Meanwhile, the reality “on the ground” is that most Americans have no conviction in the fact that their President has done something to help the economic expansion. A Bloomberg national poll conducted just days ago shows that twice as many folks believe that Americans’ taxes have risen, that the US economy has shrunk, and that TARP money will never be recovered (a sentiment status quo 100% at odds with the facts). Going into voting booths with that mind-set might make for a wild and woolly Tuesday, next week.
The facts are that the Obama administration has cut (mostly middle-class) taxes by nearly a quarter-trillion dollars, that the economy has reversed course from negative-GDP conditions and (as seen in the numbers this very morning) is growing rather than shrinking, and that the two year-old TARP program (some $245 billion to rescue the financial system alone) has not only been largely recovered but might net a $16 billion profit for Uncle Sam. What we may have here is a classic case of cognitive dissonance on the part of the American public. Learning something that contradicts that which one already thinks they know, leads one to resist new facts and makes them less accommodative (to say the least).
Since it is Friday, and just a couple of days before Halloween, let’s look for one moment at this cognitive dissonance ‘thing’ and how it relates to all things scary (whether total TEOTWAWKI or the American economy or the state of the nation). The concept was first delved into, around 1957, by Leon Festinger and associates. The team conducted a participant observation study of a cult which believed that the Earth was going to be destroyed by a flood. What happened to the cult’s members — particularly the really committed ones who had given up their homes and jobs to work for the cult — when the flood did not happen, was the focus of the Festinger team’s findings.
It turns out that while certain “fringe” cult members were more likely to come to recognize that they had discredited themselves and they then ascribed the whole thing to “experience", those among the most committed of cult members ended up re-interpreting the evidence (no flood) and ended up claiming that they were right all along (i.e. that the Earth was not destroyed because of the faithfulness of the most devoted cult members). Those of you familiar with the emotional displays that are omnipresent in various precious metals forums (whether about price prospects, manipulation theories, and similar) might just recognize a good dose of cognitive dissonance when you see one.
All that said, Prof. Nouriel Roubini pulled out his scariest Halloween-flavored scenario for the USA this morning. Mr. Roubini – in a Financial Times commentary – did allow for the fact that the US monetary stimulus avoided a Thirties’ style Great Depression. However, the Professor fired a big salvo in the Fed’ direction by stating that the QE to come will have no noticeable effect on US growth next year.
He then went one step further, and opined, that, with the possibility of fiscal reform going bye-bye (should the Republicans take ‘control’ next week), the US faces the risk that ‘something on the fiscal side will[eventually] snap.” In so many words, Mr. Roubini spooked FT readers with the (not unlikely) prospect of a US-turned-Japanese period ahead. A period possibly complete with stagnation, deflation, and continuing high joblessness. They do not call the man “Dr. Doom” for nothing.
Certain cults are now preparing and stating that they were ‘right’ –should Dr. Roubini’s scenario come to pass, as are others, who will then claim the same exact thing (“we knew it!”) when and/or if the scary forecast does not materialize.
We are preparing to don zombie costumes and chalk it (the weekend that is) all up to ‘experience.’ Enjoy.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America