Thursday, January 31, 2013

Rick Santelli Has It Right

"We are now Europe!"  So said Rick Santelli on CNBC yesterday, as he responded to the negative GDP growth announcement for 4th quarter 2012.  Santelli is right.  We are now having the same silly discussions that go on routinely in Europe.  We now think that somehow, someway the central bank can do something that makes it all better.  And that somehow, someway, with sovereign debt exploding off into infinity, we can continue to spend and borrow our way to prosperity.  It can't be done.

Economists have routinely become apologists for absurd economic policy, both in Europe and in the US.  They often advocate raising minimum wages to increase employment.  They have been in the forefront of advocacy for Obama policies that have brought the US economic recovery to its knees.  Thank goodness for Santelli.  He correctly notes that US sovereign debt problems are approaching Greek levels.

There was a time when US capitalism was the envy of the world.  That time has passed.  We are now simply a European basket case with all of the same problems that Greece, Spain and Italy have and for the same reasons.  We are wealthier because of our free market history.  But that is past history and we are now in a European present.  Obama is succeeding in squeezing capitalism out of the US and the result is a stagnant, increasingly sick, economy on its way to modern day Greece and Spain.

Pretending that there is good news or economic strength in the worst economic recovery since the end of World War II is embarrassing.  The facts on the ground are all to clear.  The US is losing its pre-eminent position in the world economy and it is losing it at a fast clip.  No amount of misleading news reporting by the American media can obscure the obvious fact of the decline of the American economic engine.

Three cheers for Santelli.  He has it right.

Wednesday, January 30, 2013

State of Denial

The Obama Administration continues to trumpet the illusion that the economy is doing well.  It isn't, Today's 4th quarter GDP numbers point to a declining GDP, not a growing GDP.  The Obama enthusiasts in the media quickly found things within the report to like -- what else could they do?  But, the undeniable fact is the economy is going nowhere.

If it were only the tax increases.  But, there is so much more.  Obamacare is kicking in and the EPA is clamping down hard on the economy.   Meanwhile, Dodd-Frank implementation is destroying credit availability.  The combination of all these things seems to get the Obama folks where they want to be -- the destruction of the American economic engine.  They are succeeding.  This morning's numbers bear testament.  Stay tuned.

Tuesday, January 29, 2013

The Managed Economy

There seems to be some euphoria surrounding the Obama White House that the economy may finally be on track.  The stock market's behavior this month is a glowing chorus of approval, according to many observers.  Perhaps, the economy can be managed after all.  Perhaps, taxes and health care costs don't really matter after all.  Perhaps, the collapse of Europe is irrelevant.  Perhaps....

The cold reality, though, is that the numbers on the ground are still pitiful and have the potential to get worse.  What little pulse the economy has is now an occasion for celebration in the White House.  Strange.  The American economy has historically provided 3 to 4 percent economic growth as the American middle class became the envy of the world.

Yes, the middle class has greatly improved its economic position over the last three decades.  Only if employee benefits are left out of the calculation, which now amount to over 30 percent of employee compensation, can we reach the conclusion that the middle class is losing ground.  The middle class was doing better than ever until 2009.  Now, we have Obama.  Good luck middle class!

In the new Obama economy, only those at the top of the stagecoach will do well -- the rich, the famous, the politically entrenched.  Those who fight for jobs and profits in the private sector will remain under seige until the political climate changes....which won't be anytime soon with the retreat of the loyal opposition.

We have now entered the age of the "managed economy."   The Fed combined with government subsidies to preferred friends have largely sucked out the marginal dollar from legitimate free market uses to political purposes.  That spells no growth.

Businesses are still the enemy and they will remain the target of this administration.  Don't expect any help from a Republican-controlled House of Representatives.  The Republicans have fallen on their sword and should, deservedly, lose control of the House in 2014.  They have lost the will to fight for anything other than social issues and are willing partners in the rush to expand government.

Don't expect much from the new "managed economy" other than the absence of economic growth and a large permanent underemployed and unemployed class of Americans.

Friday, January 25, 2013

Optimism Abounds

The stock market has thundered forward since the turn of the year.  Unemployment claims are near their twelve month low and even California thinks it sees balanced budgets ahead in their future.  So, are we there yet?

