Some Predictions If Things Hold Steady

Posted by Jeff Carter
on September 28th, 2012

It’s an election year. Polls are all over the place, but Intrade right now predicts an Obama victory. But in my opinion, the world economy, and US economy have a lot of headwinds.

World GDP output isn’t exactly stellar.

World GDP Growth data by YCharts

Recently, China decided to stimulate their economy. But US growth is horrible. This is the worst recovery from a recession in US history, and it’s because of bad policy.

US Real GDP Growth data by YCharts

The US is approaching the fiscal cliff with each passing day. Assuming Obama’s re-election, we will have the largest tax increase in US history, combined with the largest spending increases in US history over the past four years. That’s recessionary.

France put out it’s budget today. Obama is envious. 75% top tax rate. 45% for lesser earners. High corporate rates too. We know that Spain and Italy’s economic growth is devastated. Only the French and Germans hold up the EU. The French economy has had 0% growth for nine straight months. This budget will cause talented French workers to flee the country. Business won’t expand. The extremely wealthy will leave. That leaves it to the Germans to prop up the EU and they will be fighting a losing battle. I predict a massive recession in Europe, which could finally lead up to an EU breakup.

Interestingly, inflation in the EU is picking up. 2.7%. They could be looking at something worse than a recession, but a recession tinged with stagflation.

The US is quietly slowing too.

US Durable Goods Orders data by YCharts

ISM Manufacturing Production Index data by YCharts

The Federal Reserve knows it. They are on permanent quantitative ease, and are out of bullets. Only good sound fiscal policy can save us and Obama’s re-election guarantees that won’t happen. Welcome to the fiscal cliff. The US will go over it.

The smart money managers are selling into this Uncle Sugar rally.

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