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It is the economy, stupid!

Published September 29. 2012 09:03AM

Our economy is in a technical recovery, yet we are not experiencing the expected growth that normally comes with a recovery. Our corporations have performed well and have accumulated hordes of cash. Unfortunately, as long as President Obama is in office, many corporations will not expand in America. Instead, they will continue to keep their money overseas. Depending on the statistics used, there is between one and two trillion dollars sitting in corporate accounts in other countries. Income taxes have already been paid on these funds in the countries where the money was earned.

Our corporations have not repatriated these funds as they will be taxed an additional 35 percent if the money is returned to the United States. A company like Apple has over $15 billion held overseas. They would end up paying $5 billion in taxes should they repatriate that money. Google, with almost $20 billion in cash stored overseas, would be in an even worse position. They are better off investing these funds in their foreign subsidiaries or buying foreign companies. That would keep the cash beyond the grasp of the IRS. While Mitt Romney champions the phrase "it's about jobs stupid" the real issue is that it is about funding economic growth.

The economy must expand before their will be real job creation. It can't expand sufficiently until corporations invest in new products, plant, and equipment here in the United States. They had been leery to do so and as a result our economy is shrinking. Since President Obama was elected, household income is down 8.2 percent. An additional 12 million people receive food stamps. That is a 34 percent increase. Obama and his socialist cronies continue to hobble the economy with downright foolish legislation and the threat of tax increases. The message these buffoons are sending to corporate America is simple: take your money and your jobs elsewhere.

New regulations continue to place a burden on small businesses. In past recessions it was small business and new business creation that propelled us into economic recovery. Those who are currently unemployed can expect to remain unemployed indefinitely. Those over 45 may never get a job as good as the last job they held prior to being laid off. With the shift in economic growth overseas, high paying jobs will be created in other countries, not in America. While the Bureau of Labor Statistics (BLS) shows a slight improvement in the unemployment numbers, this is a result of massaging the numbers. The BLS drops those who have been unemployed for an extended period, as they are considered "no longer looking for employment". If a person is unemployed through no fault of their own for about a year, even if they are looking for work every day, the BLS says they are not actively seeking employment.

As of May of this year, over 88 million Americans were considered "not in the labor force".( In August, there were 1,267 mass layoffs resulting in 127,454 people joining the ranks of the unemployed. A mass layoff occurs when a company lays off 50 or more people. ( The fear of job losses has resulted in American households saving money and reducing their debt. Some are increasing their savings while others are buying gold and silver to hedge against inflation and the breakdown of society as we know it. In the past year Americans have been pulling money out of the stock market and putting it into "safer" investments such as bonds, certificates of deposit and their savings accounts. They are trading higher returns for safety and as a result will likely miss the next stock market rally.

Two industries are critical to the growth of our economy. These are the automobile industry and the housing industry. Americans are repairing their cars rather than replacing them. We are seeing an uptick in automobile sales however auto sales are below the level required to revitalize the automobile industry. Housing starts are also showing an upward trend again but are not at the pre-recession level.

So what is the answer? In my opinion, we have to get money that is parked in bank accounts and low risk bonds moving again. This means creating an environment where corporations want to invest in America. We need people to purchase capital goods that will in turn fuel business expansion. This cannot happen given the current economic uncertainty. The government needs to get out of the way and let our businesses expand. This means stable tax rates for the next five years. It means a suspension of new regulations. Most of all, we need a repeal of ObamaCare as it will crush small businesses when it is fully implemented.

Those who think that Mitt Romney will be able to turn the economy around are partially correct. Mitt Romney has yet to reveal his plan for reinvigorating America or any other details on how he intends to improve our economy. If he is elected in the November, America will breathe a sigh of relief. A new president will lift the spirits of the people and they will start spending and investing in equities again. I expect that investors will move out of low interest-bearing bonds and bank deposits and back into the stock market. Whether they invest in individual stocks or mutual funds, the result will be the same. The stock market should go up and with it the spirits of the American people.

But let's get real! As it now stands, President Obama will win the election. All of the polls are in his favor. Those who are feeding off the government teat will vote for Obama. The polls suggest that a majority of those on Social Security will also vote for Obama. That said, many of our senior citizens would vote for Romney as they believe he is the best man for the job.

I believe that we must stop expanding social programs. We can no longer afford to be a welfare state. We must expand our economy by encouraging small businesses and large corporations to invest in America. We need new factories! We need new products that are made in America! We need to create high-value rather than minimum wage jobs. We need to build strong management in our corporations that select and implement the best ideas available. Most importantly, we need to put Americans back to work again.

© 2012 Gordon Smith

All Rights Reserved

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