A rough 2013 will put American exceptionalism to the test

Herewith is a modest, and altogether dangerous, attempt to predict key trends for 2013. This forecast emphasizes three themes; ongoing economic hardship, continued moral decline, and an array of international crises.

I. Economic Hardship

Slow GDP growth. The consensus forecast for 2013 GDP growth hovers around 2%. The growth in the deficit is growing faster resulting in a higher debt burden on the economy. Higher debt burdens impede growth, increase unemployment, and produce a lower standard of living. Increased regulatory action, e.g., the ongoing march of the EPA, etc. will further suppress economic growth.

Higher public debt. Increasing public debt obligations represented by unfunded liabilities from entitlements to bloated public employee pensions assures that more taxpayer bailouts (or broken promises) is one step closer to reality. The USPS, state of California, and city of Detroit are but a few examples of increasing 2013 distressed economic problems.

Higher unemployment. Unemployment will begin ticking upward as businesses close or cutback due to increased regulations, taxes, and government involvement. The Obamacare implementation accelerates in the second half of 2013, producing uncertainty and frustration as the reality is worse than the expectation.

Lower labor participation rate. The labor participation rate will drop to below 60%, a historic low in the modern era, as millions more leave the workforce due to coercive departure or “early” retirement.

Increased government dependence. Food stamp recipients will exceed 50 million for the first time in US history. Obamaworld is characterized by increased dependence on the state for the declining middle class and increased tax burden on the “rich”, a term that will be defined downward in years to come.

Trickle down taxation. Most people have heard of trickle-down economics, usually a pejorative term that characterizes Republicans as wanting to help the rich so as to benefit those who are downstream in income. The reality is that “trickle-down” taxation means that all those who vote to tax the rich will see increased taxation on themselves, both from the government sector as well as reduced growth that attends increased government participation in the economy. In 1911, the total government percentage of US GDP was 8%, fifty years later it was 25% and in 2013 it will exceed 40%. The Lorenz curve, a measure of income distribution will show the gap widening between rich and poor in 2013, in contradistinction to the demagoguery promulgated by the Obama administration. The increase in the payroll tax will also represent a drag on consumer expenditures.

Municipal and state financial challenges particularly in “blue” states. The states that are reforming their labor laws, rejecting the development of insurance exchanges required of Obamacare, and are focused on controlling spending, will emerge as healthier economies. The “blue” states will continue to focus on increased taxation and devotion to government largess, resulting in slow growth and debt burdened economies. In the end, free market economies always outperform government controlled economies.

The arrogance of government will produce further cracks in the nation’s foundation. We see some of those cracks regarding slower growth and increased unemployment. We will see additional cracks imposed by economic judgment. This judgment will take the form of an additional credit downgrade, bond wariness attending debt monetization (pressuring interest rates) and may stimulate a renewed interest within the Obama administration to use some parts of private 401(k) and IRA accounts for supporting bond market purchases. Argentina has used this tool in the past. Herb Stein’s law states, “If something cannot go on forever, it will stop.” Obamworld is a place where politicians believe reckless spending and increased taxation never hurts and never ends. Stein’s law will threaten Obamaworld in 2013.

More storms, earthquakes, and drought conditions leading to increased distressed responses. There is not enough public money available to compensate those who live in high risk areas, whether due to fires, floods, hurricanes, droughts, or earthquakes. Citizens of Obamaworld will discover what moral hazard means from “privatizing the gain and socializing the loss.” Moral hazards yield unintended consequences that invoke insurance risk, often taking the form of higher costs than anticipated and lower ability to honor those requests.

II. Increased Moral Decay

2013 will see an increased focus on social justice issues with an emphasis on income redistribution, the hallmark of socialism. This gets reflected in less freedom, fewer property protections, increased taxation, declining opportunities, and elevates the moral problems of envy, discord, and theft.

Emphasis on same sex marriage/civil unions/gay rights. The attack on traditional marriage will increase by the media (symbolized by the efforts of multibillionaire and media mogul David Geffen) education, the judiciary, and the government.

