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The 10/10 Rule in 2010

30 January 2010 4 Comments

The election season in 2010 has basically begun with the State of the Union address this week.  Ignore the rhetoric and the speeches; there are really only two metrics that will determine the success of the incumbent party (Democrats) come November.  They are:

  1. Whether or not unemployment drops below 10%
  2. Whether or not the Dow can stay above 10,000

Simply put, the Democrats know they need to put a dent in unemployment and they need to keep the stock market above 10,000.  The latter may have seemed easier just last week – the Dow has dropped some 600+ points since then, and is now closer to the 10k mark.

The interesting thing is that I’m most worried that the Democrats will do whatever it takes to satisfy the 10/10 rule in their favor.  The easiest way to accomplish, maybe the only way, in such a weak real economy, is to destroy the dollar.  Print enough money, we can pay for everyone to work (if we can’t find something for them to do, simply have them dig holes and fill them in again!) and we can get the Dow maybe even up to 20,000.

The problem is that there is a non-political metric that measures the validity of the 10/10 rule.  That metric is the price of gold.  Sure, politicians might be able to fix unemployment and the stock market, but if gold doubles, triples, or more, then the success of beating the 10/10 rule may likely be nullified.  Interesting, no?

So, with that said, we can actually add a third “10”.  Here is the winning formula for any party:

  1. Drop unemployment below 10% – real unemployment as we used to measure it (yeah right)
  2. Keep the Dow over 10,000
  3. Keep gold under $1,000 per oz.

If you can manage to do all three, you will be able to get the economy on the right path.  The problem is that I’m not sure that is possible.  You have massive forces that are working to pull the Dow lower and push unemployment higher: deleveraging, weak consumption, toxic assets, crumbling housing market, etc.  In an effort to combat these forces, we’re destroying the dollar and pushing gold higher.  So, like I said, accomplishing the 10/10 with the third 10 (gold) is easier said than done.

As such, I think that Republicans will probably do well in 2010 elections.  I just hope we’re getting Republicans more like Ron Paul, not Republicans like John McCain and Lindsey Graham.

4 Comments »

  • Money Hacks said:

    Ron Paul, really? If we had things the way we wanted them, the financial system would have failed years ago. He wants to strip out nearly all government programs and regulation…it's this very regulation that kept our system sound for 50 years, and the subsequent deregulation, extolled by he and his Republican cohorts, that hastened its demise.

    I'm not saying all regulation is good. I do believe the market works. However, if left to its own devices the players in the market manipulate it. Greed rules. It's human nature. There needs to be shepherds of the financial system. Right now, what we have is foxes guarding the hen house.

  • LeanLifeCoach said:

    First – no way is it going to happen – true unemployment cannot recover that fast. Nor can the unemployment as we measure it.
    Second – Even if unemployment dropped and the dow remained above 10K and gold dropped do you really think it would redeem the dems? They spent a year trying to keep the country focused on matters that were not the most important to the public, they've lost their credibility and will lose their control.

  • 20smoney (author) said:

    I love this b/c I have 2 comments here, one from each side…

    @Money Hacks – Would you consider the financial system a success? It pretty much just failed under what you think is the right approach. You're right the financial system would have failed years ago, and we would have a sound financial system in its place. A financial system with lending backed by real reserves as opposed to leverage ratios of 30-1 and up, a financial system with a focus on risk since they know that there wouldnt be someone there to back them up. The only way to keep greed in check is to allow greed to be punished by failure. More regulation will not prevent greed. We have tons of regulation. Look at how it worked out? I guarantee you this, no matter what new regulation is created out of this current crisis, we will have greed induced crises again in the future. The only way to limit these is to allow people to go under (Ron Paul views)

    @LeanLifeCoach – I agree it's not going to happen. However, if it did, I would love for the Dems to remain in office b/c obviously they did something right. Altho, that's not going to happen unless they completely change their tune. My warning to you would be to not be a complete believer in the Republicans either. There are plenty in the party that are no different than the democrats you're nervous about. There are only a handful of republicans who are really fiscally conservative, who believe in sound money, restrained government and economic liberty.

    Thanks for your comments, both of you.