Saturday, January 15, 2011

2011: The State Of The Union Economy

In the near future, Obama will be giving his State of the Union address. Here are some deeply troubling facts about our economy that you will not be hearing in that speech.

1. Food Prices At Record Highs & Heading Upwards; Ethanol Mandates & Subsidies Put Fuel In Competition With Food

Food prices are skyrocketing upward, running last month at an annualized rate of 8.7% inflation.

In December, the wholesale price of vegetables rose by 22.8 percent, and fruit was up 15.4 percent. . . . The price of beef rose 2.7 percent in December and was 15 percent higher than a year ago, the Department of Labor said in the PPI report. Pork is up 22.3 percent from a year ago, and fish is up almost as much. Turkey is up 18 percent.

This is a world wide issue. Food prices are at their highest ever. Just today, the chief executive of one of the world's largest food producers warned that the global crisis in food production is reaching "dangerous territory" with demand outstripping supply.

The causes are multiple, but a large portion of it is the insane push to create "bio-fuels" out of food crops and the concomitant misuse of agricultural land:

In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That’s enough to feed 350 million people for a year. The massive U.S. investment in ethanol distilleries sets the stage for direct competition between cars and people for the world grain harvest. In Europe, where much of the auto fleet runs on diesel fuel, there is growing demand for plant-based diesel oil, principally from rapeseed and palm oil. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations.

Bio-fuels are the world's greatest boondoggle. The fuel is inefficient, expensive and actually contributes to the growth of CO2 in our atmosphere. Not only does it make no sense to mandate or subsidize ethanol, it is a major contributing factor to poverty and hunger world-wide. Yet it is now a vested interest and thus, seemingly impossible to dislodge.

This particular problem in America has bi-partisan origins. It began under the Bush administration and now being furthered by the Obama administration. Within the past months, Obama's EPA actually increased by 50% the amount of ethanol allowable in gasoline, from 10% to 15% ethanol. Between that and the recent renewal of the ethanol subsidy, this problem of food prices will only get worse.

2. Housing Market

Our housing market has crossed the threshold into uncharted territory - it is now worse than it was during the Great Depression. Home values have declined 26% since their 2006 peak and there is no end in site to the slide. Foreclosures this year are expected to top 2010's record of one million, and over five million people are over two months behind in their mortgage payments.

3. Obama's War On Domestic Oil & Gas

It is impossible to underestimate the cost to our economy of Obama's war on domestic production of oil. An incredible 62% of our entire trade deficit now comes from importing foreign oil.

And the situation is poised to become much worse. Many expect the price of gasoline seems to spiral upwards, beyond the $4 a gallon threshold that caused nationwide discontent two years ago. Gas could well hit $5 a gallon this year. Opening up oil and gas drilling throughout America would add significantly to jobs, fill our declining coffers and significantly increase the supply of oil and gas, thus reducing the cost of gasoline. Yet the Obama administration is taking the opposite tack, warring on our oil and gas infrastructure.

The administration, has shut down all new offshore drilling and is making it ever more difficult to drill for oil on federal lands. Further, the Obama administration is in the midst of massive land and ocean grabs specifically aimed at cutting off ever more of our natural resources from exploitation. Lastly, the administration is expected to introduce even more regulations and increase taxes on our domestic oil industry in response to the report of the deeply partisan Oil Spill Commission, which, while tasked with investigating BP, instead condemned the entire oil industry.

4. Obama Is Killing Coal Mining & The Use Of Coal For Electricity With Deep Ramifications In The Future For The Cost & Availability Of Energy In America

The war on oil and gas pales in comparison to the Obama administration's war on coal - the basis for over 50% of the electrical power generation in our country. The Obama administration is doing all that it can to completely kill our coal industry:

"Coal is a dead man walkin'," says Kevin Parker, global head of asset management and a member of the executive committee at Deutsche Bank. "Banks won't finance them. Insurance companies won't insure them. The EPA is coming after them. . . . And the economics to make it clean don't work." . . .

