I’ve Long Said, “We Haven’t Seen Anything Yet...The Worst is Yet to Come”...and Peggy Noonan Explains WHY That’s Right...

When the Keynesian meddling in the U.S. mortgage market finally imploded the Housing Bubble and brought on a staggering Global Credit Crisis and an ongoing recession, I said and have since, that “We haven’t seen anything yet...the WORST is yet to come.”

I am more convinced of that than ever.

Since the previous milqtoast Keynesian left office, our current hyper-Keynesian-in-Chief has ratcheted UP the Deficit to a mind boggling $1.6 TRILLION...4X what it was at his predecessor’s highest, the National Debt has surpassed $12 TRILLION (approaching 80% of GDP) virtually assured of rising to over $15 TRILLION (or more) before the end of Mr. Obama’s first term.

Unemployment has risen to near 10% and despite the fact that economists are now claiming the Credit Crisis is largely behind us and the recession appears over, we aren’t merely in the midst of a “jobless recovery,” we’re actually in what might best be described as a “job-shedding recovery,” which would seem an oxymoron.

Here’s why I believe the worst is yet to come.

This recession is structurally DIFFERENT.

The government meddling in the credit markets have deeply, perhaps fatally eroded international confidence in U.S. investment vehicles.

Worse still, a new administration has approached a problem caused by Keynesian (big-government) economic policies and treated it as though it were a failure of a “too free market.”

The result has been that they’ve applied MORE Keynesianism, even hyper-Keynesianism to a Keynesian disaster!

What is ongoing right now is the settling of the crash...the building, or structure is down, but the dust hasn’t settled yet. None of us actually see how bad it really is.

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How bad is it?

Well, Wall Street is NOT, contrary to our over-optimistic reports “coming back.” It’ll probably never come back to what it once was. With it is gone tons of revenues that the local, state and federal government all depended upon.

To make matters worse, high tax, Blue states like California, New York and New Jersey are hemorrhaging people AND tax dollars. They will lose Congressional seats with the 2010 Census and Red States like Texas, Florida and Arizona are about to gain seats.

But that’s the least of our (“the people’s” problem, that’s a mere political shift), what’s staring those in places like California, New York and New Jersey in the face is a fiscal tsunami that no one appears to see coming.

New York state lost 1.6 million people between 2002 and 2008, New Jersey lost 800,000 between 2002 and 2006. These weren’t “the freeloading poor,” who left, these were retirees who could no longer afford the tax burdens on a fixed income, and the entrepreneurial class...these people took tens of BILLIONS (USD) in tax dollars away with them.

Those states all have mandates for things like Medicaid spending, Education spending and Municipal Pensions locked in by their state Constitutions. They can’t cut those things, so they’ll be forced to raise taxes even more...chasing even MORE of the most productive remaining people away from those states.

Massive public sector layoffs will ultimately and inevitably ensue and by the time that shock wave hits, the dire 1970s will look like the “Roaring 20’s” by comparison.

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With all this economic dislocation, those places will suffer a return to some of the worst levels of violent crime those locales have ever seen. This time, much if it may be fueled by “the rage of a once privileged class” – government, or public sector employees...or more aptly by then, former employees.

As Ms. Noonan remarked in her prescient column, “No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.”

She’s right. No one trusts “the experts” any more, in fact, fewer trust in government or Corporations either.

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Too many of us are convinced, after seeing the parade of dolts touted as “experts” sounding like utter nitwits, that “there are no real experts.” In short that “They’re all full of sh*t.”

Peggy Nonnan goes on, “The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.”

And once again, absolutely RIGHT!

Actions and inaction have consequences.

The previous administration’s inaction in the realm of enforcement (taking, or at least leaving the teeth out of the SEC and the CFTC) allowed Derivatives markets to run amok, and for schemes like the “Credit Default Swap” to come into incredible overuse, while it’s actions (ponderous overspending and regulation – Oxley-Sarbannes was one of the most expensive and far-reaching pieces of financial regulation in decades) put a four-anchor drag on an already slowing economy.

