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The Election and the Growing Economic Crisis

Nov. 21, 2012 4:36pm Guest Post

[Editor’s note: The following is a cross-post by John Hummel, CIO of AIS Group, that originally appeared on CNBC.com]:

With the post-election frenzy beginning to subside, it’s time to take a step back and consider what the results will mean for the national and global financial landscape.

For months, both presidential candidates made the case that their economic policies would stimulate growth. Pundits across the political spectrum evaluated how the election would impact leadership at the Federal Reserve and its resulting policy changes.

Despite the billions of dollars spent and the hours of debate and analysis, the election results will have almost no long-term impact on the health of either the domestic or global economy. To understand why, one must first look at the trajectory of the United States’ role as a global economic player over the last three decades. In this time, the European Common Market, China, and the developing world in general have grown considerably, effectively ousting the U.S. from its role as the world’s chief economic superpower. In many ways, the U.S. mirrors Great Britain of 100 years ago as the latter gradually went into relative decline versus the rest of the world.

Meanwhile, skepticism about the dollar’s strength has grown. The U.S. may not have the largest debt relative to GDP of the world’s developed nations (that would be Japan), but it has earned the lofty distinction of having the largest debt held by foreigners. Having increased the probability that it will be unable to meet its debt obligations, skepticism over U.S. Treasury debt and the dollar will only continue to rise.

As such, the election is primarily a symbolic measure of fiscal and monetary policy change. Washington will prove unable to curb declining confidence in the U.S. dollar over the long-term.

This puts domestic policy makers in a tough position. Caught between efforts to lower the current deficit without stifling economic growth, they must simultaneously navigate high unemployment and rising entitlement obligations. While politicians will attempt to put a very positive spin on any fiscal compromise, these twin issues will make any fiscal arrangements dependent on unrealistic economic growth assumptions.

The Fed’s response to these crises — in particular, multiple rounds of quantitative easing — has not shown concern for the long-term consequences of rising inflation, and even if Governor Romney were to have prevailed over President Obama, we do not expect those policies to have changed. The Fed will remain focused on shrinking unemployment and increasing stimulus in the short term while talking a positive game about its future ability to reign in excess monetary creation. With the expectation of continuing government deficits, the Federal Reserve may eventually find itself unable to raise rates and burden the government with larger interest payments.

For these reasons, we have made a practice of owning assets that the Fed cannot debase through excess creation. For instance, we currently have an 80% gold position in our Tactical Asset Allocation Program (TAAP) as we believe gold supplies are rising at a rate around 1.5 percent per year, far less than the increase in government debt and global currency reserves. While the world is unlikely to return to a gold standard, gold’s role as an alternative store of value is gradually returning both for private investors as well as for government reserves. Gold, along with other commodities like oil and grains, will continue to strengthen as the developing world’s middle class explodes, the dollar loses its dominance, other fiat currencies become debased and the Fed enacts policies that enable the growth of debt.

As it stands, the financial playing field is a tumultuous one, but neither an Obama nor a Romney administration would sufficiently address the fiscal and monetary needs of a stagnating developed world. The election has proven to be nothing more than a smoke screen obfuscating larger and more dangerous factors that the White House, the Fed, and other international banking and political systems have struggled to address.

–

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Comments (47)

ALL4FREEDOM
Posted on November 21, 2012 at 8:47pm
There is not a chance in hell of this happening, but House Republicans should give Obummer every tax increase he wants, then refuse to raise the debt limit (except to service the existing debt) and force the Son Of Barack (SOB) to live on revenue. Of course, Democrats will quickly realize that is impossible without slashing spending. NOW we can get to work, demand a balanced budget, reduce the regulatory burdens, and turn this nation around!

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- Jesse_J
  Posted on November 22, 2012 at 6:15am
  House Republicans need to do the job they were sent there to do, oppose Obama’s big government. Read fresh political commentary at: http://smallcraftadvisorychronicles.blogspot.com/
  
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rebelpride37
Posted on November 21, 2012 at 8:46pm
I think the time for dialogue is over, there’s no politician, republican or democrat that can be trusted to effectively run this country. They are deliberately bringing about moral and financial ruin on this country for whatever purpose. It is time for the American people to stand and fight to take this country back, otherwise we are doomed to live out a miserable existence of servitude and shame.

