The problem according to the current administration is not the reaction to it but who is to blame for it. The recession, Treasury Secretary John Snow (and just about any administration official will echo) was inherited along with the excesses of the nineties. This included the corporate scandals and if you listen carefully, the terror attacks as well.

Mr. Bush used the tools at his disposal to fight this beast by eliminating the surplus in favor of tax cuts and trying to spend their way out of trouble. That economic plan has saddled us with an difficult to estimate deficit - which is also difficult to quantify. According to figures published by the non partisan Congressional Budget Office, the deficits have been underestimated. They also published the following, even more troublesome figure: only 6% of the current economic shortfall is responsible. This accounted for only $53 billion in lost tax revenue.

The continued weakness in the economy has plagued the administration's efforts at solving a more complex problem accentuated by continued and misdirected spending. The Democrats have pointed to spending reform as the only real solution to the budget deficit.

Currently corporations generate taxes on profits that contribute 7% to the GDP. You will hear certain officials place that number at 35%, the real, on paper tax rate. If your company is paying that rate, you need to find a new accountant.

Kerry's plan for in-sourcing tax credits addresses the recent flight of jobs overseas. Currently, the amount of jobs relocating to foreign soil would not be considered torrential. Free trade theory suggests that survival of a business depends on the business to control not only prices but labor costs. In the current economic environment, inflation - which I will address in a moment - is virtually non-existent at 1.7%. So labor exports are really all that is left.

Consumer surpluses are as bad for the economy as lost jobs or lower wages. This is a one-sided account of the benefits. Many economist understate the real value of those losses. Many of these conclusions are based on the so-called welfare benefit of free trade as it is compared to unemployment from a study done thirty years ago. In that environment, job creation was absorbed by new industries which left many workers possibly better off than previously. Not so this time. As workers become disparaged, the unemployment numbers and the outlays diminish. As workers accept lower paid jobs, become independent contractors or consultants, or become otherwise self employed are earning less than than the wage they previously made - and that is discounting the lack of benefits these freelancers have forfeited.

Narrowing the wide estimates of margins between lost jobs and unemployment may be as narrow as 2 to 1. These cost's savings will save a huge amount of money for American companies. By hoping that the economy will recover in time to create jobs is nt the same as addressing the problem. The hope that our xenophobic predisposition will accept full globalization of companies and their claims that productivity and increases in scale not only enhances competition but creates a new outlet for products has fallen on hard on the one's whose sacrifice has made it possible.

Probably the best solution would be to increase unemployment benefits, according to Michael Klien of Tufts University. he also adds that portability of benefits such as pensions and health benefits make dislocation and downsizing more tolerable and less traumatic from an economic standpoint.

And all of this is based on the cooperation of the world economies. Europe doesn't seem to be onboard just yet and looks to be slower at reaching that point than previously thought. China may be onboard but their are currency troubles in that part of the world. And the United States is becoming tentative at least inflation-wise.

Oil prices and the recent steady rise in seventeen other commodities on the Reuters Index CRB from gold to copper is up almost 40% over the last two years. There is no way that these prices will not trickle onto the world stage. This would force Greenspan's hand to raise rates.

Short term interest rates would derail the recovery rather quickly. Deficits would suddenly seem larger. Consumers would reel in their spending. Home owners who bought variable rate mortgages would be faced with unwanted increases in their mortgage payments. Median home prices would fall. And with that, short term rates would cripple the government's ability to borrow.

So, with all those problem searching for a political solution, who would be able to get the job done?

In October of '03, Pedro Santa-Clara and Rossen Valkanov, finance professors from UCLA published a study called "Political Cycles and the Stock Market". What they found was presidential election news does not make a very large impact on the markets. They did find that companies did better under Democratic presidents and investors real return rates were also better under Democrat rule.

Whether the current administration's path will benefit shareholders still, after three years, remains to be seen. But if the Democrats win, being fully invested now may be your best path to profitability.

The Blue Money Report
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