"So much for that economic 'boom' that President Obama was supposed to have left his successor. That has been the spin among Democrats and progressive economists, but Friday's GDP report for the fourth quarter provided another in eight years of reality checks on the Obama economic record...
"Growth for all of 2016 clocked in at 1.6%, the slowest since 2011 and down from 2.6% in 2015. That marks the 11th consecutive year that GDP growth failed to reach 3%, the longest period since the Bureau of Economic Analysis began reporting the figure. The fourth quarter also rings out the Obama era with an average annual growth rate of 1.8%, which is right down there with George W. Bush for the lowest among modern Presidents.
"You have to work hard to suppress growth after a deep downturn... (Obama) achieved the remarkable feat of slower growth and more inequality." (About that Obama "Boom," Wall Street Journal)
Sounds pretty grim, eh? But we haven't even gotten to the punchline yet. The real kicker is the fact that, had it not been for swelling inventories -- that is, the excessive and unwanted growth in accumulated, cobweb-strewn widgets piling up to the ceiling in warehouses across the country -- fourth quarter GDP would have crawled in at a measly .9%. In other words, Obama's great recovery would have been stretched out stiffly on the emergency room gurney with a sheet over its face before being rushed off to hastily to the nearest belly-puncher. (Mortician)
This is the crapola economy Obama is now passing off to Donald Trump who promises to strengthen growth by cutting taxes, boosting fiscal stimulus and purging all those onerous regulations that protect the public from increasingly-frequent financial meltdowns. Trump figures that all those niggling rules just get in the way of good old profit-making. (Where have you heard that before?)
In any event, Trump promises to lift GDP to a mighty 4% by spending $1 trillion rebuilding America's dilapidated bridges, roads and infrastructure. Regrettably, neither the Fed nor the Senate are prepared to support his plan. "No Growth" Janet Yellen has already indicated that -- at full employment with inflation gradually rising -- she sees no need for additional stimulus which could lead to "overheating," while Senate Majority leader Mitch McConnell has given the spending strategy a big thumbs down unless the plan is "revenue neutral" which is a sobriquet for deep cutbacks in Medicare and Social Security. If McConnell doesn't get his blood money, Trump won't get his stimulus, it's as simple as that.
So, it's gridlock once again, right?
Right. But why would Yellen and McConnell want slower growth when a little splash of stimulus could rev up activity, boost business spending, turbo-charge consumer spending, and get the economy sprinting again? Why?
Because the basic wealth transfer mechanism is different now. Fatcat CEOs no longer make their bones by scraping the gains off worker productivity. Those days are over. The way they beef up profits now is by hustling cash from the bond market that they pump into their own shares, sending stocks into the stratosphere. That allows them to rake off hefty sums from their executive compensation packages while cheery shareholders walk away with a bundle. That's how the game is played now. Ripping off workers is passe' while financial engineering is all the rage.
But like we pointed out earlier, the game can only be played as long as inflation is kept in check. (so the Fed can keep interest rates low) When inflation takes off, the Fed has to raise rates, which means CEOs can't get hold of all that cheap cash floating around the bond market to buy back their own shares. When that happens, the whole scam goes kaput.
Bottom line: Neither Yellen nor McConnell can allow Trump to kick-start the economy, because stronger growth puts upward pressure on wages which lifts inflation and pushes up interest rates. Higher rates are the death knell for cheap money which is the secret ingredient that keeps the nation's wealth flowing upwards to the glorious 1 percent. That's the whole deal in a nutshell.
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