at the minimum, on par or as its equal. Where we treat the U.S. now as a dumping ground for wretched excess burdening the unsuspecting Sovereign American with the absurd notion of funding Corporate success and Federal and State larges as if it were a civic duty; auctioning off political advantage to the Corporate Statists as if access to the American Market is viewed as the feeding ground for a privileged swarm of locusts.
China: A False Premise:
It’s about time that someone strip away the caustic-logic that has been used to create the false premise of the ascendant economic goliath; China. To avoid an expansive dissertation on the subject I will instead use an abbreviated form to express a few points which I surely hope one will find of interest:
- The initial argument in support of the economic migration to the Pacific Rim was cheap labor; forced-labor pools of course are not defensible on any terms but how do you reconcile the economic displacement of the American Worker on purely monetary terms? Moreover, when adjusted for inflation, the aggregate economic costs of a disabled workforce and the value of lost opportunity (to the U.S. Economic System) when compared to the cheap labor argument are exponentially greater than any possible economic advantage offered by indentured-labor.
- A secondary argument in support of the economic migration to the Pacific Rim was the effect of automation; if this is the case then explain why Henry Ford (and the many who would pattern his lead), leading the refining processes of automated mass-production, confronted no such economic obstacle? Explain why the most profitable output of the Chinese Economy, electronics and automotive sub-assemblies, are all produced by highly-automated processes?
- China economic advancement is a direct result of the WTA/GATT Treaties. Many believe these Treaties to be Free-Trade inducements when in actuality nothing could be further from the truth; what they did was strike the barriers that confined and obligated corporate entities to favor domestic economic durability and licensed their comprehensive divesture of national allegiance. 70% of GM’s Cars Now Made in Communist China.
- China; our economic adversary? This of course is a complete fabrication; China is an import dependent Nation the value of which relies upon an even greater anomaly; it can only import its raw materials to the extent it is able to export finished products or expand its economic reach by acquiring ownership of resources (entities) in foreign countries. Now this is all well and good if you are a member of the Chinese Communist Party or a member of the Global Financial Elite; for all others these are obviously not an economic advantage or beneficial byproduct of Globalism; they can only be understood in terms of adverse and destabilizing consequence in part evidenced by China’s growing economic instability and the hundreds of billions of dollars being funneled out of China by Elite Party Officials and their crop of Neo-Industrialist.
- Ironically the American Public is being spoon-fed the myth that China is a Currency Manipulator; quite strange if you consider that China’s ability to depress its currency value fueled the cheap-labor argument and allowed U.S. Companies and the Banking/Financial Services horde to maximize their investment strategies. It’s the cheap Chinese Currency that allows you to afford your iPod/Pad, your laptop, your HDTV and so on despite the fact that when we purchase these products we’re actually contributing to accelerated economic decline. Does anyone really believe that the U.S. (Federal Reserve and Financial Markets) don’t play the same game? Come now!
Either as an economic or potential military adversary the fact remains that China is the product of a massive economic and political manipulation of our own doing. Whether it be President Obama or Governor Romney on-cue targeting China as the cause of our present circumstances one of the following options is true; they are either incompetent, incompetent opportunists or simply the incompetent and ignorant stooge of a system completely out of control.
The Romney Factor:
Make no mistake; Mitt Romney is a Corporate Statist and the only good thing to say about the possibility of a Romney Administration is that the malignancy of the Obama Regime will be brought to an end. Whatever the outcome the battle for economic sovereignty will not end and if Romney is elected our nemesis will simply duck behind a new face and while Mr. Romney’s bag of tricks remains sealed no one should expect a dramatic departure; he’s a globalist pure, proud and simple and though he may shuffle the deck a bit the cards will remain marked. He will speak in docile often seemingly provocative and dubious allegories but he remains the face and poster-child of migratory economic opportunism and the proof of it is can be seen in his business history one which he wears with ease six days a week and the occasional Sabbath. For him to make an about face will require his defying affiliates and that requires an extraordinary demonstration of enlightened courage and conviction. Should the election go his way he will most certainly be taking on a task the likes of which will be more difficult than most Americans can possibly imagine; that is if he plans on doing it right!
