Power And Dollar

Things The Next President Cannot Fix


Edouard is missing major infrastructure and pushing down the gas prices.  Of course, the gas price will stay low if the demand of gas will stay low.  And there are more in store in the coming years.  For one, the unemployment is climbing up, now 4 years high.  New manufacturing orders is at a 7 seven low.  Hours worked per work is down 4 months in a row.  Interest rate is likely to start hiking up (unchanged today) since inflation pressure has been buildt in for years.  Income tax is unlikely to get a cut.  Higher interest rate probably will entice a stronger dollar.  However, given the state the federal government’s balance sheet, the dollar is unlike to go back to where it once was.  Consumer spending is receding, proving the stimulus was more of a political solution than an economic solution.  And consumer spending has gone to the point where Starbucks has to implement enticing gimmicks.  The housing market has little chance to rebound for a few more months.  How will the next presidency matter?


Very little in the first 2 years, even if Obama wins the grand prize.  If not, Congress will continue to fight another Republican White House.  Recovery packages may take longer time.  If Obama wins, recovery measures will take a shorter time to be put in place, not necessarily they will work.  


An Obama administration will face such a big federal deficit that any reduction is unlikely to come back in black in a short time.  More likely than not, personal income tax / GDP will increase to 10.2% (by Congressional Budget Office) from an average of 8%.  That can be accomplished by

1)       letting Bush tax cuts (from 2001) expire;

2)       letting inflation push more people into Alternative Minimum Tax trap;

3)       letting other tax credits expire passed at various times.  


These are the things the next President probably can fix.


Hot money travels fast these days.  Ever since the tech bubble burst, American housing market became the surest bet for return.  Cutting corporate tax will do little since this time around has less to do with corporate spending and more to do with the bottom half of the population.  


Lifting domestic aggregate demand will be the key.  Therefore, how well (not how long) the recovery will be dependent on the discretionary spending of the bottom half of the population.  Unfortunately, they have a lower voting rate.  And translating that into a one sentence 10 second election talking point is difficult.  


The simplest and least costly fix is to increase the amount of personal exemptions.



August 5, 2008 - Posted by | Barack Obama, Current Events, Democrats, election, Election 2008, John McCain, mccain, obama, politics, Republican, wordpress-political-blogs

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