Unfortunately, nothing has really changed.  Let's begin with California.  California, New York and Illinois face an almost immediate crisis with their pension systems.  These problems are far, far larger in magnitude than their total annual spending budget for everything else they do.  And, the clock is ticking.  These problems don't get better every day; they get worse. 

California, like New York and Illinois, believe that higher tax rates have no effect on economic behavior.  They are wrong.  Thus, the revenue projections these states are expecting from higher tax rates are an illusion.  Even without pension funding issues, these states are on a straight line to some form of bankruptcy, even if the day of reckoning is not (yet) known with certainty. These states have done nothing to reign in excessive spending or face up to unfunded liabilities....nothing at all, much like their big sister -- the US government.

At the national level, the US remains mired in the slowest economy recovery in modern times.  New and higher taxes that impact almost all Americans and almost all businesses (think income taxes, payroll taxes, Obamacare-imposed taxes and higher health insurance rates for almost everyone).  These new taxes will slow any green shoots in the economy from gaining enough strength to power a real recovery.  Expect continued stagnation, continued high unemployment.

What about Europe?  Aren't things better there?  There is certainly a pervading sense of euphoria that the worst is over.  Is it?  What has changed?  Today, Europe has significantly more sovereign debt than it had two years ago.  Today,  the Eurozone is in a recession which it wasn't in two years ago.  Today, the same stultifying labor laws and regulations maintain their stranglehold on European economies.  No real change there.

Recall the fall of 2007.  This was a time period a full year after the housing market had begun its collapse and after several large mortgage companies had gone bankrupt.  This was a time three months after the asset-backed securities market (a market responsible for 20 percent of all debt financing in the US) had ceased to function. 

What happened with all of these problems staring us in the face?  The stock market surged to an all time high topping 14,000 in October, 2007.  Lehman Brothers and Bear Stearns traded at their all time highs in a burst of euphoria that the worst was over.  Five months later Bear Stearns collapsed and within twelve months Lehman Brothers failed in the climax of the financial collapse of 2008.

It is an interesting question why the stock market surged in late 2007 after it was widely known that the housing market was in full freefall and that housing finance was shaking the foundations of most of the larger banks.  One wonders why European stocks are surging today in face of the facts on the ground. As for the US markets, is current market enthusiasm well founded or are we repeating the late 2007 scenario?

Tuesday, January 22, 2013

So Much for the National Debt

Obama's inauguration speech yesterday makes it pretty clear.  He has no intention of discussing ways to lower the deficit and begin to tackle our national debt problems.  Quite the reverse!  Obama has more spending, taxing and regulating plans ahead for the next four years.  As if the economy wasn't bad enough, Obama is planning more anti-capitalism moves.

You wonder if his advisers have any idea what the implications are for the economy of all of this.  There was always the chance that a Republican House would block the most extreme measures, but that is becoming increasingly unlikely as Republicans tack feverishly in Obama's political direction.

Given Europe's situation, which is far, far worse than the pundits are saying, the economic outlook for the US is pretty bleak.  The best that can be hoped for is more slow growth and stagnant employment.  That is the very best that one can hope for!  The worst is that the economy could begin to slip into recession mode.  While pundits think Europe is doing better, the truth is that, compared to two years ago, the European economies are much, much weaker, the level of sovereign debt in Europe is much, much higher, and what little restraint on spending and regulation has lost its political support.  Europe is doomed.

The real question is whether capitalism in the US is doomed as well.  It may well be.

Saturday, January 19, 2013

Republicans Go Over the Cliff

Too often, Democrats get blamed for our national debt problems and the economic stagnation that has come to characterize the US economy.  Republicans deserve their share of the blame.

Who provided the votes necessary to escape considering our debt problems at the start of this year?  Speaker Boehner violated the "Hastert Rule" and let the Senate bill come up for a vote which raised taxes.  48 Republicans then voted for the bill.  A solid victory for Obama.  A solid defeat for the American taxpayer.  And, who engineered this?  Republicans.  Ditto for the emergency pork bill that passed the House last week.  Once again, with Boehner's concurrence, Republicans provided the necessary votes to pass this abomination as well.

