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Saturday, December 26, 2009
Predictions for 2010: Nothing’s Changed
New Years’ predictions for the coming annum are a common tradition in the blogosphere, and Eternity Road is known to indulge from time to time. December 26th may be a little early to start thinking about 2010, but I want to get in my picks before Jay Cutler gets in his on Monday night.
1. Nothing’s changed? The economic predictions
The leading lights of Obama’s economic team - Tim Geithner, Christina Romer, Larry Summers, and Ben Bernanke - are all self-claimed experts on the Great Depression, its causes, its mistakes, and its solutions. I could be wrong, but I believe Christina Romer may even teach classes on “Depression Studies” at some Ivy League college or other.
The lot of them must have taken their economics classes in Pig Latin at the local reform school. They have repeated every mistake from the Hoover/Roosevelt playbook - controlling wages, preventing bankruptcies, re-inflating asset bubbles, protecting bad debt - that turned the severe correction in 1929 to a full-on economic depression. I doubt the results will be much better this time, although the increased integration of the world economy as well as other background variables probably mean the coming crashes will play out somewhat differently.
Let’s rewind one more time and review why our economy is in such bad shape, for it does not take an Ivy League degree, or even an economics degree, or even a high school diploma to understand. Most of the math is within the grasp of a bright junior high student. To be fair, the problems predate the Obama administration, but contra the Democratic hacks they do not originate with the Bush administration, or any other administration within my short lifetime. Many of our problems start with the end of the gold standard in the early 1970s, and many of the problems that precipitated that move originate with the creation of the Federal Reserve in 1913.
Put simply, our problem is debt at all levels - consumer, municipal, and federal. That debt has been encouraged by a Fed that has been biased toward easy money policies for reasons of political expediency since its inception. Since the 1970s, increasing reliance on debt has pushed our economy too far towards consumption at the expense of production, which in turn has created numerous other imbalances in our trade deficit, our currency, and other key economic variables. More to the point, it has created massive distortions in the economic fabric over the course of that time period, from the dot-com boom/bust to the housing bubble to massive inflation in sectors like health care and education, all to which the government has responded with even more asset pumping and borrowing.
That game has now run its course. It is not so much that the economic rules of the last 20-30 years no longer apply, but that the rules we thought we had transcended with our securitization games (ultimately little more than massive fraud throughout the financial system) are now reasserting themselves.
Given the nature of the problem, it is safe to say that just about everything that Obama has done has made our economic problems worse (we could say the same of the interventions during the last days of the Bush administration). Therefore, my predictions (the percentage in parentheses after each reflects my level of certainty):
- Signs of a “recovery” will prove to be media spin layered on top of government propaganda. The 3rd quarter GDP revisions indicate that the entirety of positive GDP growth was government spending and other market distortions like Cash-for-Clunkers. Absent those, the private sector continued to decline. I see no evidence this will be significantly arrested any time soon. (90%)
- The Christmas numbers will be all right relative to last year’s catastrophic low, but will reflect little increased appetite for spending on the part of the consumer. This will prompt a wave of retailer bankruptcies and reorganizations in Q1 2010. The media will report these numbers as evidence of the success of the stimulus bill.(80%)
- The government will experience at least one “adverse financial event” in 2010 that will call into question its ability both finance its current obligations as well as whatever new spending Obama has in mind, like the rumored “jobs bill.” That event could be a problem in the bond markets or another wave of declines in tax revenue, for instance. (50%)
- There will be a significant stock market correction sometime in Q1. Predicting the stock market is even more of a fool’s errand lately than normal, but this one is due. Why not Q1? (60%)
- Some 135 banks or so were shut down by the FDIC in 2009, causing the FDIC to run in the red for the first time in its history. Here’s to 20 or 30 more by April 1st! (60%)
- Real estate market problems and mortgage issues are far from over, on both the residential and commercial side. On the night of December 24th, Obama removed all limits on federal backing for Fannie Mae and Freddie Mac. In addition to those black holes, last time I checked the delinquency rate on FHA loans was about 20%. Far from earning “return on the taxpayers’ investment” in these and other large banks, federal assistance to our diseased financial institutions will blow a hole at least $800 billion wide on top of what has already been committed.(80% - only because I might be lowballing!)
2. The summer of discontent? The political predictions
2009 was an interesting year for politics. The tea party movement and the accompanying health care townhall protests represented the first right-of-center organized movement in living memory. The insurgent Hoffman candidacy in New York represented an interesting, if incomplete, example of the movement’s potential impact on our politics. Most interestingly, the year was bookended by opposing party switches - Arlen Specter from Republican to Democrat, then Parker Griffiths from Democrat to Republican - that showed just how much the political environment changed in the space of 10 short months.
The Republican Party still has a long way to go, but the influx of activists and serious conservatives has the potential to re-energize the party in 2010 the way the influx of leftist activists re-energized the Democrats leading into 2006 and 2008. The Democrats want to continue attacking “the party of Bush” both because it’s been a winning strategy and out of force of habit, but the Republican Party after 2010 will little resemble the party of the Bush years.
