Unless Barack Obama dramatically changes, I predict by the end of his second four year term he will have earned the legacy of being the worst fiscal president ever. Why? The US will be bankrupt after another four years of the same Obama we had for the past four.
Here’s my evidence, before Obama was elected in 2008 after tax take home for everyone who pays taxes was just under $7 trillion annualized. That $7 trillion number included capital gains, an income source the US Bureau of Economic Analysis does not include in national income. Why is capital gains not included? Is there a prejudice against income on capital? Who knows. It’s the government.
In 2009 after tax take home pay bottomed at around $6 trillion annually. Take home pay has risen about 3% to 4% per year nominally since then. However after inflation take home pay has grown all of 1% or so. In other words since Obama has been president after tax take home for everyone who pays taxes is still down by about 5% nominally and more than 10% after inflation.
By the way yes, we at TrimTabs are the only ones I know of who talk in terms of after tax take home pay. The rest of the economic universe seems to think GDP is good measure of economic activity. That is because most financial market participants are sheep willing to believe what they are told by the government agencies. In reality GDP is spreadsheet based methodology that tracks maybe 60% of the US economy and badly at that. GDP was created in the 1930’s to help FDR track manufacturing employment. There was no real time data available then. But there is real time data available now. Unfortunately, Wall Street economists and top financial journalists aren’t interested in real time data and make decisions as if GDP means something.
That is why I think the best economic indicator is current income, particularly after tax.
Back to why Obama will be the worst fiscal president ever. First I mentioned take home pay is still down 5% nominally and down more than 10% after inflation. Second the net worth of the US according the Federal Reserve Z1 Flow of Funds, currently is around $63 trillion, down by about $3 trillion from the start of 2008. The big decline is in home values. However stock prices are artificially being supported. In other words, without the Fed’s manipulation, my guess is the value of stock would be down by at least $3 and maybe $6 trillion, dropping the net worth of the US by another 5% to 10%.
So far under Obama, even before the start of another four more years, incomes are down and net worth is down. What is up is government debt. Surprise! Over the past four years, the US government has added $6 trillion in debt doubling the $6 trillion in debt when Obama became president. Before Obama take home pay was $7 trillion, 1.2 times total government debt of around $6 trillion.
Now, after four years of Obama take home pay is $6.6 trillion a little more than half the $12 trillion federal debt. Unless Obama dramatically changes his spots, and if the next four years are similar to the first four, take home pay could keep growing at around $200 billion a year reaching $7.4 trillion. That $7.4 trillion in take home pay will barely stay ahead of inflation. However, in order to achieve that modest growth, Federal debt would have to grow by at least $5 trillion to around $17 trillion total. So even if incomes grow moderately after eight years, take come pay will have plunged to 40% the amount of federal debt. Remember before Obama take home was $1 trillion more than total Federal Debt.
If the US take home pay to debt ratio does shrink as much as predicted, four years from now will the rest of the world still be willing to fund the US? I do not think so.
My guess is that Mr. Obama and his close buddies have no idea what they are doing, or else they would not be doing what they have been doing. The most dangerous are those people who think they are smarter then they are.
Unless Obama changes his policies, the US will be bankrupt in four more years. That will make him the worst fiscal President ever.
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
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