Not a single new coal power generation plant was built in 2010. And lest there be any question whether investors should put their money into coal mines, the EPA recently took the unprecedented step of withdrawing a Clean Water permit for a mine it had approved three years ago. This from the WSJ, via Bizzy Blog:

The Environmental Protection Agency, in an unusual move, revoked a key permit for one of the largest proposed mountaintop-removal coal-mining projects in Appalachia, drawing cheers from environmentalists and protests from business groups worried their projects could be next.

The decision to revoke the permit for Arch Coal Inc.’s Spruce Mine No. 1 in West Virginia’s rural Logan County marks the first time the EPA has withdrawn a water permit for a mining project that had previously been issued. . . .

A spokeswoman for Arch said the company was “shocked and dismayed” by the agency’s decision, which it said would block an additional $250 million investment that would create 250 jobs. The company said it would appeal to the courts.

… As the EPA stressed that the permit decision had no implications beyond the Spruce mine, business groups outside the coal industry said the government’s action raised questions about whether permits previously issued for other businesses could also be revoked, potentially stranding investments and costing jobs even as the economy continues to heal.

The EPA has just added a significant amount of risk for any investor considering investment in a coal mine. This is killing jobs in the oil and coal industries. This war on coal and oil will soon have major ramifications for the domestic cost and availability of energy.

Update: Obama conducts this war even though his push for "green energy" is falling utterly flat. American Thinker covers the moras Obama has created with solar energy - a black hole for tax dollars and Democratic corruption that will not be replacing coal in our lifetime, if ever.

5. The EPA Poised To Harm Our Economy

Regulation as a whole has been creating an anti-business momentum for decades. But under Obama, and in particular with the EPA, the regulatory bureaucracy has taken wing. While Congress has refused to legislate restrictions on CO2, the EPA, with an assist from the climate scientists sitting on the Supreme Court, has assumed the right to do so under the Clean Air Act, a law ill suited for the task. The first leg of EPA's new regulatory scheme for CO2 went into effect this month. It is initially aimed at the "largest emitters" - i.e., coal fired power plants, cement plants, etc.

It is expected that this power grab will EPA will cost our country a million jobs and drive up significantly the price of energy.

6. Environmental Groups & The Courts Driving Energy Policy

Unfortunately, it is not just the regulatory bureaucracy that is implicated in this ever greater assault on our economy. Each of the regulatory laws passed by Congress decades ago contain a provision giving the keys to the courthouse to environmentalists. Because of that, a major driver of our nation's environmental policy is being dictated by the Courts - with drastic consequences. For example, a Federal Court decision to protect the Delta Smelt has turned one of our nation's prime agricultural areas into "Zimbawbwe." For another example, enterprising lawyers are now filing nuisance suits to sue U.S. manufacturers and power plants for their contribution to global warming. Our Supreme Court recently opted to allow such cases to proceed. It is time for Congress to end standing for all private suits under our environmental laws as well as clarifying that the regulation of green house gasses are policy questions for our elected representatives and thus cannot be heard by state or federal Courts.

7. More Regulatory Overreach & The Looming Explosion In Regulations

Before leaving the question of the regulatory bureaucracy, it is of course not just the EPA that has engaged in power grabs of very dubious constitutionality. The FCC's recent decision to assume control over regulation of the internet is yet another shining example of regulatory agencies gone wild. And we see similar overreach by HHS as Kathleen Sebilius is in the process of taking control over health insurance pricing in the U.S. Meanwhile, hundreds of new bureaucracies remain to be staffed and reams of new regulations remain to be written for Obamacare and the Financial Regulatory bill.

The regulatory bureaucracy is clearly out of control, bastardizing our form of government. We are beginning to resemble the EU - a government run by unelected bureaucrats. That is far from the vision of our Founders. As George Will notes in a column today, reasserting Congressional authority and oversight over the regulatory bureaucracy should be at the top of the agenda for the 112th Congress. Indeed, I believe that Congress should immediately pass a law holding that no regulation will become binding and enforcable unless and until approved by Congress.

