42 and Falling Fast

Charles Payne
Posted: Nov 02, 2013 12:01 AM
42 and Falling Fast

That was an ugly close for the second session in a row reflecting a number of things including a fair amount of confusion, matched or surpassed by frustration. I continue to say Fed news should be interpreted as a red flag for the US economy. It reminds me of a fancy electronic air pump I bought last year.

The engine was impressive, and the sales guy said it could fill up a truck tire in minutes. I finally broke it out early this summer as we prepared to go bike riding. I plugged it in, and the motor was humming. I Inserted the bike tube ... nothing. I tried over and over again, but nothing.

I finally came to the realization that the tire couldn't be pumped up as there was a serious and irreversible flaw. This is the dilemma facing the Fed, which can only print but can't get those funds to Main Street. The problems are policies the deter success and rhetoric that just makes people want to go somewhere and hide. While the blame game may have gotten President Obama reelected it's weakened the foundation of the nation into something akin to an indifferent mush. People are bombarded each day with excuses or news people fear by the very leaders we elect to give us confidence.

There is no confidence, and it's wearing down on Main Street. The Fed is worried about deflation, so the notion of hiking rates or even tapering seems farfetched. On the other hand, Bernanke is coming to the realization that all his efforts have come up short. Economies are cyclical, and Fed-led rebounds are written into each script, but this time there are still so many areas of the economy lacking, including declining real wages (remember true inflation is too much money chasing too few goods). There probably is some kind of Fed etiquette also that would prohibit a change in policy as the torch is being passed along.

The flat tire is perhaps the best symbol of America these days. It reflects our lack of confidence and the inability to get out of first gear. The flat tire is also a great symbol for the Bernanke Fed that gave it the old college try but couldn't overcome attempts to transform America into a collectivist nation without winners or losers and where earnings are shared by the masses. This is happening more and more each day, resulting in less effort by those that care ... and don't care.

Fundamental Transformation

If you didn't catch it in your local news, President Obama's approval rating slipped to its lowest point of his presidency. The irony of it all is his approval has never really been that high versus other recent occupants of the White House. Even more interesting is there was once a time when the economy had a direct correlation.

See the table on the left, and it's clear an average GDP above 3% during the first term went a long way toward justifying a second term. The lone exceptions were Jimmy Carter and Harry Truman. For the former, the economy began to deteriorate rapidly as that infamous "malaise" settled into the nation.

For Truman, the economy followed post war recession, sky high inflation, and the start of the Cold War. Still he managed to turn it around in his final year in office and gain reelection.

President Obama on the other hand has enjoyed his best GDP in the four years in part to a nicely timed stimulus package that sort of moved the needle, but the outcome was substantially below all his predecessors. So, how come the reelection was so easy? I think it had more to do with Republican incompetence at campaigning and serious mistakes that couldn't be overcome. A changing nation recoiled at some of the same social issues that scored points in the past, and there was no effective counter-attack. Be that as it may, what Americans got in the process was acceptance of mediocrity.

Or at least that's what the administration thought.

People get tired of living paycheck to paycheck and even the notion that somehow taxing so-called rich people more can alleviate their circumstances is wearing off. Each day the air slips out of the nation more and more. Being the best finger-pointer isn't working as wages move lower and job growth remains anemic. The future looks dimmer each day. So after the holidays, we'll head into the same old battles in DC where perhaps embolden with the notion of another pyrrhic victory, the President allows the wheels to come to a grinding halt.

From a government shutdown point of view, it doesn't matter, but markets are sensitive to the debt ceiling and understand that going cold turkey is something Big Government is ill-prepared to endure. It would be a wonderful time for leadership. It would be the perfect moment to pump some air in our sagging national confidence. Maybe it happens because despite all the cheering about Tea Party blowing it, the White House is watching its own ratings evaporate. At some point even folks with small egos consider legacy. Two presidents since end of WWII saw second term approval increase over the first term:

  • Ronald Reagan
  • Bill Clinton

It's one thing to smear the Tea Party with a complicit media and complain about how hard the economy was upon inauguration, but there are two standard bearers for the two political parties in America and years from now few will mention President Obama outside of trivia and novelty. (Unless we stay down this road and then he'll be known as the man that wrecked America.) He has a chance to borrow the Clinton playbook and bring some life back into the nation. Stop pitting Americans against one another and forget about fundamentally changing the greatest nation on earth.

It takes more than lip service and takes the kind of guts that begins with an honest mea culpa.