Shaky road ahead.

The economic signals have been mixed at best in the last few weeks. Unemployment numbers have been disappointing. Except for the masters of spin, it is hard to find good news in the creation of census jobs. The manufacturing indicies have been slowing. The Gulf disaster will surely slow the economy in that area. Nothing is being done by the government to help job creation in the private sector -- essentially all job growth since the depth of the recession has been in government jobs. And down the road, there is a massive tax increase that keeps getting closer. Beginning next January, income tax rates will rise for the majority of Americans. Estate taxes will reappear at levels not seen since 2001. When the new taxes from Obamacare are included, the amount of cash sucked out of the economy will be many hundreds of billions of dollars. The net effect of this tax increase will be to slow economic activity even more.

On top of the looming tax increase, the USA is facing another major difficulty, namely that monetary policy cannot help this time to soften the blow to the economy. At the moment, short term interest rates are about as close to zero as they can get. The federal reserve cannot lower rates any further in a way that will have any impact on the economy and growth. it has already arranged interest rates so that in real terms funds are being transferred from those with fixed income investments like certificates of deposit and bonds, and moved to borrowers who hopefully are using the funds to increase economic activity. Little is said of teh plight of retirees who use the income from their investments to supplement social security. Monetary policy has stripped away nearly all of the supplemental income and moved these folks towards poverty.

The likelihood of a new fiscal policy is non-existant unless the Republicans take control of both houses of Congress and get Obama to go along with a restructuring of the tax code. While there is a chance that Republicans can take over Congress -- although it is not likely -- the chance of convincing Obama to sign a tax bill is essentially zero in my opinion. Obama actually believes that by taking more from the wealthy and middle class, the government will have more revenue and can spend even more on new programs. The sad reality, however, is that the impending tax increase will just act to depress economic activity. We will see no major rise in government revenues, but rather will see a decline in economic activity. This will increase costs for unemployment benefits and other social programs while reducing the resources available to pay for these programs. But the history of tax increases like this does not interest Obama. He has his ideology and it triumphs over reality.

I only hope that in November the defeat of the Democrats is so severe that Obama is awaken from his ideological stupor. Maybe he will actually bow to the will of the people. It may be our only chance to avoid a severe double dip recession.