Standing Strong for America in 2014

NEW YORK (TheStreet) -- 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 still derail the recovery. No small courage will be required to finally restore American prosperity.

Obamacare

President Obama is imposing the Affordable Care Act on a justifiably unwilling citizenry. The botched rollout is laying bare the incompetence of the Washington bureaucracy. But that is not the worst of it.

As I see it, many young Americans have decided that Obamacare health insurance is too expensive for their needs. Insurers face financial ruin paying claims to a less healthy population of policyholders than anticipated. I predict 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. My take on the 2013 Virginia gubernatorial election is that voters, angry about Obamacare, blamed Democrat Terry McAuliffe. Yet he managed a narrow victory, in my opinion because he promised free health care to up to 400,000 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 American prosperity before 2008, which was really built on shabby lending and rampant consumer spending.

Many Chinese businesses that stock Wal-Mart (WMT) with unimaginably inexpensive gadgets were built on loans that I don't think they can repay. Similarly, banks have financed provincial governments to build cities that in my view are occupied by displaced farmers that have no jobs.

Beijing has raised interest rates to gradually deflate bubbles in stock and land prices. As I see it,  borrowers cannot pay those rates and banks and private lenders could face ruin.

A financial crisis wouldn'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 National Public Radio, PBS and other liberal media, who celebrate each Chinese achievement with the enthusiasm with which 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 away from the shortcomings of free markets and private enterprise. The new focus could be on helping free markets and private enterprise thrive and contribute to middle class prosperity as they did in the 1980s and 1990s.

Federal Reserve

During the financial crisis, the Federal Reserve balked at bailing out General Motors (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 the Troubled Asset Relief Program -- the Treasury fund established by President Bush and Congress -- to rescue both GM and American International Group (AIG), an insurance company.

The next financial crisis could be defined by the sagging fortunes of health insurance companies under Obamacare and American companies who invested in China's allegedly recession-proof economy.

New Fed Chairman Janet Yellen is well known for her liberal political views, which in my view color her economics. In a crisis, she could see the limits of Fed policy discretion very differently than Bernanke.

If a health insurance crisis erupts, 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 force hearings and compel Chairman Yellen to defend the dollar, not debase the currency.

Standing up to the failures of liberalism has never been politically easy. 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, when?


This article represents the opinion of a contributor and not necessarily that of The Street or its editorial staff.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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