Yesterday, Republicans announced unilateral pre-emptory capitulation before the White House by pledging to extend the debt ceiling for three months in exchange for the usual -- nothing.

What is the difference between a Republican majority in the House of Representatives and a Democrat majority?  The answer -- nothing at all.

You get the same legislation, the same bad economic policy.  There is absolutely no difference.

Republicans object that the polls show that the public is on Obama's side.  What did the polls show, then and now, about Obamacare as Obama jammed his unpopular health care through the Congress?  It showed that Obamacare was unpopular then and unpopular now.  But, did that matter?  No

Obama saw it through.  Say what you will.  The Democrats believe in what they are pushing.  The Republicans don't and it shows.  Small wonder that Republicans have trouble getting their voters to the polls.  Why bother?

Friday, January 18, 2013

The New Wall Street

Better-than-expected results were common for the major money-center banks that reported earnings this week.  The announcement of these "good results" were accompanied by more layoff notices from every large bank.  Wall Street continues to downsize as the rest of the economy remains in hunker-down mode.

We are gradually becoming accustomed to accepting economic stagnation as the new normal.  Reminiscent of the 1970s,  Americans are becoming used to sluggish job prospects, sluggish income and wealth growth, and massive and continuing unemployment.  All of this is now described, by the president's coterie of supporters in the media, as an improving economy.  This is not an improving economy so much as a different economy.

The place to be is somewhere in the government or quasi-government sector.  You can make high six figure incomes at a relaxed pace in the upper echelons of most large universities.  Even better, you probably aren't at risk of being laid off.  But, if your plan is to enter the private sector and work your way up, the historic pathway of the American dream, you can probably forget it.

Working for government, at any level, is the ticket.  Once an economy reaches the degree of government control and government ownership that the American economy has reached, the pathway to success changes.  You can't depend upon the vibrancy of the economy any longer.  That vibrancy has been legislated out of existence.  So heading off to the private sector is problematic. Instead, it is time to strap on your politics and find your way into a government job or a non-profit job or a job in the educational sector.  That is the pathway to success in the new economy.

Of course, this means increasingly that economic growth will not happen.  How can it, when most people that "work" aren't involved in producing anything.  Many so-called "workers" are mainly enforcing laws that prohibit others from working.  If you have an economy where a growing percentage of workers produce laws and regulations and then enforce them, while a dwindling few produce anything of substance, then the real pie can't grow.

Instead you create a national divide -- something we can already see emerging -- between those in the protected sectors of government, education, and non-profit (funded by tax-reducing so-called charitable donations) who have incomes and job security and those fending for their life in the increasingly marginalized private sector.

So, the new Wall Street is simply the most visible current display of the decline of American economic leadership.  The Obama plan is working.

Tuesday, January 15, 2013

Fitch Warns on Us and Spain

Today, the Fitch rating agency warned of possible downgrades to two countries who look increasingly similar to one another -- the US and Spain.  Neither country seems to have much hope of averting a fiscal collapse within a generation.  The leadership of both countries have thus far refused to acknowledge their cataclysmic debt problems and seem to be intent on pursuing the path to modern Greece.

Monday, January 14, 2013

We Are A Deadbeat Nation!

The President said today "we are not a deadbeat nation."  He's wrong.  The US government has made promises to our future citizens that are impossible to keep.  Obama knows it and we know it.  Making breast-beating utterances like the one Obama made today is, at best, disengenous.

The Obama "Ostrich" policy continues.

Friday, January 11, 2013

Make It Illegal to Offer a Job -- Raise the Minimum Wage

State after state is in the process of increasing the minimum wage and there is now a renewed call to raise the federal minimum wage.

What is a minimum wage law?  It is a law that makes it illegal to offer a prospective employee a job.  The idea is that outlawing job creation creates jobs.  That seems to be how Governor Cuomo sees it in his push for a minimum wage hike.

If this is such a great job creation idea, why not go whole hog.  Raise the minimum wage to $ 500 per hour.  Then, no job will pay less than the amount necessary to live in luxury.  Gone will be poverty at this wage rate.

