While most of the speculation about an October surprise has revolved around the probability of an Israeli attack on Iran’s nuclear capability, or a financial collapse in Spain or Italy that drags the Eurozone to the depths, it could be that we already know the October surprise but are either ignoring it or hoping, against hope, that it is not true.
We got a surprise this week with the announcement that JPMorgan Chase lost $ 2 billion in a risk management strategy gone bad. We saw oil prices decline on news of lower than expected economic growth in China, the defeat of President Sarkozy in French elections, and similar results in Greek elections further undermining confidence in the Eurozone. But this is May not October.
What is our October Surprise?
The realization that the US is back in recession. That now seems the most likely scenario for the US economy given the anemic pace of US GDP growth, persistently high unemployment, a declining work force shrinking because more people quit looking for work and thus are no longer counted and continued polls telling us Americans think the country is going in the wrong direction.
But don’t take my word for it. The Economic Cycle Research Institute (ECRI) a New York City-based independent economic research think tank said May 9, 2012 that year-over-year growth in US real personal income has been lower for the last three months than it was at the beginning of each of the last ten recessions. The ECRI has correctly predicted three of the last three recessions. In September 2011 the ECRI said it saw this pattern emerging and now it is reaffirming its analysis telling us that “this is what personal income growth typically looks like early in a recession”.
Some would argue the US feels like we have been in recession or worse since 2008, but data tells us we came out of recession in mid-2009 but our deficit spending levels, fiscal and monetary policy has not produced the kind of robust recovery previously seen. So it is tough to see how digging our fiscal hole deeper with more deficit spending will change things now.
We could tax the rich—if we can find them. California is the poster child —or basket case for that strategy with a deficit now looming to $16 billion from $9 billion at the beginning of the year. California is not only bleeding red ink, it is bleeding people. From 2000 to 2009 California lost a net 1.5 million resident to other states. Only New York lost more—1.6 million residents. Think about that— 1.5 million people is a city the size of San Diego voting with their feet. Yet, on the June primary ballot is a new tax increase on cigarettes and on the November ballot we face the prospect of two dueling income and sales tax increase measures.
So the October surprise is that it may all hit the fan starting in October as voters realize not only is our economy back in recession but that we are staring in the face the prospects of a tsunami of new taxes at the beginning of 2013 from the end of the Bush tax cuts, the end of the payroll tax cuts, the prospects of higher taxes on both the Federal and State levels. Meanwhile it will be obvious to every voter that our current policies are not working.
This is not what President Obama and Governor Jerry Brown want to hear, but it is the reality we all face. The challenge for the President and Governor of California is to define a message and a policy that is something other than more of the same—because that is going to be a tough sell.
The challenge for Republicans now is to present the country with a policy vision they think will work better. Being opposed to everything President Obama is doing is not sufficient and will not overcome our belief that both parties are guilt of the same sins.
They both spend too much of other people’s money and pander to the pet causes of their base. They all lack ‘day jobs’ that force them to live with the laws, policies and regulations they impose on the rest of us. They forget whom they were elected to serve and the longer they are in Washington the more disconnected they become from Main Street. These are the manifest symptoms of confidence lost.
Senator Richard Lugar lost his first primary election challenge in more than 36 years in the US Senate from Indiana to a Tea Party activist this past week. The Democrats said this was the ugliness of the Tea Party cleansing the GOP of moderates. But one of the reasons Lugar was defeated was the realization by Indiana voters that Senator Lugar sold his house in Indiana years ago taking up permanent residence in Washington DC and has not truly been a Hoosier for quite some time.
- Long Time Senator Richard Lugar Loses Primary Election (lezgetreal.com)
- Lakshman Achuthan Boldy Defends His Recession Call (businessinsider.com)
- Lugar has biting words after loss (cnn.com)
- Ousted Richard Lugar’s “Scathing” Farewell Letter Details America’s Partisan, Ideological Mire (themoderatevoice.com)
- Long-serving Sen. Lugar loses to tea party challenger in Indiana GOP primary (mcclatchydc.com)