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denkat56
Posted on November 21, 2012 at 6:23pm
The deficit is all king Obama’s. 4 years in the white house, its all his, as are the 4 dead people in Bengazi, as is the corruption of his administration. He has the highest deficit ever. Atlas shrugged, and in the process king Obama will go down in history, not like he thinks. Sooner or later the truth won’t, or can’t be denied.

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balrog25
Posted on November 21, 2012 at 6:06pm
If you’ve read Atlas Shrugged, you already know how this turns out. People who love the Constitution read this book as a horror story, and are horrified to see it happening, chapter after chapter. I believe the progressives read most of it and are following it as a checklist. Won’t they be surprised when they get to the end. I’ve taken the position of accepting the course the takers have set us on, and even encouraging it as the one path out at this point. I think Ayn Rand had a crystal ball and just reported what she saw and created names. Unlike her, I do believe this is all part of the Master’s Plan. Good bless the makers, and see you in Atlantis.

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KEELHAULUM
Posted on November 21, 2012 at 5:57pm
JohnPaul/Just Angry 2016

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soybomb315_II
Posted on November 21, 2012 at 5:54pm
lol – “growing” economic crisis? How about an economic and Constitutional crisis since before any of us were born….

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doomytram
Posted on November 21, 2012 at 5:49pm
Bozo isn’t going to cut spending by one cent. In fact, quite the opposite, more spending in 2013. Obozo wants a bigger, more bloated, bureau of corruption.

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neverending
Posted on November 21, 2012 at 5:49pm
Oh please – how can you say a Romney administration would not have been any different from this commie? Trying to justify the election of barry are you?

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- repairsea
  Posted on November 21, 2012 at 6:56pm
  Yes – a successful governor and businessman is better for our economy than a affirmative action, dope smoking, narcissist, marxists senator with daddy issues from Chicago who never held a real job and who doesn’t have time to be briefed about daily security issues.
  
  Report this comment
hi
Posted on November 21, 2012 at 5:41pm
I disagree. If Romney won, there would be so much hope among taxpayers and business owners that tens of millions of jobs would be instantly created. Everyone would be prosperous. The economy would turn around quickly as we got rid of Obamacare. People would want the stuff their friend was buying with his job vs what piddly money he gets on foodstamps or unemployment.

The disaster IS Obama’s fault and he needs to own it. Don’t give The Liar another excuse.

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- soybomb315_II
  Posted on November 21, 2012 at 6:51pm
  “I disagree. If Romney won, there would be so much hope among taxpayers and business owners that tens of millions of jobs would be instantly created. Everyone would be prosperous. The economy would turn around quickly as we got rid of Obamacare. People would want the stuff their friend was buying with his job vs what piddly money he gets on foodstamps or unemployment.”
  
  That is a pure Keynesian statement
  
  Report this comment
progressiveslayer
Posted on November 21, 2012 at 5:39pm
It’s been the Marxist mulatto’s plan to end the middle class and he’s right on schedule because the so called ‘affordable health care law’ will raise taxes on everybody. The simpletons just don’t realize it and the parasites don’t care because they never pay for anything to begin with. Abolish the EPA SEC IRS and many many others and we might have a chance for recovery.

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BlackCrow
Posted on November 21, 2012 at 5:38pm
Gold? Lead! As in ammunition.

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Chromo200
Posted on November 21, 2012 at 5:31pm
What economic cliff crisis .. Haven’t you been listening to the Administration and the MSM that the economy is improving, that a trillion dollars have been cut from the federal debt, that small business are bouncing back and people are investing in new businesses.

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- repairsea
  Posted on November 21, 2012 at 6:58pm
  Growing marijuana in your back yard, home made porn, sex trafficking and selling hostess Twinkies on ebay are not legitimate small businesses.
  
  Report this comment
MDECKER
Posted on November 21, 2012 at 5:20pm
We’ve been preached to that, “they won we lost”, since the last election. We now have the brightest and wisest people running the show. The Left now owns it! They’re breaking it, they should buy it! There is absoliutely no reason to even discuss the last election.

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AvengerK
Posted on November 21, 2012 at 5:13pm
Hey come on now..impending economic doom be damned..we can still have abortions and Obama “understands” us. Isn’t that what we voted for? FORWARD? I mean..FORWARD!