8. Obamacare's Looming Taxes & Costs

As to Obamacare, its first effects are just now being felt. What we as a nation have to look forward to in the offing - higher health insurance premiums as well as hundreds of billions in new taxes, all on top of the costs of compliance:

- Excise Tax on Charitable Hospitals (2010)
- Tax on Innovator Drug Companies (2010)
- Tax on Indoor Tanning Services (2010)
- Medicine Cabinet Tax (Jan 2011)
- HSA Withdrawal Tax Hike (Jan 2011)
- Corporate 1099-MISC Information Reporting (Jan 2012):
- Surtax on Investment Income (Jan. 2013)
- Flexible Spending Account Cap aka “Special Needs Kids Tax” (Jan 2013)
- Hike in Medicare Payroll Tax (Jan 2013)
- Tax on Medical Device Manufacturers (Jan 2013)
- Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI (Jan. 2013)
- Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Jan 2013)
- $500,000 Annual Executive Compensation Limit for Health Insurance Executives (Jan 2013)
- Individual Mandate Excise Tax (Jan 2014)
- Employer Mandate Tax (Jan 2014)
- Tax on Health Insurers (Jan 2014)
- Excise Tax on Comprehensive Health Insurance Plans (Jan 2018)

9. The National Debt & The Road To Becoming A Banana Republic

Our national debt is expected to balloon over the next decade, particularly in light of massive entitlement obligations. Obama and the left have us on track to have debt rise to $20 trillion, 90% of GDP, by 2020, the consequences of which will be calamitous. It means we will soon be facing massive increase in taxes, inflation, and the need for draconian cuts in spending - or default on our sovereign debt, with unimaginable consequences not just for us, but also for the world economy.

10. Unemployment

Since Obama assumed the Presidency, we have hemorrhaged millions of jobs and remain mired above 9% unemployment. For two years, Obama has concentrated on everything but the economy and jobs for Americans, apparently assuming that the economy would bounce back of its own accord while he focused on paying off labor unions and forcing through Obamacare. We are world's away from the Bush years, during which unemployment averaged 5.2%.

The December unemployment report showed that the jobless number dropped to 9.4%. That seemingly small piece of good news is illusory. This from Morning Bell via Bizzyblog:

You are going to hear a lot of noise from the White House about how this drop from a 9.8% unemployment rate to 9.4% means the economy is in a strong recovery. This is false. The reality is that the only reason the unemployment rate dropped is because the U.S. labor force decreased by 434,000. More importantly 260,000 Americans dropped out of the labor force entirely. This means that the Obama economy is now driving Americans out of the labor force faster than it is bringing them in.

Unemployment will remain an intractable problem under this deeply incompetent administration. Indeed, it will take a major change to all of the conditions dicussed above if we are to turn our country around, lower unemployment and grow our way out of this fiscal crisis.

11. Conclusion

Obama inherited a bad economy that he has made worse. Instead of changing tack, he is on the cusp of making our economy infinitely worse. True, he has finally appointed a token capitalist with business experience to his administration - William Daley. But unless this means Obama is willing to do an economic u-turn on gas, oil, Obamacare, the EPA, the FCC, ethanol and deficit spending, nothing is going to pull us out of our downward trajectory between now and 2012. The best we can hope for is for the House to slow the slide. But don't expect to hear any of that at the State of the Union.


The Daily Stirrer said...

You have your share of problems there. The way governments all over the world have concealed inflation is a scandal. While official figures show it running at 3 - 4 % in Britain in reality it is nearer 10% and food inflation is even higher.

GW said...

Yes. I don't see this ending well on either side of the pond. I note that the gas and energy problem is particularly accute in the UK, though that is because you are a few years ahead of us in your government's was on coal and oil.