Legislatively, the Democrats enter 2010 in a peculiar position of their own making - they are strapped with a hated health care package that they nonetheless have concluded is essential to their political success, while the rest of their agenda has mostly been left to dangle. With the impending end of the health care battle one way or the other, what will the Democrats focus their midterm year around? “Jobs” is an obvious choice, but simply passing gobs of spending suddenly looks more difficult than it has in the past. Rumor has it that Obama’s State of the Union address will focus mainly on deficit reduction, but there is not a single element of the Democratic agenda that comes anywhere close to that goal, their lies about the health care bills spending controls notwithstanding.
All of that adds up to a political situation that is far more in flux than many thought it would be when Obama entered office with 70% approval ratings. Oh what a difference a year makes. Here are my predictions:
- The health reform bill will not prove to be passable in its current state. We barely know what’s in the Senate bill as it is now, but we have not seen the last of the major revisions, payoffs, and backdoor deals. Negotiations will drag at least into mid-February. After that, I have no idea. (70%)
- Supposing the bill does pass, the issue will be revisited in the 2012 elections, but this time the terms of debate will be the law’s incipient destruction of the private health insurance system. The election will be held on a simple question: repeal the law, or go to single-payer? Contrary to many expectations, it will not be a walk by the single-payer side (see American Heritage Dictionary, entry: ‘Pyrrhic Victory’) (70%).
- Bernanke’s reconfirmation vote will not be as uncontroversial as past Fed Chairmen. I expect something like the Alito vote, with yeas in the mid-to-high 50s. (80%)
- Congress will not succeed in getting an audit of the Fed’s finances this year. As much as I want this one, I just can’t see the few insurgents, like Ron Paul and Alan Grayson, being taken seriously enough given their other generally nutty statements. (70%)
- I see at least one more Southern Democrat jumping ship in the first few months of the year. It won’t mean much because he will have voted against cap-and-trade and the health reform bill, but it will be a sign of things to come. (60%)
- Expect total Democratic retirements in the House to number at least 20 by election day. Republican retirements will stay below 7 or 8.(80%)
- Fiscal crises in the states in 2010 begin and end with California, but we will add significant (meaning lacking funds for continuing operation) crises in New York, Illinois, and Arizona. This will prompt significant unrest in our nation’s two largest cities. These events will be reported by the media as simultaneously evidence of the success of the stimulus bill and proof that more federal stimulus is needed.(90%)
- And the moment you’ve been waiting for - Election Day 2010 predictions! I think the days of relatively stable seat totals in Congressional elections are over for a few cycles, so my new electoral philosophy is go big or go home. House: R+50, Senate: R+8. (60% for those numbers, rising to 90% for House: R+35, Senate: R+4)
3. Final thoughts?
I’ll bookmark this post to be revisited next year around this time, but I encourage our commenters to append their own predictions here or on any of the other prediction posts the Eternity Road Co-Conspirators decide to put up. I’ll consider anything above 50% to be a win on the whole, but I am especially interested in how my Election Day and GDP predictions play out.
I hope all our readers had a very Merry Christmas and are looking forward to a very Happy New Year.
Comments
I won’t quarrel with any of the predictions. What I find interesting is that all these experts on the history of the great depression seem to be very deliberate in their failure to take any substantive policy actions that might actually result in improvements. This lends strong support to the notion that their objective is to make this crisis as ruinous as possible for a market based economy and, in fact, use these conditions to turn our ignorant electorate against our historical economic system.
It is my hope that 2010 elections can provide an opportunity to change direction. The current administration and Congress have things going in a direction of which they approve.
Posted by on 12/26/2009 at 09:23 PM1. Ride The Decline: Major cities will continue to follow Detroit into physical and political ruin.
2. Race Relations: Michelle Obama’s lifelong quest to “Get Whitey” will backfire as Whitey, slowly but surely, “Gets It.”
3. Health Scare: Pitchforks and torches carried by ever larger numbers will challenge the “Death Panels” to an all out “Death Match.”
4. Gold: Food, energy, and firearms have already surpassed “Ponzie Gold” in practical and intrinsic value.
5. The Dollar: Don’t worry, the fate of the dollar concerns only the uber rich and government functionaries, the common man has and will continue to thrive without carloads of currency.
6. Obama: The shooting star will crash to earth in a dazzling display of betrayal by his most ardent supporters.
7. All Politics Is Local: As resistance to federal policy hardens, citizens will realise the immediate danger to their well being resides in the persons of their local bloodsuckers and enforcers. The consequenses will be up-close, personal, and with pent-up malice.
Happy New Year!
Posted by on 12/27/2009 at 09:58 AMPoor Jay Cutler! He’s never mentioned to any other effect, is he? He’s become the rhetorical equivalent of “Wrong-Way” Corrigan.
But seriously, I’d go with you on most of those predictions, with minor differences about the likelihoods of a few. 2009 was a rough year; 2010 will make it look mild.
Posted by Francis W. Porretto on 12/27/2009 at 10:12 AM"I just can’t see the few insurgents, like Ron Paul and Alan Grayson, being taken seriously enough given their other generally nutty statements. “
Ron Paul, “nutty statements”?
Can you provide three examples?
Posted by on 12/28/2009 at 06:52 PM
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