Some PolitiFact commenters who are ardent conservatives like to label all Democrats as having an *entitlement mentality.* I do not believe that. I know more successful business owners who are Democrats and even more life long union members who are Conservatives. One would think it should be the other way around.
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| I love this toon! |
The sentence that jumped out in this letter was “By 2018, 67.3% of the population will be financially dependent on government.” As of 2007, according to Shilling, 58.2% of “Americans…are dependent on the government for major parts of their income.” Shilling offers no solutions to this criticism, however, only to use it to make the claim he can make me money “hand over fist” with his for-fee-only investment advice…well, as a conservative investor, I’m not touching that.
He’s predicting more stagnation, deflation and an economy similar to what was experienced under Jimmy Carter. While I’m not shedding a tear that this is what the Republicans are inheriting next year, I think they’ve already been working on spreading the word that Obama is another Jimmy Carter and will find a way to blame everything on the Democrats. You betcha!
Dear Investor,
It’s tempting to believe that we’ve worked past the problems wrought by a housing market gone bust. This is wishful thinking. Personal incomes are down, unemployment is up and people are not buying homes. That’s bad news. Worse news for the banks is that they’re having trouble foreclosing on properties.
As the foreclosure engine grinds to a halt many experts believe that housing prices are due for another dip. This would only further exacerbate the problems for many homeowners whose mortgages are already “underwater” and for the banks that ultimately own the homes.
If I am right and we see another 20% decline in housing prices, then we figure that the number of mortgages underwater will go from 23% to 40%. That is a huge amount and at some point the dam breaks. That’s bad news for the economy and bad news for homeowners and real estate brokers. It’s also bad news for banks and the stock market.
Even New York Fed Chief William C. Dudley is worried about the housing foreclosure fiasco, saying the problems mean "housing remains uncertain for the foreseeable future." Dudley's concerns touch exactly on what I have been saying for months, that the recovery is not real and that it won’t last.
The massive stimuli that have propelled GDP growth recently are temporary. Excess inventories will keep housing subdued. In fact, in a recent Insight newsletter I give subscribers details on something ominous I discovered while sifting through the economic data I use in preparing my monthly newsletter. I now believe that there are over one million housing units in inventory that have been hidden from the “official” housing inventory numbers reported by the government. This overhang will push the housing market lower in the months to come. [And that’s not all!]
Besides housing problems, vacant commercial real estate and excess industrial capacity portend weak plant and equipment spending. Exports depend on economic growth abroad much more than on the dollar. And U.S. consumer retrenchment will subdue the growth of the many foreign export-led economies, including China. Also, with renewed European woes, I'm still bullish on the buck.
So don’t count on a vigorous recovery. That would require the U.S. consumer to return to their profligate free-spending ways. I continue to believe, however, that they have reached a watershed and after a quarter-century borrowing-and-spending binge, are mounting a decade-long saving spree. Labor markets will remain depressed due to consumer retrenchment-inspired slow economic growth and zealous business cost-cutting.
I believe that economic growth will be muted at best for the next several years, and I don't rule out the possibility of a double dip recession. That will continue to disappoint stock optimists and probably be followed by a slow, jobless recovery. In this atmosphere, deflation will likely be chronic. So my advice is to take profits in stocks now while you still can.
As a reader of my Forbes columns, you're probably aware that my investment strategies in recent years have been extremely accurate. Subscribers to my Insight newsletter have profited handsomely by getting bearish on financials and real estate stocks way back in 2007 at the top of the market...and they've continued to rack up gains as we've taken advantage of the market's recovery in select areas.
Here is the situation that we now face: Government spending and borrowing are what kept the economy from going completely into a ditch in the past two years, but the longer term impact of all of this government aid and growth in the size of government will choke our economic growth for several years to come.
It's tempting to conclude that the fallout from the financial crisis and housing bust are behind us, but what we now face is a period of economic stagnation similar to what we went through in the late 1970s under Jimmy Carter.
Years of Stagnation: Six forces will slow U.S. and global economic growth in the next decade. First and foremost is retrenchment by American consumers. Also at work will be financial sector deleveraging, weak commodity prices, increased government regulation and economic involvement, protectionism and deflation.
The combination of these forces should result in 2% annual growth in real GDP. That's considerably less than the 3.3% needed to keep the unemployment rate steady. That would result in a leap from the present 9.6% rate to 23.2% in 2018.
Dangerous Levels of Government Dependence: But high and chronically rising unemployment is clearly unacceptable politically and will spawn massive federal job-creating projects—and many more Americans who are dependent on the government for major parts of their income. They already numbered 58.2% of the population in 2007.
From 1950 to 1980, those with their feet planted firmly in the government feeding trough swelled from 28.7% of the population to 61.2% as state and local aid programs brought on tens of millions of new food stamp recipients.
By 2018, 67.3% of the population will be financially dependent on government.
Think about that for a moment. If the livelihood of two-thirds of the U.S. population relies on government money, what does this imply about the size of our national debt...or for that matter the solvency of the U.S. government?
Private sector job growth will continue to be restrained by globalization and outsourcing abroad. In contrast, U.S. governmental bodies have no foreign competition and no incentives to promote productivity or efficiency. I’ve noted many times over the years that government productivity ranks with military intelligence, vegetarian vampires, beloved mothers-in-law, congressional ethics, postal service, jumbo shrimp, tax simplification, airline food, wild game management, the usual suspects, and working vacations in the realm of great oxymorons.
What’s amazing, and perhaps speaks well of Americans’ conservative fiscal instincts, is that the river of government goodies isn’t already a flood with more than 50% of the population on the receiving end. Why haven't voters already voted themselves more handouts? And what will it be like if the ratio climbs above 60%? Will the threat of runaway deficits and worries over an increasingly government-controlled economy provide adequate restraints? Hopefully.
My investment themes continue to center around continued weakness in housing and further economic weakness. The collapse in house prices will benefit rental apartments and manufactured houses.
I also believe that a weak economy will put more pressure on profits and stocks, and initiate chronic deflation, supporting lower Treasury yields. I expect the dollar to rally as economic weakness abroad exceeds that in the U.S. and as commodities resume their weakness.
Increased government regulation and economic involvement here and abroad are the normal results of severe economic and financial problems. By curtailing risk-taking and efficiency, they will impede economic growth.
With most nations still zealous to produce and export while the U.S. is no longer the big importer, protectionism is a serious threat, too, especially with sluggish global business activity. Just look at the trade war that has erupted between the U.S. and China over tires.
Notice Shilling never talks about cutting taxes; he probably knows they can’t be, because conservatively speaking we are already below the Laffer Curve sweet spot and any cuts will only increase the deficit more. Tax cuts paid for with deficit financing should be called what they really are: government handouts. So Shilling is correct—it appears that this coming election, those voting with the likely winners want more handouts in the form of tax cuts—in fact, the tea partiers who want lower taxes and less government should be put in with all those oxymorons of his, especially if any of them are part of that 60%. Stay tuned.
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