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- Anonymous T. Irrelevant
  Posted on November 21, 2012 at 6:02pm
  Just like the Obamaphone lady says, “keep Obama in president you know, he gave us a phone, he gon do more” “you on food stamps, you got low income, you got sosh security, you disbility”
  Where I work is going to have another round of layoffs and they are cutting a whole region out.
  I don’t know if I will be caught in this or not, but it surely can’t be the last time. The tipping point is almost here for takers vs producers and soon the takers will outnumber those paying for them. When that happens, it’s over.
  
  Report this comment
cloudsofwar
Posted on November 21, 2012 at 5:12pm
well it’s all going to hell. it’s going to be a long 4 years.

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johnpaulkuchtajr
Posted on November 21, 2012 at 5:06pm
Give me this economy to turn around and I could be showing huge progress inside of one year by doing the following:

1. Scrap the IRS code and initiate the Fair Tax. Transfer all those IRS folks to the Treasury to audit businesses collecting the Fair Tax.

2. Exempt repatriated corporate dollars on a schedule to be administered by the Treasury Secretary. With roughly 12-13 trillion dollars sitting overseas, that would mean a trillion dollars per month for an entire year injected into our economy with the stipulation that it has to be used on capital improvements. Not to be used for bonuses for executives or political contributions!

3. End out-of-control spending in Congress; but, at the same time, end any expenditure not passed by the Congress. You know, budgets and all that old fashioned financial management would return.

It would be a big job for six months and then you could find me swinging my feet in my favorite duck blind or deer stand. It’s not that difficult. Get government out of the way and broaden the tax base. Trust fund babies on one end of the spectrum and illegal aliens on the other would all pay tax.

The new motto of my fiefdom would be:

“If you stay in America, pay for America!”

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- RadicalsForLiberty
  Posted on November 21, 2012 at 5:45pm
  hmm.. good points. However, corporations send capital overseas to protect it from an omnipotent federal government and an oppressive tax code. Government has absolutely no right to tell individuals or corporations what to do with their wealth. If the federal government is going to extort income from the people, the people have every right to hide it. I should hope all of us liberty minded folks promote the ideal that corporations and individuals alike are able to do anything they please with their earnings.
  
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- johnpaulkuchtajr
  Posted on November 21, 2012 at 6:22pm
  Not exactly, Radical.
  
  Corporations with overseas subsidiaries are not compelled to return profits generated overseas back to the US. If the profits do come back, they pay regular corporate taxes on them. So, they let the money sit in France, Germany, Brazil or wherever they made it. That is called TAX AVOIDANCE. You are talking about TAX EVASION. Nobody with any smarts does that. You don’t do you?
  
  My plan is all about giving the really big boys (GM, Ford, Cat, et al) the chance to bring those profits back untaxed if they build a new plant here in the US or add-on to an existing facility, etc.
  
  Got the “pitcher” daddy-o?
  
  Report this comment
- Freedom from liberals
  Posted on November 21, 2012 at 6:39pm
  Totally agree on repatriation of foreign earnings. The U.S. is now the only country to tax the foreign earnings if you bring it back to the U.S. Actually it is the U.S. 35% rate less what they paid to the foreign country rate which are all lower than ours. Other countries tried this and figured out it was better to not tax foreign earnings and let them bring it home and invest at home rather than have the companies leave it abroad and invest it abroad. We are just so stupid.. The $12 trillion would be a huge stimulus to our economy. I also would throw in lowering the corporate tax to 20% and you would see so many companies bring operations back to the U.S.
  
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- RadicalsForLiberty
  Posted on November 22, 2012 at 12:17am
  I understand what you are saying. My sole point was that there shouldn’t even be an income tax. And how can you force a company to build more infrastructure? What if it isn’t possible to carry out more capital intensive investment? Government forcing private enterprise to make specific decisions.. sounds like fascism to me.
  
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- RadicalsForLiberty
  Posted on November 22, 2012 at 12:18am
  Generally, if there weren’t taxes on earnings, they would save and invest their profits HERE. You moderates baffle me.
  
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- RadicalsForLiberty
  Posted on November 22, 2012 at 12:20am
  And no I am absolutely not condoning tax evasion you imbecile. I’m simply saying if government taxes income, there will always be those who HIDE their income.
  
