Tuesday, August 02, 2011

Here is why Obama lost the battle over raising the debt limit (hint, it's not for the reason the talking heads are citing)...

There is NOTHING in the deal that is going to make America come out of its economic shell. Just as in the 1950s, where fear about nuclear war led Americans to stockpile canned goods, uncertainty today over the economy are resulting in American businesses and consumers stockpiling cash and not making investments in new hires, new lines of business and plant and equipment (acknowledging that there are always some whose circumstances allow them to run counter to the masses).

And this deal didn't do much of anything to reassure people that economic disaster is not in the not-too-distant future. All of the bad things the doom and gloomers are warning about are still on the horizon: a government borrowing 40 cents out of every dollar it spends, a debt measured in 14 digits, huge unfunded Social Security, Medicare and Medicaid liabilities, huge unfunded government pension liabilities and so on. Yes, not as bad as without the new limits, but still very, very, very bad indeed.

And as the only thing that will get this economy going again is to remove the fear that is keeping people from increasing their spending and investments, the failure of the debt deal to remove that cloud pretty much means that the economy will not recover to any significant degree.

And without a recovering economy, Obama's chances of a second term aren't too bright.