And today, the Liberal Democrats have pressed down on the Keynesian throttle, which is heading us toward a seizing of this incredible engine of prosperity.

How?

How about this from Peggy Noonan, “Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

Yes, “THEY” will stop.

The producers CAN and WILL ultimately stop, once the rewards are set too low and the costs and risks too high.

And what THAT would do would be to make what’s about to happen to hapless locales like California, New Jersey and New York a nationwide phenomenon.

Imagine a government without the revenues to take care of its most basic mandates, let alone fulfill the incredible and unrealistic promises it’s made over most of the last century? Imagine the massive jettisoning and cuts in once untouchable programs, like Medicare, Medicaid, Social Security and the myriad anti-poverty programs, just as the private sector gasps, in gacking up even more jobs, while government at EVERY level shedding personnel in a panicked attempt to balance the books to repay the mere interest on a debt it can no longer even finance! Imagine sky-high interest rates (25% and more), massive unemployment (over 20%) and inflation we haven’t seen in decades (15% or higher)...with literally no place to turn!

Ms. Noonan knows this all too well as she concludes her piece, “We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists — they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.”

So, THIS is that “long winter of discontent” that we now face, this is the nightmare that awaits.

There’s no question about it’s coming, the problem and our disaster right now appears to be that NONE of us have either faith or the moral courage to believe in and realize that freeing the individual (economic freedom) and unleashing the innate ingenuity of free men is not only the best, but the ONLY path back toward prosperity.

Such freedom is out of vogue today, because it’s been proven so “UNFAIR.”

See Peggy Noonan’s entire Op-Ed in today’s Weekend Wall Street Journal (10-31-2009) at http://online.wsj.com/article/SB10001424052748703363704574503631430926354.html?mod=djmr_octuse6npurl2

The Coming Economic Strom and What Conservatives Can Do

Most Republicans and far too many Conservatives are getting ahead of themselves, thinking about “Who should be the GOP standard bearer in 2012?”

For me, that's not even an issue at this point, and one thing that Conservatives SHOULD NOT do, is to act like far-Left, fringe Democrats did with G W Bush. It’s wrong to look for ANYthing and at EVERYthing to bash the Obama administration over and what’s more that’s usually a very counter-productive strategy.

While it’s wrong, in my view to bash Obama for “coming around on lower taxes being good for the economy,” I’d prefer to consider that enlightenment, rather than hypocrisy, as I don’t like looking a gift-horse in the mouth.

Now, it’s NOT at all wrong to note and deride the proposed “$500 for every working individual and $1,000 for every working couple tax cut,” as a “INCREASED WELFARE SPENDING,” as the EITC is, in effect, a “welfare program” as it sends to checks to people who don’t pay income taxes to begin with!

As I've said, I don't see Obama as "the AntiChrist" or the incoming administration as "evil" by any means.

We HAVEN'T had a free market here in America since about 1912...almost 100 years now.That's something that most Americans both on the Right and Left either refuse to acknowledge OR are just plain unaware of.

In FACT, we have the SAME economic model as all of Western Europe and Japan has - a "Corporatist" (for lack of a better word) economy, one that is market-based but heavily government regulated.

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Within that Corporatist framework there is a sliding scale, with Supply-Side market-emphasis on the one side and Keynesianism government-emphasis on the other. Some people erroneously call Keynesian Corporatism (like France, Germany and Sweden) "socialism," and America's, Australia's and Hong Kong's as "free market"...when NEITHER is the correct.

Europe appears more Keynesian lately, but we were just as Keynesian up UNTIL it imploded under Jimmy Carter amidst the burden of bailouts and stimulus packages, along with tax hikes. Ironically enough, Carter’s very Keynesian administration was preceded by a Republican Keynesian administration (Nixon’s) which thought “inflation primed the economic pump,” and engaged in all manner of over-regulation, even wage and price controls, which NO administration has had the guts to return to since! Ironically enough, Obama is now following another Keynesian Republican, who managed as a Keynesian his entire second term, and like Carter, Obama is faced with a Congress top-heavy with misguided Liberals.

