Standing strong for America in 2014
By Dr. Peter Morici
The U.S. economy is gaining strength, but the Obamacare train wreck, festering problems in faraway China and uncertain leadership at the Federal Reserve could derail the recovery. No small courage will be required for good sense to finally restore American prosperity.
President Obama is imposing the Affordable Care Act on a justifiably unwilling citizenry. The botched rollout is laying bare the absolute incompetence of the Washington bureaucracy, but that is not the worst of it.
Many young Americans have decided that Obamacare health insurance is too expensive for their needs, and insurers face financial ruin paying claims to a less healthy population of policyholders than anticipated. They will charge higher rates in 2015 and may require a bailout.
Don't count on Republicans winning the Senate and putting Obamacare out of its misery—the electorate may prove too cynical.
In the 2013 Virginia gubernatorial election, voters, angry about Obamacare, blamed Democrat Terry McAuliffe. Yet, he managed a narrow victory by promising free health care to 300,000 citizens by expanding Medicaid.
Lest jobs creation and growth be handicapped by an excessively expensive and bureaucratic health care system, "makers" may simply have to tell the "takers" enough is enough, march on Washington and demand radical changes.
Don't productive Americans deserve a civil rights movement too?
China's Banking Mess
China's economic miracle may prove a bigger fraud than the American pre-crisis prosperity built on shabby lending and consumer spending on steroids.
Many Chinese businesses that stock Wall-Mart with unimaginably inexpensive gadgets were built on loans they can't repay. Similarly, banks have financed provincial governments to build cities occupied by displaced farmers that have no jobs.
Beijing has raised interest rates to gradually deflate bubbles in stock and land prices, but now borrowers cannot pay those rates and banks and private lenders could face ruin.
A financial crisis won't end the rise of China, but it would expose a great fraud: the superiority of state-directed capitalism over western democracy and free markets.
No one would be more disappointed than the collectivists at National Public Broadcasting and other liberal media, who celebrate each Chinese achievement with the enthusiasm the French cheered General Washington's victories over the British.
The simultaneous debunking of the ACA and Chinese miracle offer conservatives the opportunity to refocus the debate in America from the shortcomings of free markets and private enterprise to helping those thrive and contribute to middle class prosperity as they did in the 1980s and 1990s.
During the financial crisis, the Federal Reserve balked at bailing out GM. The Fed could have bought the automaker's bad debt, just as it took bad mortgages off banks' books. Ben Bernanke pronounced assisting GM would be "industrial policy" and limited the Fed to extraordinary measures to stabilize banks and credit markets.
Obama used TARP—the Treasury fund established by President Bush and Congress—to rescue both GM and American International Group, an insurance company.
The next financial crisis well could be defined by the coincident plights of health insurance companies under Obamacare, and the sagging fortunes of American companies who invested in China's "recession proof" economy.
New Fed Chairman Janet Yellen is well known for her very liberal political views, which not so incidentally color her economics. In a crisis, she could see the limits of Fed policy discretion very differently than Bernanke.
Using the Fed's money printing machinery to bail out health insurance companies and Obamacare could put America on a path to inflation and corruption similar to Latin American nations during the 1970s and 80s.
It would be up to Republicans in the Senate to shut down the chamber if necessary to force hearings and compel Chairman Yellen to defend the dollar, not debase the currency.
Standing up to the failures of liberalism, when it counts, has never been politically easy—and Republicans like Speaker Boehner and Congressman Ryan are rightly the targets of Tea Party criticism.
All along, at crisis moments like these, they have capitulated. Now standing strong for America is even more difficult, but if not now then when?
Peter Morici, an economist and professor at the University of Maryland Robert H. Smith School of Business, is a widely published columnist.