The Federal Reserve and Obama have created a financial asset bubble that is already 20 times larger than Bush's housing bubble.
The Federal Reserve is still inflating the bubble at the rate of $1tn a year.
Bubbles have now been created in :-
Sovereign (government) debt
Corporate debt
Junk bonds
Municipal debt
Stock markets
Housing
Student loans
When this bubble blows the fall out will be far greater than the so called "financial Armageddon" of 2008.
The bubble is much bigger and will burst in a far more fragile economic environment.
The long term, 200 year, average of the interest rate on U.S. government debt is 5 to 6%.
The current interest rate is 2.6%.
Eventually the market will revert back to mean (usually markets over correct for a while).
So we can expect U.S. 10 year notes to go above 6%.
The Fed and the CBO are planning on a gradual rise in interest rates to 5%.
But markets do not correct slowly after bubbles, the correction always happens very suddenly in a financial crash.
So why the Fed asks, have we not seen major price inflation with all this printing we have been doing?
The answer is very simple and very similar to why all the voodoo economists could not see the 2001 and 2008 crashes coming.
The answer is that the massive Fed printing has been counter balanced by other things.
Principally it has been counter balanced by a massive global over supply in cheap labor.
So we do not see any wage inflation pressure whatsoever.
In the run up to 2001 and 2007, globalization (principally China and India) exported price deflation to the West.
This counterbalanced the Fed's printing and we saw very low rates of Western price inflation.
But none of the voodoo economists were mentioning this in the run up to 2000 or 2007.
Globalization added 1 billion potential new workers to the global cheap labor supply, that could now do Western type jobs in manufacturing and servicing.
China still cannot create enough manufacturing jobs to satisfy the demand for migration from poor rural areas to the cities.
India is now getting into economic trouble.
There are very high levels of unemployment throughout Europe and in America itself.
China is now starting to use even cheaper African labor. They are building a massive factory complex that will eventually employ 10,000 people and manufacture $4bn worth a year of cheap shoes for export, in Ethiopia.
There are other under utilized cheap labor supplies in the rest of SE Asia, e.g. in Vietnam, Malaysia and Indonesia.
In the run up to the end of the 2000 and 2007 there were mal-investments and the misallocation of capital.
In 2000 it was the internet bubble where people put money into lots of worthless internet stocks and over inflated the price of stocks generally.
There was also a massive amount of IT hardware spending, to replace old equipment to resolve the Y2K problem. Spending that was merely brought forward from future years.
In the run up to 2007 there was a speculative bubble in housing, bank shares and government debt.
A lot of Southern European government debt but also elsewhere in Europe and America itself.
The bubble in housing was obvious to anyone with even a modicum of economic knowledge or financial history.
The bubble in Southern European debt was also obvious to anyone with a small amount of economic knowledge.
The free market interest rate on any sort of borrowings is NOT 2%.
The free market interest rate on loans that are considered "safe" is 5% to 6% see above chart.
If you go even farther back in history - safe loans were made in the Middle Ages at around 5% interest.
The fact that the Greek government were lying about the state of the government's finances (with the considerable assistance of Goldman Sachs).
http://ian56.blogspot.com/2012/02/greek-debt-crisis-root-causes.html
The massive Spanish housing bubble etc.
The Situation Today
The situation today is very similar to the Bush "recovery" from 2003 to 2007.
So similar in fact as to be an almost exact duplicate, except that the bubble is already 20 times larger than Bush's bubble and the overall economic conditions are now far worse.
Jobs and Unemployment
Bush's "recovery" saw the weakest job creation record of any President since World War 2.
https://en.wikipedia.org/wiki/Jobs_created_during_U.S._presidential_terms
Bush's record will probably be surpassed by Obama by the end of his term.
In addition most of the jobs created during Obama's term are minimum wage, low paid or part time.
While a lot of the jobs that have been lost were relatively well paid.
http://www.nytimes.com/2012/08/31/business/majority-of-new-jobs-pay-low-wages-study-finds.html?_r=1&
If we were able to compile a chart of TOTAL American wages by Presidential term, Obama's record would now be considerably worse than Bush (who would of been the previous holder as the worst President since WW2).
But such data is difficult to compile.
The Federal Reserve and the government do not collect it and don't want the public to be able to see it.
It might cause a riot.
Meanwhile real unemployment is now much worse than it was under Bush.
Even the government's own
BLS (Bureau of Labor Statistics) says that unemployment is much worse than it was under Bush.
See the grey U6 unemployment line in the above chart.
The headline unemployment number (red line) merely reports the number of people that are claiming unemployment benefits NOT the actual number of unemployed or under employed people.
(If you work 1 hour a week, you are not unemployed - but that is hardly going to get you a livable income.)
Labor participation rates show no signs of recovery
The massive printing by the Federal Reserve is not helping the economy or job creation - quite the reverse.
With the appointment of Janet Yellen as the next Federal Reserve Chairman we can expect things to get much worse.
81.5% of all the currency printed in QE has gone straight to the banks balance sheets and nowhere else.
The big banks already have $1.7tn of excess reserves.
They could loan out another $17tn tomorrow, but with current economic policies nobody wants to borrow it.
$1tn of the Federal Reserve's currency printing has gone to partially bail out insolvent European banks.
About another $20tn will be required to bail out Europe.
The velocity of money has slowed to below the worst levels seen in the Great Depression of the 1930's.
The excess of currency printing is being used for short term speculation and malinvestments - just like it was during Bush's tenure.
It is being used to further inflate bubbles, just as the excess printing was during Bush's term.
The currency being printed is not going into productive investments like Capex (Capital Expenditure) by Corporations, which would create well paying jobs.
Large Corporations are sitting on their $2tn cash pile and not spending it.
Economic conditions do not warrant gambling on increasing capacity.
The economy is contracting in real terms, not expanding and the average American has less money to spend every year.
How Federal Reserve policy is lowering future GDP growth and raising unemployment.
http://ian56.blogspot.com/2013/01/the-2tn-of-excess-bank-reserves-is.html
Paul Krugman admits that the Federal Reserve is damaging the US economy
http://ian56.blogspot.com/2013/07/paul-krugman-admits-that-china-has-been.html
How the Federal Reserve is expecting the American taxpayer to bail it out on it's multi trillion dollar future losses.
http://ian56.blogspot.com/2013/02/there-is-no-way-out-for-federal-reserve.html
America's economy is contracting, not expanding in real terms.
Everybody in America is becoming worse off in real terms, except for the speculators and the owners and boards of the crony Corporations.
Real inflation is between 6% and 9% not the 1.5% that is the official cpi rate.
The solutions to America's Problems
The solutions to America's problems are relatively easy.
But neither extremist party has any inclination to fix anything - it would hurt the profits of their large Corporate donors.
Cut Corporate Welfare by $1.3tn a year.
Cut taxes on the poorest workers - raise the income tax thresh hold to $45,000 from $8,500.
Cut the Corporate Tax rate to 25% (and close all the Corporate tax loopholes and crony tax breaks).
Make the first $100,000 of profits tax free to help small businesses (as Singapore does).
Reverse the payroll tax hike.
The above will reverse recent trends and get bottom up spending and recruitment going again.
The above tax cuts will only cost $650bn a year. What do you want to do with the other $650bn a year?
Stop the Federal Reserve from printing $1tn a year to bail out the big banks.
Break up the Corporate cartels that now operate in each major industry.
End the Federal Reserve and the IRS.
Reinstate the Constitution and the Bill of rights.
As two of America's top Generals have recently called for.
http://www.wnd.com/2013/11/u-s-generals-now-take-action-to-watch-obama/
Reinstate the Rule of Law on large Corporations and wealthy elites.
Punish wrong doing and fraud with deterrent penalties.
Send the CEO's of the major banks to jail for 30 years and see how quickly Wall Street can be cleaned up.
More details on the solutions to America's problems are at the bottom of this, together with many more economic charts and more details of Obama's policies :-
http://ian56.blogspot.com/2013/10/all-of-policies-of-federal-government.html
Debt Ceiling deal - winners and losers
http://ian56.blogspot.com/2013/10/debt-ceiling-deal-losers-and-winners.html
Scrap Obamacare and do some things to actually make Healthcare more affordable in America.
Obamacare is the worst scheme that anyone has come up with so far for providing Healthcare, anywhere in the world
http://ian56.blogspot.com/2013/11/obamacare-is-worst-scheme-that-anyone.html
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