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justangry
Posted on November 21, 2012 at 4:56pm
Totally free markets, property rights and end the Fed. Problem solved.

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- WakingSheep
  Posted on November 21, 2012 at 5:04pm
  I concur.
  
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- progressiveslayer
  Posted on November 21, 2012 at 5:34pm
  Sounds solid to me.
  
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- RadicalsForLiberty
  Posted on November 21, 2012 at 5:49pm
  Agreed. Remove ALL regs. Get the governments fingers out of every aspect involving the market. An individual’s or corporation’s decision affected a third party negatively? That’s what tort law is for. We don’t need 300,000 pages of burdensome regulations.
  
  Unfettered Capitalism, Private Property, no income, estate, or property taxes. Direct Taxation of any kind is nothing but extortion.
  
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- RadicalsForLiberty
  Posted on November 21, 2012 at 5:54pm
  And absolutely, Ending the Fed and abolishing the IRS should be first on the docket.
  
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- soybomb315_II
  Posted on November 21, 2012 at 6:56pm
  Exactly Just. Add “restrain fed govt with the Constiution” but yea, those three pillars you listed solve every problem i can think of
  
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- Individualism
  Posted on November 21, 2012 at 7:30pm
  its what we gotta do through the system or through force.
  
  Report this comment
Snowleopard {gallery of cat folks}
Posted on November 21, 2012 at 4:54pm
All of this runaway debt, deficits out to infinity and the massive displacement of the dollar is deliberate on the part of Obama and his admin; they want the economy to go over the cliff, and will stop at nothing to ensure the sequestration and restoration of tax cuts will occur.

Right after we plunge over, Obama will suddenly ‘declare a new round of middle class tax cuts’ which will be for the ‘middle class’ and come at the expense of breaking our military once and for all. He will offer these taxes which will mirror the bush-tax-cuts exactly, for the 2014 elections.

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- Freedom from liberals
  Posted on November 21, 2012 at 6:31pm
  I concur, sounds like Cloward & Piven. Get so many people dependent on gov’t and then financially collapse the free market system and replace it with Socialism.
  
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SBR308
Posted on November 21, 2012 at 4:53pm
In other words take your spare change and buy Gold or Silver. Also cone shaped lead .

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Tri-ox
Posted on November 21, 2012 at 4:52pm
obama inherited the bad economy … from himself.

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- WakingSheep
  Posted on November 21, 2012 at 5:22pm
  I inherited the bad economy from the babyboomers.
  
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- The-Monk
  Posted on November 21, 2012 at 6:09pm
  Hi WakingSheep,
  
  Would you like to debate your statement?
  
  If so, I’m prepared. : )
  
  Report this comment
- soybomb315_II
  Posted on November 21, 2012 at 6:50pm
  dont do it unless you want your privacy threatened
  
  Report this comment
- Individualism
  Posted on November 21, 2012 at 7:27pm
  yep blood is on the baby boomers hand for the death of the nation.
  
  Report this comment
- The-Monk
  Posted on November 21, 2012 at 8:13pm
  @soybomb315_II
  “dont do it unless you want your privacy threatened”
  
  Yeah right… Soybom315. I’m the one that closed up the HOLE left by the Ron Paul website techs.
  
  Get a life and STHUP…
  
  Report this comment
- soybomb315_II
  Posted on November 21, 2012 at 8:58pm
  i would post when you threatened to retrieve my personal information but it’s on my other computer
  
  “get a life and SHTUP” – thats a good monk
  
  Report this comment
- The-Monk
  Posted on November 21, 2012 at 9:56pm
  @soybomb315_II
  
  That data (your data) was left on RON PAUL servers. Why don’t you go and ask them why THEY left your data exposed?
  
  Oh yeah, that’s right…. Ron Paul people can do no wrong? So STHUP POS… !!!!
  
  Report this comment
- soybomb315_II
  Posted on November 21, 2012 at 10:23pm
  if that is the case, why use that information to blackmail someone?
  
  Report this comment
- The-Monk
  Posted on November 22, 2012 at 12:37am
  @soybomb315_II
  
  Exactly…. one can’t use freely available info to “blackmail” anyone.
  
  So no one ever tried to blackmail you. BTW… isn’t “blackmail” a racist term now?
  
  Report this comment

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