The great challenge for President Obama manifests itself in one simple word: Damage. If past efforts are any indication of what’s to come then one can only conclude that the outlook is not good and if the post-election Senate does not yield a clear majority, for either party, then any constructive move will be a certain impossibility and let’s face the facts; Mr. Obama has never lent his executive authority in favor of constructive resolutions and his aptitude for situational-specific issues is sorely lacking; he has always been far too detached to take a deliberate leadership role and this will be all the more obvious as the January 1st, 2013 cliff nears. The operational theater is damage-stricken and without a strategic and deliberate strategy around which all parties will converge I dare say the prospects are not promising; not at all.
Here is a partial outlook for a 2nd-term Obama Administration:
- January fiscal contest will produce a modified extension of Bush-era tax strategy. It will include an extension of Payroll Withholding reduction, Extension of Jobless Benefits, Removal of 2nd Home Mortgage Deductions, Increase in Alternative Minimum Tax, Increase in Capital Gains Rate and a Sur-Tax on plus $1 Million Incomes. The effects of these will prove to have ill-effects on the economy.
- Battle over increase in Federal Debt Ceiling which will be accompanied by Downgrading of U.S. bond-rating.
- Increase in reported unemployment rate, by 3rd Quarter 2013, to plus 10%.
- Confrontation with China over South China Sea issues. China will counter by open threat of mass sell-off of U.S. Treasuries.
- Consumer spending will drop significantly the results of which will send shockwaves through financial markets as Corporate earnings reports fail to meet expectations.
- Unless the Federal Reserve accelerates the restructuring of the residential mortgage problem the Foreclosures will again trend upwards and stall the synthetic resurgence in the housing markets.
Again, the patterns and cycles make it all predictable; I truly wish it wasn’t so.
The solutions are as clear as the symptoms would require; the U.S. Economy needs to be reformulated with options and opportunities many of which I’ve discussed in my books and many articles. The patterns of success and their predictive cycles are well known and reproducible but they will require an immense amount of public pressure to affect a walking-back of the processes that have lead the Nation to the Fiscal Cliff. Among the many options available I would suggest that any of the following would be a step in the right direction:
- We will need to establish a constitutional prohibition against lobbyists.
- We will need to restructure the U.S. Banking/Financial System and Monetary Policy.
- We will need to reformulate Tax Code removing the tax revenue generating burden from Middle-Income America and rely more on the Productive-Event as it originally occurred. As to funding Federal and State Governments we should develop/restore self-sustaining revenue generating features by leveraging functions and resources provided by or through Federal resources and services (Royalties, Tariffs and Recurring Fees) and then define specific budgetary restraints paired to actual revenue collections.
- We will need to suspend U.S. participation in all Trade Agreements.
- We will need to completely reformulate Entitlement Programs which, at the minimum, will require removing them from access and political indiscretions by the Federal and State Governments.
- We will, once and for all, have to address the Collective Bargaining and Union influences effect on Government.
- We will need to establish a national economic & energy development agenda and orientate the Federal and State Governments around policy development (not legislative mind you) to affect the same.
Predictable or not:
Predictable or otherwise the truth is that there are many analysts out there who would have come to the same conclusion given the same set of variables and references but again, to what purpose if not a one is willing to take and act on the advice?
The fact remains we are living in a time of great consequence which carries with it an even greater burden; one which is the price of abstinence, the price of doing nothing and though casting your vote is an important function it is meaningless without activism or what I’ve long referred to as the act of expressing your influence. I’m a believer in the principle of Greater Cause; the notion that every obstacle one confronts is there to prove it can be overcome.
Yours is to demonstrate a Greater Cause to that which lies in opposition and to encourage others to do the same. In the hands of noble purpose there is no opponent who will survive such a challenge; noble purpose is your finest exhibition; it is your purest form, it is why you are here.
Curtis C. Greco, Founder