A lot of today’s Congressional Democrats (Frank, Dodd, Pelosi, Waxman, Reid, Frank and Rangel, among others) want to move us back to a decidedly Keynesian path (more like France and Sweden and less like America) and a lot of Moderate/"Rockefeller-wing" Republicans want the same.

For now, a majority of the American electorate has bought into the nebulous concept of "change" and will probably go along with some of that leftward, Keynesian tilt, UNTIL or UNLESS it results in even worse economic dislocation. There’s no reason to expect different results from the same policies that imploded the economy in the 1970s. I accept that as inevitable.
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I also accept the failure of Keynesian policies as inevitable as that is well documented;

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The post-Gingrich Republican Congress abandoned the small government, low tax principles that Gingrich used to deliver some of the lowest Misery Indexes in over four decades!

G W Bush’s ONLY Supply Side action was his across the board tax cuts early on in his administration. Along with that he embarked on one of the largest federal spending programs in history!

The NCLB Act, the prescription drug boondoggle, the massive Homeland Security apparatus that sucked in huge amounts of federal spending all helped to increase government spending and balloon the national debt, although NONE of those nearly as much as his signing onto last spring’s “stimulus package and the current bank bailout!

The Bush administration has spend like Keynesians and were fortunate that the across the board tax cuts increased tax revenues to such an extent that until 2006, they’d actually halved the deficit over the previous three years!
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The difference in the Misery Indexes those periods delivered is astounding;

The prime Supply Side years:

1995: 8.40

1996: 8.34

1997: 7.28

1998: 6.05 * (LOWEST Misery Index since 1956)

1999: 6.41

2000: 7.35

2001: 7.59

SEVEN YEAR Supply-Side AVERAGE ANNUAL Misery Index = 7.34

The prime Keynesian years:

1974: 16.67

1975: 17.68

1976: 13.45

1977: 13.55

1978: 13.69

1979: 17.07

1980: 20.76

SEVEN YEAR Keynesian AVERAGE ANNUAL Misery Index = 16.12
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That pretty much says it all! Keynesianism DOESN'T WORK!

The fact is that we are, at this point, a VERY spoiled country and the FACT is that the vast majority of Americans haven’t felt the economic tsunami that appears headed our way. Right now, states from Illinois to California to New York to Michigan are teetering on insolvency and with or without bankruptcy, many states are already laying off workers, in advance of the massive Municipal layoffs that would accompany harder times. New Jersey just passed its first state budget EVER which is smaller than the year before’s! New York is looking at serious pension reform and Chicago’s, like California’s state pension systems are the nation’s most underfunded and least solvent systems.

Think things are bad now?

Wait till we see tens of thousands of cops, teachers and other Municipal workers getting pension “buyouts” of pennies on the dollar, screaming about the “broken trust.”

The sad thing is that years of tax cuts have expanded tax revenues and resulted in even MORE bloated federal, state and local governments, meaning that their ONLY response to real hard economic times is going to be massive layoffs and pension overhauls...this has the possibility of getting very, VERY ugly, not too far down the road.

All that may be inevitable.

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What ISN'T inevitable is how we Conservatives react. If we react as petulant juveniles and try to do what the far-Left appears to have done successfully with G W Bush, we will fail.

We're just not as good at that and the people (the vast middle) won't accept that from those who claim the "moral high ground."

We can only offer insights and help people see the light....railing against "evil Democrats" and calling opponents "Stalinists" and "socialists" will ultimately marginalize us as much as the fringe Left marginalized itself by deriding those they disagreed with as "nazis."

We HAVE to be better....because ultimately, we have far less room for error.