November 2016: The Economy and the Election, an Alternative Scenario

It is Friday and time for some speculation and fun. It would be great if all goes right in the next four years. Employment increases, peace and prosperity, and joy and the rule of law returns for all.

 

I once made a comment to a colleague of mine that things could not get worse. He replied, "oh yes, they can." In that instance he was right. So have a bit of fun and skip ahead four years. It is now November 2016.

 The unemployment rate in the country towards the end of 2016 hovers around 16.6 percent. The United States has undergone two major recessions. Interest rates for short-term obligations of the United States are 19 per cent; inflation is about 1.5 percent per month. The credit agencies have down graded the sovereign debt 5 times in the last 4 years. The national debt has passed $24 trillion dollars; the deficit is projected to be an additional 2-½ trillion dollars in fiscal year 2017.

How did it get that way?

It all started in 2013 when Congress failed to extend the tax cuts. It decided to raise the taxes on upper income taxpayers plus every working family also had a tax increase due to the expiration of the employee social security tax cut. Taxpayers saw their capital gain taxes increase as well as taxes on dividends, which caused a massive sell off of the stock market.

The contraction of the economy started immediately and consumer demand waned, slowly at first but by the middle of the year the economy was in trouble. Regulation after regulation flowed from the executive branch, previously held back before the election.  In order to cut costs, employers started to put employees on a part time basis because of the new health care requirement. As more people had their incomes reduced, the economic problems expanded.

In September 2013, the Euro zone collapsed. Riots, looting and massive civil unrest occurred in Spain, (unemployment of 42%), Greece (sold the Acropolis) and Italy (no one noticed). There were also riots in Germany, as German citizens demanded the burdens of any bail out not be imposed on them. The Merkel government fell. Interest rates rose to double-digit levels. France was on holiday.  Citibank and Bank of America teetered on insolvency and then put in receivership, the government unable to muster a consensus to bail them out. 

In November 2013, Israel bombed the nuclear installations in Iran. The United States remained on the sidelines for a few days (paralyzed at the top by indecision) until an attack by missile carrying torpedo boats sank three U.S. ships in the Persian Gulf, plus two BP massive oil tankers.  Oil prices rose to $225 a barrel on the first day and up to $345 with in a week.

The government forced to act and without Congressional authority bombed Tehran killing over 10,000 civilians by mistake. Drones using Windows 8 had a glitch. Retaliatory attacks by Muslims were made on U.S. businesses and military installations all over the world. The economy plunged, businesses shut down. At Obama’s urging Congress immediately began spending, mostly transfers to state and local governments to keep public workers employed and to fund basic and necessary programs like planned parenthood and public television. 

Fuel oil for heating became scarce and unaffordable. Gasoline prices hit $8.50 a gallon. The Administration instituted a program by ex parte order for rationing and price controls but it had little effect. The President urged more tax credits for solar energy. The government also instituted a program of cutting trees in national forests to supply a source of heat, not knowing green trees do not burn well.  Law suits by the Sierra Club put an end to the program. Electricity production was already curtailed due to most coal burning plants being shut down due to new EPA green house gas regulations. People were commanded to have only 3 light bulbs on at a time and oven tempertures could not exceed 250 degrees for cooking. 

Sensing weakness and opportunity, China after a recent military coup announced in January 2014, it intended to re-occupy Taiwan. If the move was opposed, they would stop buying U.S. debt and were prepared to use whatever military force necessary to achieve their goals. Seeing no option, the Obama Administration beset by economic chaos and fighting in the Middle East had no military resources left to draw upon and acquiesced. Trade between the countries virtually came to a stand still for months, depriving many businesses goods manufactured in China. Price of products at Wal-Mart rose.

Interest rates began to climb and attempts by now Fed Chairman David Axelrod to flood the market with liquidity only worsening the situation, fueling inflation. Tax revenues declined and the deficit ballooned.

After months of turmoil the situation in the Middle East calmed down but the damage was done. Attempts by the President to rally the country failed.  His plan to add more stimulus was rejected and he vetoed proposal after proposal put before him by Congress. Democrats lost 12 Senate and 45 House seats in the November 2014 election.

The new Congress unfortunately was too timid. Taxes were left high, regulations unchecked and automatic federal spending at records rates. Declining energy prices help stabilize the situation for a time but the flood of money from the Fed and the increase of interest payments on the debt hampered recovery. More banks failed and were liquidated.  Public assistance programs were strained and left depleted. In a classic catch 22 situation, the more the government did the worse it got.

On Halloween night 2016 President Obama declared martial law and installed a board to take over all media, publications and communication services in the country. Lawsuits were filed but the Supreme Court in an opinion issued next day by disbarred lawyer William Clinton upheld the President’s authority. Seems like it was a tax of some sort involved. The election was cancelled and Obama appoints himself as Protector of the Realm.

Oh well, got a bit carried away at the end. However, in all of this is the story that events have consequences and many events are out of our control. The election had consequences, the decisions our leaders make on our behalf have consequences and now we shall see.