Emphasis on gun control. The horrific tragedies seen in our schools, workplace, and private lives will increase the advocacy for gun control despite the irony exemplified in Chicago (where rigorous gun control laws are operative) yet violent crime is exploding. The deceptions will increase regarding what the founding fathers intended in the Second Amendment.

Increased neglect of public financial responsibilities. Debt is, at its root, a moral issue. The federal government is leading the march into debtors’ hell, with many states and municipalities following. The end of the road is either oppressive taxation or broken promises. Both result in reduced freedoms.

Increased hostility toward affluent Americans. 2013 will not be a time to celebrate wealth. The wealthy have rapidly become the targets of scorn, derision, envy, and contempt. These are attributes of a declining society no longer desirous of freedom, opportunity, rewarding risk takers, and courage.

Privacy issues favor the state. Look forward to elevated domestic surveillance controversies (drones, renewed effort at the next generation REAL ID, and increased preference for security over liberty.) L-1 Identity Solutions, the provider of almost every driver’s license, passport, and passport card in the US (now called MorphoTrust USA) is in the process of completing the sale of itself to Safran, a French company that is 30% owned by the French government. L-1 had agreed last year (with the World Bank) to provide biometric identification cards to meet international standards. The international sale of a US company providing critical US citizen information that is 30% controlled by a government (now led by an avowed socialist) has escaped the attention of an increasingly dull American population.

III. International crisis

We are likely to see an increasingly destabilized Syria present foreign policy challenges, accompanied by increased Russian meddling from a leader who is anticipating greater “flexibility” from the American president. 2012 brought some notable international miscues on the part of the Obama administration, most notably the inability to see trouble in the Islamic world., e.g., Egypt Syria, and Libya. We will continue to see foreign policy amateurs struggling to understand reality.

There will be ongoing Middle East unrest with Iran possibly crossing the “red line” (expressed by PM Netanyahu) in 2H13. Iran is a wild card scenario whose dangerous leadership exploits America’s leadership weakness. This administration does not understand radical Islam. This blind spot bodes poorly for successfully dealing with the world as it is, not what they want it to be. Benghazi is the hallmark of administration incompetence. This incompetence will certainly appear throughout 2013.

2013 will bring increased pressure on Jordanian stability, a key ally.

2013 will bring increased cyber war including “country on country.” Economic cyber war is an “iceberg” issue that more people may come to appreciate as an imminent danger.

Financial instability in Eurozone markets (Spain, Portugal, etc.) will increase, bringing additional unrest and may result in food riots and more demonstrations. The Eurozone still has Germany to stabilize their volatility. America is philosophically following Europe but has no backstop as the Eurozone does. It is hard to believe that America is pursuing a path of self-destruction on purpose.

IV. Conclusion

These predictions do not inspire optimism. Economic hardship, moral decay, and international crises do not make for pleasant outcomes. Any additional shift in power, e.g., a new Supreme Court appointee, could be equally disastrous for freedom in America. The last two attorneys who became President (who were also elected to a second term) were impeached in their second term. Let us hope that President Obama does not follow this trend as this could be highly destabilizing to an already fragile nation.

Despite the foregoing somber reflections, there are several counterweights to this downbeat forecast. American ingenuity historically beats the odds. Despite obstacles, America is still the strongest country in the world. Continued good news regarding energy production and healthy corporate balance sheets can mitigate some of the foregoing challenges. However, a Republican party strategically adrift with no real leader and not much courage needs circumstantial change to re-energize itself before the 2014 elections. America needs a second national voice. This will likely come from Republican governors who know how to run their states effectively without federal intervention. These governors will likely cause an increased rift with the federal government in 2013 while delivering superior results in their individual economies. 2013 will likely produce “redder” red states and “bluer” blue states thereby creating deeper divisions in the American landscape. Although the Obama administration continues its relentless assault on the Judeo-Christian worldview, free market capitalism, and the constitutional republic, it is these same three forces that has produced American exceptionalism. No one can ever count America out when these three make their presence known. Let us hope that these three forces, battered and bruised as they have been over the past four years, return with a vengeance to claim victory come 2014.

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