Not only does todays stock market performance looks strikingly similar to the performance (based on % change) of the stock market in 1937, just prior to the depression withing the depression hit. It appears that our leaders in Washington are repeating a lot of the same failed policies of the 1930′s and making new mistakes as well such as the impending Obama Tax Hike.

Via the WSJ:

Let’s start with taxes. If today’s low rates expire at year-end per current law, that would at a stroke reduce after-tax income for every working American, the average reduction being 3.3% according to the Tax Policy Center. Do the math: 94% of income goes to consumption, and consumption is 70% of gross domestic product. All else being equal, if the Bush tax cuts don’t get extended, that’s a 2.3% hit to 2011 GDP. That means instant double-dip recession, starting at midnight, Dec. 31.

And our good author is forgetting that at midnight, Dec. 31st the majority of people who have health insurance are going to see their rates significantly spike as well draining more money from the economy.

Another economic policy that is going to wreak havoc next years is a new round of ‘protectionism:’

The bill, if passed by the Senate and signed by the president, would mandate that the Department of Commerce take a foreign country’s currency interventions into account in determining whether its trading practices are unfair. In the case of China—the target at which this bill is aimed—Commerce would determine that the amount by which the yuan is allegedly undervalued. The number being thrown around now by supporters of the bill, such as the AFL-CIO and the United Auto Workers, is as much as 40%. The cost basis of Chinese-made goods exported to the U.S. would then be adjusted upward by that amount to determine whether they are being sold below cost, an unfair trade practice known as “dumping.” Not a single Chinese export good could survive such a test—virtually the entire volume of China’s exports to the U.S. suddenly would become subject to countervailing duties.

Surely China would retaliate. That makes the bill a nuclear threat of mutual assured economic destruction. If carried out, it would crush trade between China and the United States, which are huge export markets for each other.

Suppose China blinks and revalues the yuan to avert the nuclear threat. Even if this creates some American jobs, which is doubtful, it would do so by making all Chinese goods more expensive in the U.S.—an immediate inflationary tax on American consumers.

At the same time, it would make goods priced in dollars cheaper for China to import, supposedly a boon to U.S. exports. But an unintended consequence is that it will make China an even more voracious competitor for oil. That’s because oil is priced in dollars, so a revaluation would make it cheaper in yuan terms. Remember, during the period from 2005 to 2008 when the yuan was revalued under similar political pressures from the U.S., the price of oil rose, not coincidentally, to $147 per barrel from $60. That could happen again—and it would be another inflationary tax on U.S. consumers.

This will not create any jobs- since the vast majority of Chineese are not consumers and live on less that 2 USD / day.

Via STRATFOR:

There is also the issue of consumption. Chinese statistics have always been dodgy, but according to Beijing’s own figures, China has a tiny consumer base. This base is not much larger than that of France, a country with roughly one twentieth China’s population and just over half its gross domestic product (GDP). China’s economic system is obviously geared toward exports, not expanding consumer credit.

Which brings us to the issue of dependence. Since China cannot absorb its own goods, it must export them to keep afloat. The strategy only works when there is endless demand for the goods it makes. For the most part, this demand comes from the United States. But the recent global recession cut Chinese exports by nearly one fifth, and there were no buyers elsewhere to pick up the slack. Meanwhile, to boost household consumption China provided subsidies to Chinese citizens who had little need for — and in some cases little ability to use — a number of big-ticket products. The Chinese now openly fear that exports will not make a sustainable return to previous levels until 2012. And that is a lot of production — and consumption — to subsidize in the meantime. Most countries have another word for this: waste.

This waste can be broken down into two main categories. First, the government roughly tripled the amount of cash it normally directs the state banks to lend to sustain economic activity during the recession. The new loans added up to roughly a third of GDP in a single year. Remember, with no-consequence loans, profitability or even selling goods is not an issue; one must merely continue employing people. Even if China boasted the best loan-quality programs in history, a dramatic increase in lending of that scale is sure to generate mountains of loans that will go bad. Second, not everyone taking out those loans even intends to invest prudently: Chinese estimates indicate that about one-fourth of this lending surge was used to play China’s stock and property markets

I wonder who is going to pick up the tab for all of Obama’s extravagant spending if he starts a trade war with China?