Monday, October 27, 2014

Global Trouble Ahead

Almost anywhere you look, economies are weakening and anti-capitalism rhetoric is increasing.  The election results in Brazil are one clear example of both.  Even the American elections are dominated by issues that are unrelated to economic growth and more focused on government competence issues.  Regardless of who wins on November 4th, the steady march away from free market capitalism in the US is likely to continue, even if the big government gas pedal is not completely pressed to the floor.

Asia is weaker, Europe is moribund and the BRIC nations are much, much weaker than a year ago.  Global sovereign debt is, if anything, more out of control than ever, expecially in the US, Europe and Japan.  The perennial optimist Larry Kudlow pointed out that a mere 12 1/2 percent of American exports go to Europe.  True.  But, 30 percent of corporate profits of US corporations are generated outside of the US.  A weaker world means weaker corporate profits.  Earnings announcement this quarter featured gloomy guidance for the future, confirming the weaker outlook.

In almost every case, government is strangling economic growth -- in the US, in Europe, and across the globe.  Capitalism had a renaissance in the 1980s and 1990s, but the 2008 financial crisis destroyed the consensus that promoted capitalism and has led to strangling government intervention pretty much across the globe.  The world is now paying the price for that strangling government intervention.

As is always the case, stagnant economic growth hits the poorest among us the hardest.  In the US, the poor, the minorities are losing ground.  This feeds the "inequality" battle cry, that only serves to make matters worse.  Only the rich and protected prosper when government becomes more active.  We can see that now in the US and in Europe.  While breathing heavily about their support of the middle class, the big government advocates have put in place policies that protect their own privileged status and reduce the economic opportunities of the poor and the middle class.

The stagnant economic climate will only grow worse as long as growth in the power of government continues apace.

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