Posts Tagged ‘Depression’

Captain Rick: 2012 is drawing to a close with no congressional deal in sight, which means the ‘Fiscal Cliff’ will happen automatically, by law, on January 1, 2013. The ‘Fiscal Cliff’ is a combination of the expiration of temporary tax cuts and spending extensions and other spending cuts from laws passed previously. In total, it reduces half of Americas deficit ($600 billion per year…approximately $7 trillion over the next 10 years). Previous laws allowed America’s staggering national debt to be raised to keep the U.S Government running in exchange for the ‘Fiscal Cliff’ if the congressional appointed ‘super committee’ did not produce a better solution. No agreeable alternative solution was found, as appears likely with current negotiations…so America will most likely witness the ‘Fiscal Cliff’, by law, on January 1, 2013.

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‘Fiscal Cliff’ Solution Scenarios:

Scenario of Congress agreeing to stop, postpone or ‘water down’ (lower) the ‘Fiscal Cliff’

Captain Rick’s chances of this happening: Near 0%

Captain Rick’s rating for such action: “F” (FLUNK)

Captain Rick’s prognosis: While this is what is being portrayed by the news media as the best solution, it is mathematically impossible and fiscally irresponsible…because America’s National Debt Clock continues to tick. Its just a short time before America will need to raise the debt ceiling again, because it spends $1.2 trillion more per year than it receives in revenue. That will foster ‘Fiscal Cliff 2’…perhaps twice as high as ‘Fiscal Cliff 1’. Keep in mind that even if America were to balance its budget (a far off dream), it would be left with its staggering debt of $16.2 trillion and its annual interest of $258 billion, the 5th largest U.S. expenditure of tax revenue. This money is paid to America’s debt holders…the largest being Japan and China.

Scenario of America going over the ‘Fiscal Cliff’

Captain Rick’s chances of this happening: Near 100%

Captain Rick’s rating for such action: “B” (Best possible current solution, but America can and must do much better in the future)

Captain Rick’s prognosis: As horrible as the news media has made the ‘Fiscal Cliff’ sound, it is Americas best hope to get ‘back on track’ to prosperity. Yes, it might mean a small drop in GDP and small rise in unemployment…but that is far better than a large drop in GDP and large increase in unemployment and possible recession or even depression a few years from now if America does not confront its extremely serious debt problem ‘head on’ NOW.

Captain Rick’s hope for the future of America

Once we go over the ‘Fiscal Cliff’ and begin to realize the shock of it all, our Congress needs to ‘come to bat’ for America and produce constructive legislation to fix a few urgent, very serious problems like the Medicare ‘Doc Fix’. Historically congress provides for a periodic ‘cost of living’ adjustment for reimbursement to Medicare doctors. This years adjustment has been stopped by the ‘Fiscal Cliff’. If this is not fixed, eventually many doctors might stop seeing Medicare patients, leaving them without a doctor. Congress will also need to begin serious reform to its entitlement programs…Medicare, Medicaid, Social Security and federal pensions, which have expenditures growing at astronomical speed in comparison to tax revenue. The U.S. fiscal problem is monumental and deserves our immediate attention now, in an effort to ward off significant fiscal failure of the U.S. with a ripple effect to the entire world in years to come.

View Captain Rick’s entire FISCAL CLIFF Course 101:

The recent GDP estimate of 1.6% growth is anemic. It sounds an alarm that the unemployment rate will be on the rise. I predict a “Double Dip Recession” and this will be a “Lost Decade”. 
The broadest gage of our economy is the GDP (Gross Domestic Product) Growth Rate.
It is calculated every quarter by Uncle Sam. It captures the total value of all US goods and services.
REAL GROWTH: A GDP growth rate above 3% reduces unemployment (light shaded upper band on chart in the link below).
A GDP growth rate of 5% for 4 quarters is needed to reduce the US Unemployment Rate by 1%.
ANEMIC GROWTH: A GDP growth rate of 0%-3% increases unemployment (darker shaded middle band on chart in link below).
In this area, our economy can not provide enough new jobs to keep up with new graduates entering the workforce. 
RECESSION: A GDP growth rate below 0% for 2 or more quarters (lighter shaded lower band on the chart in link below).
DEPRESSION: A GDP growth rate below -10% for 4 or more quarters.
Captain Rick’s Past Economic Projection Score Card of correct calls:
2006 US Real Estate Market Crash
2008 US Bank Meltdown
2008 US Stock Market Crash
2008 US Recession
2010 European Financial Crisis
Pending…..US & Europe: Double Dip Recession 2011-2013
Pending…..US & Europe: Lost Decade 2006-2016
Pending…..China: Real Estate collapse 2011-2013
Pending…..Canada: Real Estate collapse 2011-2015
Captain Rick’s Economic Projection:
The recent significant reduction in the estimate for the US GDP rate (1.6%) for the second quarter of 2010 is alarming.
It adds fuel to the projection of a “Double Dip Recession” by many economists.
What I find to be of much greater concern is the dominance of all but 3 of the past 18 quarters lying in the “Anemic Growth” or “Recession” range. That signals a very strong possibility that we are in a period that some economists refer to as a “Lost Decade”, one that has little or no real growth.
Scanning the economic horizons, I see no economic engines in the US that will move the GDP growth predominantly above that 3% line any time soon.
I predict that we will see a “Double Dip Recession” and this will be a “Lost Decade”.  
Captain Rick’
. . . My economic perspective presented thru the eye of an engineer and a lifelong student of economics.