Economic recovery claims contradicted by reality

by Sen. Doug Whitsett

One of the more contentious issues during the first presidential debate was how the candidates portrayed the state of the U.S. economy. Democratic nominee Hillary Clinton depicted a nation undergoing solid economic growth, on the cusp of breaking out into a full-scale expansion. Republican Donald Trump warned of an immense economic bubble that is poised to burst and result in a severe economic recession.

Both assured those outcomes will occur sooner rather than later. Unfortunately, the available economic data suggests that the Trump prediction is most likely to take place.

The erosion of the American middle class is measurable.

According to the U.S. Census Bureau, the average American family is not participating in an economic expansion. Median household income has been outpaced by inflation during the entire Obama presidency. Their data shows inflation adjusted U.S. household income is down eight percent since 2007.

Meanwhile, according to the Federal Reserve, the combined household credit card, auto and student loan debt has reached an all-time high at $3.62 trillion. That does not count the nearly $8.4 trillion in outstanding home mortgages.

Clinton boasted the rate of U.S. unemployment has been cut in half since 2010. What she failed to mention is that the Bureau of Labor Statistics (BLS) changed how that figure is calculated in 2010. Virtually all of the decrease in unemployment rate percentage since 2009 has resulted from reducing the workforce participation rate.

BLS figures show that the percentage of Americans who are participating in the U.S. labor force has fallen about three and one half percent since 2008. By BLS definition, millions of jobless people have been removed from the labor force. Applying the old measurement standards, U.S. unemployment is likely between 15 and 20 percent.

Family participation in home ownership is at a 50-year low, despite sharply increased home values. This has occurred even though home mortgage interest rates are near historic lows.

Huge investment firms have used those low interest rates to purchase tens of thousands of homes, driving family housing values artificially higher.  If mortgage interest rates were closer to their historic rates of between six and seven percent, current median home values would have to fall at least 30 percent in order to enable an average family to participate.

The U.S. stock markets are near record highs while the American stock ownership participation rate is at an all-time low. Many large investment firms are using low-interest loans to make highly leveraged stock purchases. These high-margin debt transactions have driven the price-to-earnings ratios of stocks to near historic highs.

Federal Reserve fiscal policy appears to be the primary driver of escalating housing and stock prices. Large investment firms are able to access enormous quantities of low-cost cash to make huge leveraged investments.

Over the past several years, about 60 percent of all stock index price increases have occurred on the day the Fed announced discount interest rate policy. Most family and other small stock traders have no way to either anticipate or participate in these big-profit opportunities.

According to the Deloitte University Press, Americans older than 50 years of age own at least 83 percent of privately held U.S. wealth. They own most of the businesses that create the majority of private sector jobs and they pay the preponderance of the national tax burden.

Much of their accumulated wealth will be sequestered in savings and secure investments during the next 20 years. This reality will likely slow long-term economic growth because their money will no longer be invested in higher risk, job-creating business growth companies.

Meanwhile, the United States has fallen to 12th among developed nations in terms of business start-up activity. The creation of new U.S. businesses is currently at a 40-year low. In fact, business “deaths” have surpassed business “births” in this country during the entire Obama administration.

The U.S. sovereign debt now exceeds $19 trillion. That liability has nearly doubled during the Obama administration. Worse, our nation is now financing about 70 percent of its own new debt.

The total federal government debt surpasses $200 trillion when unfunded future Social Security and Medicare liabilities are included along with the cost of a plethora of promised unfunded future entitlement benefits. That enormous sum represents more than $650,000 in debt for each man, woman and child currently living in the United States.

The devaluation of currency is history’s greatest confiscator of private wealth. Virtually every other nation in modern history that has accrued such phenomenal debt has eventually undergone hyperinflation. In my opinion, the U.S. dollar’s status as the international currency of choice is the only barrier preventing the wholesale devaluation of our currency. We all should take notice that several creditor nations have recently been quietly divesting themselves of U.S. bonds.

Most politicians find it politically inexpedient to publicly discuss these troubling realities. As a businessman, Mr. Trump appears to be the exception. We should appreciate his candor.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls