Obama’s Coming Crash: The President’s Recession Of 2013

Published October 3, 2012

So far, Obamanomics has produced the worst recovery from a recession since the Great Depression. But if Obamanomics is not stopped, next year it will produce renewed recession.

Unemployment will consequently soar back into double digits, and the deficit will rocket to over $2 trillion, the highest by far in world history, as revenues plunge with the economy in the face of escalating public assistance expenditures. That will further explode the national debt, steering us on to the expressway to Greece.

President Obama has already enacted into current law effective Jan. 1 increases in the top tax rates of virtually every major federal tax. That is because the tax increases of ObamaCare go into effect, and the Bush tax cuts expire, which Obama refuses to renew for the nation’s successful small businesses, job creators and investors.

As a result, on Jan. 1 the top two income-tax rates will rise by nearly 20%, the capital gains tax rate will soar by nearly 60%, the tax rate on dividends will nearly triple, the Medicare payroll tax rate will rocket 62% and the death tax will rise from the grave with a 57% tax-rate increase.

That is all on top of the highest corporate income-tax rate in the world (except for the socialist one-party state of Cameroon) under Obama at nearly 40% on average counting state rates.

Yet, under Obama there is no relief in sight. Instead, he has barnstormed the country calling for still more tax increases.

Cost Of Regulation

Under his so-called Buffett rule, the capital gains tax rate would explode by 100%, to the fourth-highest in the world, even though every time the capital gains tax rate has been raised in the last 45 years capital gains revenues have fallen. The objective fact is that people faced with high capital gains taxes simply stop making transactions and the revenue falls rather than rises.

Tax increases aren’t enough damage for this administration. Obama is also busily building a crescendo of increased regulatory costs for next year.

His EPA is effectively implementing cap-and-trade under the Clean Air Act, adding trillions in higher energy costs on the economy over time, along with EPA’s broader crusade to shut down the coal industry. Hundreds of additional regulations are still in the pipeline under Dodd-Frank, threatening the business and consumer credit essential for recovery, along with the wipeout of hundreds of smaller banks.

ObamaCare becomes fully effective in 2014, with vast new realms of regulation already starting to increase the cost of health insurance for employers and others, with more to come.

The employer mandate yet to become effective will require employers to buy the most expensive health insurance possible for their workers, with all of the politically correct regulatory requirements, further destroying jobs.

The Fed is also laying the groundwork for renewed recession, buying three-fourths of the bonds sold to finance Obama’s record trillion-dollar deficits, a historically classic formula for eventual booming inflation, driving real wages down further.

Yet years of record, near-zero interest rates and booming monetary expansion cannot simply be ended without an economic downturn, as investors are misled by the money expansion and artificially low interest rates to make investments dependent on those policies. When those policies end, so does the economic foundation of their investments.

The result is higher unemployment and a recession. That was the pattern of the 1970s, the last time we followed Obama’s disproven Keynesian economics. But the loose monetary policy has to end at some point, or the result will be ruinous inflation.

Dangerous Times

The follow-on to massive paper money is either the kind of hyperinflation that destroyed the middle class and the Weimar Republic in Germany or the kind of stagflation that crippled the Carter administration. Under Carter every sign of growth was cut off by rising interest rates as the economy tried to cope with too much money and too few goods.

Even establishment Washington is recognizing the threat. Christina Romer, former chair of Obama’s Council of Economic Advisors, recently published work concluding: “Tax increases appear to have a very large, sustained and highly significant negative effect on output.”

CBO agrees, projecting in August that the U.S. will go into recession if nothing is done to avert the fiscal cliff.

Even Bill Clinton suggested it would be a mistake not to extend the tax cuts in the current economy. Indeed, even Obama himself said in 2009, “the last thing you want to do is raise taxes in the middle of a recession.”

This is why the economy is already grinding down. We now know that economic growth in the second quarter was merely 1.3% annualized. Orders for durable goods dropped more than 13% in August, the greatest decline since the financial crisis.

Manufacturing declined for the third-straight month, with real personal income also falling again. The Philadelphia Federal Reserve survey is clearly signaling a steep decline in economic activity.

Yet Obama is asking voters to give him more time for more of the same policies to work.

We need to remember that a deeper recession starting from over 8% unemployment will be a disaster that shrinks federal revenues, further increases the deficit and makes the next few years very dangerous for Americans.