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Thursday, October 13, 2016

Whoever wins in November will be the next Hoover

It is our belief that no matter who wins the Election and serves for the next 4 years it will only be for 4 years and history will ultimately compare that man or witch's Presidency to that of Herbert Hoover

Most people do not know anything about Hoover or more specifically the economic environment which propelled him into office so we'll try to present them as concisely as we can so you can see the comparison to the present..

When Hoover was elected President in 1928, the Republican was riding on a tidal wave of economic prosperity based on nothing solid

The stock market was floating on a seismic economic bubble..
Back in 1921, the Dow was around 70 (It is at 17,982 today as of this writing) and when Hoover was inaugurated in January, 1929, it was around 350..

In other words in a span of 8 years, stock valuations had spiked 500%'

The US economy was back then a creditor nation rather than today where we are debtor but everything has its plusses and minuses..   Creditor means someone owes you and if they delay repayment or never make restitution, then the creditor ultimately gets screwed
The US lent money to over a dozen nations during and after WWI to get the global economy rolling again..  Nations like Britain and France planned on re-paying via the money received through German reparations for losing the war

Once the German economy went kaput and fell into heavy depression opening the door for the Nazi Party to be voted into power, the funds that the Allies depended upon to re-pay debts went dry and then ultimately we never got back the money we put out

A lot of US budget expenditures for the 1920s and beyond were based on projections assuming those repayments were being received..
So ultimately this 1920's economic bubble of bullshit popped in October, 1929 and by the time the market fully reached its bottom in 1932 when FDR took office, the Dow dropped from 350 to 12..  Yes, 12..

One-fourth of the nation was out of work and destitute as instruments of Communism and Fascism tried to tempt Americans away from free enterprise Capitalism.

Historians like to say it took us getting into WWII in late 1941 for the economy to finally get out of the Great Depression but looking simply at stock market charts, Wall Street did not once again reach 350 until 1956, making it a span of nearly 30 years of Dow being lower than 1929 highs..

So lets bring things to the present..
There was that market crash in 2008 which no one in power did anything to fix and very few Americans bothered to really understand what happened, much less make the evil people they continually elect into office accountable for their (in)actions.

No one was arrested.. No one went to jail.. No one went to Guantanamo for the crime of economic terrorism and No corporation or bank paid a fine that really meant a damn

And all under Obama
And while the stock market has not grown 5x in valuation over the last 8 years thank goodness (that would mean a massive Dow bubble at nearly 30,000), it has expanded nearly 12,200 points as the National Debt has doubled to close to $20 Trillion

The website for the Minneapolis Fed which is a branch of the Federal Reserve has an interesting calculator where you can see the valuation of money from a given year in time compared to another

For instance $1 in 1929 when Hoover took office had the same purchasing power as $13.96 today which means for instance Babe Ruth made a salary of $70,000 for the 1929 season which in today's money would be $977,200 -- still, quite a steal compared to today's baseball players
A dollar in 1921 was worth $1.17 in 1931; a dollar in 2006 is now worth 84 cents today..

In other words, people are working longer and harder for salary that provides less purchasing power than they had 10 years ago whereas during year 2 of the Great Depression, people still had greater purchasing power than they did a decade prior

Now let's take a moment to look at real GDP growth..

While it normally seems that the higher the number, the better this is not automatically the case
The ideal rate is between 2%-3%.. in a healthy economy, unemployment and inflation are in balance with the natural rate of unemployment between 4.7% and 5.8% and the target inflation rate at 2.0%.

You'd think the more growth, the better.

However, a healthy GDP growth rate is like a body temperature of 98.6 degrees. Obviously, if your temperature is lower than the ideal, you know you're sick and if too low, you're near death. But a higher temperature also means you're sick; if it's over 100, you have a fever and if it's above 104 degrees for any period, you're deathly ill.
If the economy grows too slowly, or even contracts, it's obviously not healthy. But, if it grows too fast, that's not ideal, either.

In fact, if GDP growth starts spiking above 4% for several quarters, it usually means there is an asset bubble of some kind and remember, all bubbles ultimately pop

When the economy grows too fast, it overheats because there's too much money chasing too few real growth opportunities.
So what happens is greedy capital-I Investors start putting good money into not-so-good investments. When those investments start losing money, confidence is lost. Panic ensues, investors start selling, causing more investments to lose money.

It doesn't end until prices are low enough to stop the madness and attract vulture Investors again.

Here was the real GDP rate between 2003 and 2007:

2.5% in 2003...  3.9% in 2004...  3.2% in 2005...  2.7% in 2006...  2.0% in 2007.
So let's look at GDP over the last couple years:

  Q1     -1.2%     Excuse was lackluster holiday sales.
  Q2      4.0%     High as growth rebounded from a bad 1st quarter
  Q3      5.0%     High due to 16% bump in military spending.
  Q4      2.3%     This was a healthy quarter

  Q1      2.0%     Low number blamed on 'winter storms' ~eyes rolled
  Q2      2.5%     Healthy number as economy rebounded.
  Q3      2.0%     Barely healthy
  Q4      0.9%     Very weak because strong dollar slows exports

  Q1      0.8%     A second horrible quarter in a row
  Q2      1.4%     Still very weak.. 12 full months of GDP at 2% or less
This is the 'great' economy Democrats laud Obama over??

Nothing about the 2008 crash was ever fixed; just papered over and the new President will actually have to deal with the rots in the economic foundation whether he/she wants to or not..

And that will ultimately mean a one-term Presidency and a lot of suffering for many along the way