Even some economists have argued that increasing the minimum wage creates jobs.  If that is so, why don't we subject them to a minimum wage?  Why not say that no one can be an economist unless he is paid $ 10,000 per hour?  That should solve their problem.

Maybe there are other ways we can dream up to lock up employers who offer people jobs.  That should get the economy going.

Saturday, January 5, 2013

"Can't Afford More Protracted Slowdowns..."

So says the President.  According to the President: "We still need to do more...."   Praising what is the most abysmal job creation record in a recovery in American history, Obama cited 2 million new jobs last year.  Reagan had more than 1 million new jobs in a single month during the much deeper recession in 1981-1982.  But, Reagan was touting tax cuts while Obama is touting tax increases.

As the US debt spirals out of control -- it may already be unfixable -- the President pushes for more spending and more debt.  He seems to have a plan.  Bankrupting the US seems to be where the President would like to take us.  It is far too late to believe that he is unaware of the level of the debt and the level of the deficits.  He knows that we are on track to reach $ 22 trillion in debt before he leaves office with an economy stuck in the mud.  He is aware of all of that.  Our debt to GDP ratio will equal that of Greece when Obama leaves office.

Obama is also aware that within less than a dozen years, medicare and social security will run out of money.  What is the plan?  To ignore it. The "Ostrich" plan  Extend and pretend.  The only thing Obama seems to have learned from the housing collapse is how to repeat the experience with a sovereign debt collapse.

You will know when the game is over when rates begin to rise.  That process has begun.  Watch the ten year treasury, already up 50 basis points in just the last few weeks.  Unanticipated inflation is on the way and higher rates are ahead.  This will make the debt situation hopeless without some method of repudiating the debt, social security promises, medicare promises or all of the above.

The hypocrisy of the Obama Administration is without historical precedent in the US.  The country is going bankrupt and quickly.  We are not that far away from Greece.  States like California and Illinois are already on the "Greek Cliff."  The country as a whole is not far behind.

The recently agreed "compromise" on the fiscal cliff only moves the country closer to the day of reckoning.  There is no stomach in either political party for facing the looming disaster that faces the US.

Thursday, January 3, 2013

Forecasts for 2013

Welcome to 2013.  Where are we headed?

1) Stagnation in the US economy and in the Eurozone.  Western Europe will remain in recession territory in 2013.  There is no reason for much improvement.  The picture in the US will deteriorate.  Improving housing and growth in the energy sector will not be enough to keep the American economic engine going.  Unfriendly government policy in the US -- higher taxes, increased regulation, implementation of Obamacare, demonizing rhetoric from the Obama White House -- mean the economy is most likely to slip back into recession territory.

2) Markets --  stock markets, ending in the negative (but not disastrous), and terrible bond markets (disastrous) should be the pattern for 2013.  Improving housing markets and home prices during most of 2013.  Pattern should be similar to the economic trajectory of the US in the 1970s and for pretty much the same reasons.

3) Continued economic growth in the Asian periphery that surrounds China.  The only blight on an overall good record will be Japan, which is afflicted by the same set of diseases that plague the US and Western Europe.  Asian economic growth will be hurt by stagnation in the West, but should still be the strongest economic area in the world.

On the political front, the Democrats will strengthen their hold on government and on economic policy.  The Republicans no longer have a platform to run on and will increasingly retreat to narrow social issues, having totally abandoned the low tax, free market agenda.  More debt, more government, more regulation, weaker economy -- that is the pattern for 2013 and for the next five or six years.

Wednesday, January 2, 2013

A Test of the Perfect Foresight Assumption

Economists typically assume that individuals and business have "perfect foresight."  What this means is that people "optimally" forecast the future based upon what they know now.  Of course, there are many random events that one cannot know now.  But, one thing everyone knows now is that the average US taxpayer is on the hook for nearly $ 60,000 in sovereign US debt.  That number will climb to over $ 100,000 by Obama's last year in office.

What this means is that the average American is under-water financially and the situation is rapidly getting much worse.  Under perfect foresight, Americans will perceive their weakened financial position brought on by the Obama excesses and will dramatically curtail their spending.  Businesses, likewise, will pull in their horns.  This is the prediction of "perfect foresight" economics, an assumption typically used in economic modeling.

