Hogan vs. Obama on fiscal responsibility

Last week, Governor Larry Hogan (R) reduced toll rates in Maryland. This was a small victory for working families and small businesses. It is noteworthy that, at the same time, Governor Hogan was able make reductions to the $800 million budget deficit that Martin O’Malley (D) left for him. Governor Hogan cut some wasteful spending, while also approving a record amount of money for education. Hogan has increased spending on Maryland students by $109 million over current levels established by the O’Malley administration and has provided an additional $290 million for school construction across the state in next year’s budget.

Despite a political smear campaign that tried to spread rumors that Hogan was against education and he cuts educational funds.  The Governor himself said that “We haven’t cut education. I’m spending more on K-through-12 education than any governor in the history of the state. We actually increased spending on education.”

Even liberal columnist Barry Rascovar wrote in his column that:

“Looking down the road, Hogan faces even more daunting budget difficulties, Indeed, DLS puts the state’s combined deficit at $1.165 billion for fiscal years 2019 and 2020.
As bad as this sounds, it is a huge improvement over what O’Malley left behind: a combined estimated deficit for those two years of nearly $2 billion. Hogan reduced that future imbalance by 41% in his first budget.”

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Governor Hogan’s first 3 months in the office are remarkable despite the by extreme liberal Maryland General Assembly obstacles. In the meantime, under President Obama (D) the country faces major financial problems and is heading in the wrong direction. Despite the fact the Labor Department just announced on Friday that the unemployment rate stands at 5.4%, the lowest since May 2008, the American workforce is not healthy. The 5.4 % excludes discouraged workers (people that “stop” looking for a job). Today, we have the lowest labor participation rate since 1977 – only 69.45% of working age population are in the work force, a staggering 93,194, 000 people out of it. Some economist would argue that the real unemployment number is 27.6% but adjusted number if we were to include 8.8 million of people who are 65 and older that are still in labor force the number will be 30.7%.

In April, the United States economy created only 223,000 jobs and that includes part-time, full-time, seasonal and permanent jobs. If a person holds two part-time jobs then this person will be included twice in the statistics.   For every manufacturing job added in April, there were 26 new waiters and bartenders. The U.S. Commerce Department just published 0.2 % GDP for the first quarter of 2015. That number may even be overstated, it is subject to further revision based on more data. Some economist estimate that it could decline to -0.5%. The U.S. has $51.4 billion trade deficit in the first quarter that is the biggest one since 2008.

However, none of this is reflected in the financial news of day focused on the stock market’s reaction to bad economic data. The stock market has stopped reflecting the reality what is actually happening with the economy and instead only reflects how much manipulation investors expect from the Federal Reserve.

The stock market is only concerned with Federal Reserve manipulation in the forms of interest rates and Quantitative Easing (QE), so far there have been QE 1, QE2, QE3 and Operation Twist. Bad news is good news to the stock market because investors are speculating that the Federal Reserve will not be able to raise rates in the face of such a sluggish economy. And there is plenty of bad news.

Since the beginning of May major manufactures have announced layoffs U.S. Steel is laying off 9,000 people, Dow Chemical 1750 people, First Data Corp. 2000 (preliminary number). Thousands of oil workers were laid off this winter and spring.

Seventy percent of U.S. GDP depends on consumption. We are the nation of consumption and not production. Most U.S. manufacturing (production) jobs left to other low wage countries. We just consume what comes out of these countries. Today, Americans have less money to spend on discretionary goods and services due to soaring food and energy prices, despite “core” inflation being low by excluding those things. Democrats would argue that the best approach is to increase the minimum wage. However, job creation remains stagnant and this will only further exacerbate the underlining current economic problems. Companies, in particular small businesses, the backbone of the economy, are struggling. Government wage mandates and ObamaCare regulations costs will just mean less jobs.

In response to the financial crisis and Great Recession, the Obama administration simply re-inflated the equity bubble. President Obama proudly spoke about it at the State of the Union in 2015 “At every step, we were told our goals were misguided or too ambitious, that we would crush jobs and explode deficits. Instead, we’ve seen the fastest economic growth in over a decade, our deficits cut by two thirds, a stock market that has doubled and health care inflation at its lowest rate in 50 years. (Applause.)”

On May 6, 2015, the Chairwoman of the Federal Reserve, Janet Yellen noted dryly that the $4.5 trillion Fed balance sheet we created has led to quite high equity valuations.” The Federal Reserve has teased markets with the possibility of increasing interest rates, but this appears increasingly unlikely as the Fed will not want to kill the “recovery.” However, at some point, the Fed’s easy money policies could jeopardize the strength of the U.S. dollar, the world’s reserve currency. Currently countries around the world purchase US dollars and pay fees on their purchase of the US dollar so they could keep it in the their reserves. The world uses the U.S. Dollar as a reserve because they have confidence in the US economy.

The stock market bubble will burst eventually. Structural mistakes were made a long time ago when President Clinton repealed the Glass–Steagall Act that lead to “Too Big to Fail” financial institutions in 2008, and then the Democratic controlled Congress and Obama passed the Dodd-Frank law that has led to even bigger “Too Big To Fail.” The Federal Reserve generated a lot of liquidity with almost 0% interest rates via Quantitative Easing that only big corporations benefited from and not the main street. American manufacturing jobs were sold to other countries through bad trade deals.
The United States cannot spend its way out of this struggling economy. The Obama administration has doubled the national debt. Currently, it’s over $18 trillion of dollars it will take us over 398,879,561 years to pay off the US government debt  under current conditions of “low” inflation rate and average US salary $44,888.16 for fiscal year 2014 per (Social Security Administration). Or over 4,000 years to pay off if we just pay $10,000,000 per day. The total current ratio of U.S. debt to U.S. GDP is 296% that is not including $120 trillion of unfunded liabilities such as Social Security, Medicare, Medicaid, etc.

When Larry Hogan took office, he said his administration would be an “attempt to reverse the unsustainable fiscal path we have been following and break the cycle that this state has found itself in year after year.” Maybe someday the future U.S. President and Congress will show the same type of leadership as Governor Hogan.

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