Why Obama’s Comments on the Economy are Likely to be Closely Watched

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In the State of the Union address of February 12, 2013, President Obama gave what seemed like an inspiring speech that was mostly focused on rebuilding America’s economy. He laid out intentions of bringing jobs back America, providing tax incentives for small businesses, beefing up job skills education, and a myriad of other proposals all intended to put America back to work and rebuild the economy. He gave the charge to Congress to push legislation to his desk for his signature.

Will his pitch to Congress work? It probably will not but the President is determined to push his agenda through. His determination will make everyone follow closely what he has said because of the millions of unemployed Americans and others who have a stake in the outcome. Furthermore, his proposals to spend more tax dollars baffles many Americans as to how he can push these plans through with limited tax revenue and massive national debt.

The President is actually proposing spending before he has the money to spend. That is obvious. With a sluggish economy and millions of unemployed, tax revenues will not even begin to fund all of the proposals he made. In fact, America never has been able to raise the tax revenues it needs to fund all of its programs. This is the reason why the nation’s debt is in the trillions.

So, the first part of the answer (a partial answer) is to get Americans working again so that they can pay taxes. It still will not cover the revenues required but it will be a start nonetheless. However, the problem with getting Americans fully employed again is that there are limited new sources for jobs with the exception of renewable energy, also known as green jobs.

Yes, Mr. Obama cited the statistics of millions of new jobs being added recently yet he left out an important detail. Many of those jobs are part-time leaving Americans in those positions without sufficient income to live. Many part-timers also do not pay Federal Income Tax because their wages are too low. Thus, there is still a revenue gap.

In the decades since World War II, America and the free world have had sources for new jobs. These sources included the post-war baby boom which stimulated housing and auto markets, the Space Race, and the Cold War.

The Space Race was America’s competition to beat the now defunct Soviet Union to landing a man on the Moon. It was a source for countless numbers of jobs in technology to achieve that end.

The Cold War was America’s competition to be able to stand against the nuclear threat posed by the then Soviet Union. Here again, it was a source for thousands of jobs in the defense industry.

Prior to World War II, President Franklin D. Roosevelt established the Tennessee Valley Authority or TVA. It put Americans back to work at developing the infrastructure of the nation. It was another source for jobs.

Today, the source for jobs in America looks bleak in spite of Mr. Obama’s efforts to tell the public otherwise. To his credit, he is pushing for tax incentives and funding for businesses that want to develop technology for renewable and green energy sources. However, it is still money that he doesn’t have to spend.

While his renewable energy plan sounds good, it is met with skepticism by the Republican Party because some of these businesses that began in this field during the President’s first term went bankrupt.

These companies were seeded with Federal funds and the government forecasts that it can only recover a portion of them after their bankruptcies. So, you can expect that the Republicans will fight using Federal funds in the future for new startups in green energy without some tight accountability.

Will Mr. Obama’s push to come to mutually amicable deal with Congress work? The answer is no. Another reason is because the President, by his comment towards the end of the State of the Union address, heightened the already tense situation between the two branches of the U.S. government.

Towards the end of the speech, Mr. Obama frankly stated that since Congress had not done anything about the current crisis that he and his branch are going to take action. What he actually means is that he is going to use his power of the Executive Order to circumvent Congress.

This is a bitter pill for members of Congress to swallow, especially those from the Republican party. Presidents have used the Executive Order for decades to get quick action when it was necessary however it is not intended to be used as a first resort. Mr. Obama’s plans to overuse the power of the Executive Order is seen by many as circumventing the Constitution. This is clearly not the way to win friends from the opposing party thus an amicable deal is near impossible.

Why are his comments likely to be watched? Those who have a basic understanding of how money works can tell you that they are watching his comments now and foreseeing the disaster that lies ahead.

That disaster is based on the threat of an unstable and de-valued American Dollar. If Mr. Obama cannot raise the revenue needed to fund all of his programs, he is likely to have more money printed as he did with the bank bailouts after he took office in his first term. One of the impending risks with a policy such is this is hyper-inflation.

Hyper-inflation is not the only threat that faces this Congress and Executive Branch. The dollar is the currency for world market trading. This could be a reason why it hasn’t totally collapsed. However, a de-valued dollar might give other nations a prompt to find another trading currency. This would send the dollar out of control.

Compare Mr. Obama’s plans for endless spending with European Central Bank’s (ECB) OMT program announced by its president, Mr. Mario Draghi. OMT stands for Outright Monetary Transactions and it is a program for the ECB to buy bonds from sovereign nations that request bailout assistance.

Basically, if a sovereign European nation requests funds due to the current Euro Crisis, the ECB will buy their bonds on the secondary market. The sovereign nation, at that point, agrees to let the ECB exercise some control and accountability over the country receiving the money until the bonds have matured and the debt is paid. The ECB has a stake in the economic stability of European Union states because the Euro currency depends on it.

While the European nations, especially Germany, object to this, one still has to give the program credit because it doesn’t print more money. It just moves it around. Thus, currency wars are avoided and the borrowing costs for sovereign nations are lower because the program drives lower bond yields.

Spain was one of the nations opposed to buying into the OMT program. It makes sense because no sovereign nation wants an external entity to control its affairs.

It also motivated the country to implement measures to get things under control. Spain was in a debt crisis. If it didn’t get things under control, the ECB would have stepped in and forced OMT on it. Thus Spain had to make cuts in health, education, and benefits for the jobless. It had to increase its exports and reduce unit labor costs.

Spain’s measures have been successful but not without a lot of pain on the part of the people. How else can it be done? Even in the family household, cuts in spending must be made when debt is too high and income is too low. It is painful but in the end both the nation and family unit survive.

In fact, in the same day as Mr. Obama’s speech, Mr. Draghi met with lawmakers from the Spanish government and came out saying that Spain was on the right path. There was no need to bail Spain out with OMT.

Mr. Obama alluded to the fact that Congress is out of control with campaign contributions, special interest lobbies, unbridled spending, and buying of stock where it has influence.

Will an amicable deal be reached between Mr. Obama and Congress? It won’t as long as there are no checks and balances among the nation’s lawmakers.

Understand that throughout the last few decades, both Republicans and Democrats have been guilty of out-of-control and deficit spending. So much so that Congress has a low approval rating among the American public.

The Republican members of Congress feel the threat of being voted out in the upcoming election next year because Americans are fed up with them. The Republicans feel the pressure from their constituents to do something and at the same time cannot reach a deal with Mr. Obama.

Mr. Obama is going to do everything possible to ramrod his policies and the Republicans may cave in but not amicably. They might concede just to make it appear that they are doing something to help make things better.

Are Mr. Obama’s comments likely to be watched? You bet they are. They will be watched by those seeking relief from unemployment and by those who don’t want employment but like the handouts. They will be watched by a world that uses the dollar as the trading currency. And finally, they will be watched by the spending addicts in the U.S. Government who have for years been high on their drug of choice, the American taxpayer dollar and special campaign donations.

Harder times are in for America if spending is not curbed.