The "crowding out" of investment spending by massive government deficits is the immediate reality that helps inform future forecasts.  There is only so much savings to go around.  The US saves very little.  The US imports its savings from other countries (that is the driving cause of the balance of payments problems).  Even these imported savings will not be enough to both : 1) fund the US national debt; and 2) provide investment funds for US economic growth.  The latter will be shortchanged.

The war on US financial institutions codified by the Dodd-Frank legislation prohibits US financial institutions from funding an economic recovery and the war on business led by an aggressive EPA and the new Obamacare regulations means that the economy is headed nowhere.

Obama seems to be winning his war against the US economy on every front.  Don't expect much from the US economy over the next four years.  If the national debt passes the $ 20 trillion mark by 2015, which it is on track to do, don't expect much after the next four years.

Obama Wins; USA Loses

As the Wall Street Journal spells out in some detail this morning, all Americans face major tax increases in 2013, including the middle class.  These tax increases don't include substantial increases in health care insurance costs for both employers and employees.  Funding the Obama agenda is expensive.  Republicans have given them a blank check by permitting Speaker Boehner to schedule a vote on the McConnell-Biden compromise.

Results are what matter and the truth is the Republicans did not have the courage of their convictions.  Once again, they let the country down.  Boehner should be removed as Speaker, but he won't be.  Maybe the only answer is to vote the Democrats back into control of the House, so that there can be a loyal opposition instead of a "me-too" Republican leadership. 

The McConnell-Biden deal increases the deficit, dramatically increases taxes, and rewards Hollywood producers and the money-losing wind energy business.   How could Obama not like that outcome and why would Republicans go along?  Who knows?

It now gets worse for Republicans as the debt ceiling discussion gets rephrased to: "We voted to spend this money, now we have to honor our commitment."  That will be the Democrats argument.  Obama will propose more tax increases and, once more, Republicans will cave.  Obama will get more spending, higher taxes, and more subsidies to his political allies. 

Not only will he get all of this, but Republicans will vote for it, as they effectively did last night when Boehner scheduled a vote on the "fiscal cliff compromise."  The fact that a majority of Republicans voted against the compromise is irrelevant.  Without Boehner's support, the deal would never have gone through and he is the leader of the Republicans.

It is not surprising that Obama plans to sink the country in a sea of taxes, regulation and debt.  What is surprising is that the Republicans are aiding and abetting Obama is his destructive course.

The Republicans had maximum leverage until last night.  Now the Republicans have no leverage at all in the upcoming debt ceiling discussion.  They also have nothing to run on in 2014.  Here's an easy prediction: Democrats will retake the house in 2014.  The Republicans deserve their fate.

Tuesday, January 1, 2013

Vote No on the McConnell-Biden Deal!

Eric Cantor has come out against the M-B deal.  Three cheers.

What the House should do is what it historically always has done.  Legislate.  Amend this M-B deal.  Put in real spending cuts.  Ignore the tax rate issue for now, so that issues don't get confused.  Get rid of the wind energy tax credits and all of the other nonsense that the Democrats have tossed in.  Get to $ 1.6 trillion in real spending cuts or vote no.

This is the best time to conduct this fight.  Democrats may regain the House and then what?  They can do whatever they want. 

The time to fight for the country's solvency is right now.  We have the leverage now.  We will not have it if we cave here.

Going over the cliff is better than the M-B deal.  No question.  Any Republican who votes yes on this bill, as it is, should draw a primary opponent in 2014.  McConnell should definitely draw a primary opponent for agreeing to this.  Every Republican Senator who voted for this should draw a primary opponent.

All Tax Increases, No Spending Cuts

This is "balanced?"  The so-called compromise to prevent going over the fiscal cliff is all about increasing taxes. There are absolutely no spending cuts in this plan.  This is a pure Democratic plan. McConnell should be ashamed of himself.  Boehner should not permit a vote on this.

Obama let his views be known.  He said yesterday that this is just the beginning of the tax increases. 

Where are the Republicans?