Friday, October 16, 2009

Next Major Obama Crisis


by Ronnie Spangler

Since taking office as the President of the United States, President Obama has encountered crisis after crisis. His next major crisis will be oil prices.

If you listen to this White House this President has faced and solved more major crisis than any former President has faced during the 1st year of their Presidencies. People are getting tired of the boy who cried wolf and beginning to wonder if maybe some of these so called crisis are just made up by the White House. Take the Health Care crisis for example. It hasn't been that long ago we were told that if the White House didn't get a bill to sign very soon the economy would not recover because the cost of health care and insurance premiums would skyrocket and force more people and companies into bankruptcy. The White House says the economic crisis has been partly solved and the economy is in recovery and its all due to the stimulus package they signed into law earlier in the year. Wall Street is booming on another artificial bubble but unemployment, oil prices and bankruptcies continue to rise.

With the News fixated on the Obamacare Health Plan being formulated behind closed doors, they are not watching as the oil market continues to climb toward the $100 a barrel price. This will be the next major blow to our economy. It is reminiscent of the 2008 housing and oil crisis that created havoc on Wall Street. The White House is not concerned about the steadily increasing price of oil because in the words of Rahm Emanuel " [You] Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before." In the mindset of this Administration when the price of oil reaches the $100-$150 a barrel price and as a result gasoline and diesel hit $3.50-$4.00 a gallon, it will be easier to pass his next big reform package. That package will be Cap and Trade or as the White House likes to call it the Energy Reform Act.

It is clear this White House is more concerned about transforming America into their ideological sense of what America is really all about than they are with how much suffering the American people will have to undergo during this "fundamental transformation." At the rate we are going with the steady decline in the dollar its only a matter of time before we see the price at the pump back at the 3 and 4 dollar prices that helped to destroy the market in 2008.

People try to separate the decline in the 2008 market and high gas prices as if the cost of fuel had nothing to do with increased foreclosures, increased job losses, or decreases in retail sales. It is all intertwined and cannot be separated. Transportation cost is a major factor to small business in the United States. The cost of transporting goods to and from small business must be factored in and passed on to the consumer or the small business owner will have no choice but to cut his labor cost to pay for the additional cost of transportation.

A perfect example is a small business with 300 employees that have contracts with Ford, General Motors, Honda and Chrysler making mirrors for certain models of vehicles. The small business cannot increase the price of their mirrors onto the vendors. Depending on the length of the contract the price the small business can charge for their mirrors must decrease each year by an agreed percentage point. If anything happens during the life of the contract that will add to the actual cost of manufacturing the mirror, that cost must be born by the small business not the auto company. This includes transportation cost of all the materials needed to build the mirror and the final transportation cost of delivering the mirrors to the individual vendor. How can the small business cut cost, by reducing labor cost. How do you reduce labor cost, by streamlining production and laying off some employees.

In their effort to streamline their production a small business will look toward automation of their assembly lines. They will try to combine individual parts of the assembly process into a simpler more cost efficient process. They will attempt to cut the operation down from a ten man assembly line to a five man assembly line. This means the five remaining employees will have to do twice the normal work at no additional cost to the company. The cost of any additional automation of the line cannot be more than the savings from laying off the five former employees. As the transportation cost continues to increase eventually the business will run out of ways to save cost and the contract will no longer be lucrative for the business to continue. At the end of the contract this business will have to compete with other small business around the country for this particular contract. If a start up company has lower labor cost and lower transportation cost they will undercut the previous business and win the contract. In the end if the small business continues to lose contracts they will continue to lay off employees until they have to close their doors completely.

This was part of what happened in 2008. As the price steadily increased across the country unemployment began to rise and wages remained stagnant. For years small business had to reduce cost but could not increase their prices. As they continued to reduce their cost by automating their lines and laying off employees consumers had to cut back on spending. The consumers were the same employees that were losing their jobs. When it came to the point of paying their ever increasing state property taxes, home mortgages, or putting food on the table they chose putting food on the table. Home foreclosures increased due to the variable rate adjustments coming due and more consumers who were unemployed or under payed. As the foreclosures increased the banks began to fail and government stepped into the market. They have done nothing for the small business but everything for the banks. Now they are sitting back and watching as 2008 repeats itself.

Remember back when there was the cry around the country to "Drill Here, Drill Now." Other than the price dropping after the election nothing much has changed. The unemployment rate has skyrocketed and less people are spending but no more oil is being produced and the government is spending worse than any drunken sailor could ever dream. The government continues to allow the dollar to decline against other world currency and the price for oil is steadily increasing. With America being the world's largest consumer you would think this administration would understand that Americans cannot spend if they are unemployed. Banks and credit card companies will not loan money to the unemployed and given the choice of putting food on the table or paying your creditors most Americans will choose putting food on the table. If the price of oil continues to rise we will be right back to where we were in 2008. This time the White House will gain nothing from the crisis and this one will go to waste, unfortunately it will again be at the expense of the American taxpayer.

People around the world should demand this President get off the campaign trail, stop making meaningless promises and giving false hope. It is time to stop the drunken spending frenzy and get back to basic economics 101. Cut the corporate tax to be competitive around the world. Increase the interest to bolster and stabilize the value of the dollar. Demand Congress open up America to drilling offshore and cut the restrictions on oil shale extraction. Use the remaining tarp money to help small business expand and put people back to work. Mostly stop creating crisis to gain political points and not letting the crisis go to waste. People around the world should understand that as goes America, so goes the rest of the world.

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