The Obama budget could be the straw that breaks the camel's back. The "stimulus" package, which does nothing more than redirect money from future citizens to current citizens, cannot possibly stimulate anything other than a request for another round next year. Free money is hard to resist. The Obama package will be just one more hurdle for the forces of economic recovery to surmount. Obama's assault on legal contracts between borrower and lenders that goes by the quaint name "judicial cram down" will make things worse as well. Still and all the economy could survive these two Obama programs. The budget package is another story.
Obama's budget package is a truly massive new set of taxes on all American citizens, rich and poor. It is reminiscent of Roosevelt's tax increases that created a second depression out of the recovery from the first great depression. Why the Obama Administration thinks taxing Americans now is a good idea is perplexing.
The biggest Obama tax increase is the carbon "cap and trade" plan. Literally millions of Americans will lose their jobs if this plan is adopted and these losses will be permanent as the industries subject to the "cap and trade" will stagger to survive, which will be impossible without major new protective tariffs across the board. Even if these industries survive they will be a shell of their former selves. Prices of everything these industries produce will be much higher than currently, so that consumers effectively are being taxed through the much higher prices they will be forced to pay by impact of the Obama "cap and trade." It is much like a massive new national sales tax and has the same regressive tax features of any sales tax.
This is only the beginning. The details of how to extract the 14 percent savings out of the health care industry have not yet been provided by the Obama team, but health care stocks got the message as they collapsed last week as details of the Obama budget began to leak out. The estimated savings would represent an Obama tax on health care firms and citizens who have health care needs that could run as high as $ 300 billion annually. Another slap at middle Americans.
Note that "cap and trade" and the so-called health care savings represent an Obama tax on the average American, not on the rich. They are about the most regressive forms of taxation that you can find and both will Have a significant negative impact on employment levels. If these two measures pass it is hard to see how America will ever see single digit unemployment numbers again. These Obama taxes are not taxes on the rich. These Obama tax increases are direct assaults on the average American family and will have a devastating impact on low to middle Americans at a time when they are having great difficulty.
Finally comes the "tax on the rich." Anyone making more than $ 200,000 per year will be effected. Within that group are virtually all the small businesses in America. By labeling such enterprises as "rich" people, Obama is able to exploit the class warfare theme, but the effect will be the same as the other taxes mentioned earlier. There will be increasing unemployment and more layoffs. The truly rich shelter their income in a myriad of ways (as we found watching the antics of the Obama appointees and the Clinton family). Most job creation in the US (and in any modern developed economy) occurs in small businesses who, in the US, file as partership or LLC tax payers. All of these businesses will be facing major tax increases under the Obama budget. They will pull in their horns. Employment levels will fall. Class warfare revenge seldom produces good policy.
Obama's idea for getting people back to work is for the government to hire them and, no doubt, his plan will create many more government jobs. But private jobs will be lost by the millions if this budget is adopted anywhere near his recommendations. If the Obama budget is adopted forget about economic recovery within this generation. This economy will be sunk for many, many years to come.
To be a bull now requires the belief that the Obama budget will not make it through a two-thirds Democratic Congress. Keep your fingers crossed.
Saturday, February 28, 2009
Tuesday, February 24, 2009
He Gives a Good Speech
Obama is a great speaker and his speech before Congress showed our young president at his best. He is funny, articulate, and, to many, inspiring. Sadly, his program is a major expansion of government at the expense of the private sector. His model is the European model. Government knows best what to produce and even how to produce it. The phrase "bad decisions" appeared several times in his speech and the phrase always referred to decisions made in the private sectors. The public sector doesn't make bad decisions according to the president. The private sector and previous Republican Adminstrations are solely responsible for our present woes in Obama's view. As the deficit spending spirals out of control, Obama calls for more spending. As Americans choke on an ever higher tax burden, Obama calls for higher taxes. As industries are strangled by government bureaucracy, he calls for more regulation of business. As financial services are devastated by loose talk about destroying existing contracts that underlie their assets, he calls for them to make more loans to people that cannot afford them. As foreign countries threaten to retaliate against protectionist moves by this president, he lashes out at companies "that send our jobs overseas."
There were some good points. For the first time in his five week presidency, the president suggested that the American economy might recover. Gone was the "catastrophe" talk. He smiled. He seemed of good cheer. He means well.
But, the substance of this talk was chilling for anyone hoping that this young president would begin to see the damage that he is doing to the American economy. He just doesn't understand much economics and he certainly isn't listening to Larry Summers or Paul Volcker.
There were some good points. For the first time in his five week presidency, the president suggested that the American economy might recover. Gone was the "catastrophe" talk. He smiled. He seemed of good cheer. He means well.
But, the substance of this talk was chilling for anyone hoping that this young president would begin to see the damage that he is doing to the American economy. He just doesn't understand much economics and he certainly isn't listening to Larry Summers or Paul Volcker.
Monday, February 23, 2009
The Spark That Lights The Fuse
Watch for either Goldman Sachs or J P Morgan (or both) to announce that they plan to raise or have raised the capital to pay off the TARP money taken last October (under duress). J P Morgan's dividend cut, announced after the close today, frees up $ 5 billion annually that can help them move toward that goal. Both GS and JPM are profitable and likely don't need TARP money. Paying off TARP money will show that the private market can make it without the government and that will spark a major stock market rally.
Unfortunately, no government plan can produce a rally because government plans always remind us that private capital is running the other way. Government needs to take a holiday. If the President and the Congress would quit trying to help, good things could happen. Otherwise, expect more of the same for stocks.
Unfortunately, no government plan can produce a rally because government plans always remind us that private capital is running the other way. Government needs to take a holiday. If the President and the Congress would quit trying to help, good things could happen. Otherwise, expect more of the same for stocks.
Sunday, February 22, 2009
The Obama Budget
The rollback of Bush tax cuts in 2011 is a bad idea, but taxing hedge fund earnings as ordinary income is a good idea. Both of these notions are in the Obama Budget plan that he will be unveiling this week. There is no reason for hedge fund carried interest to be taxed at long term capital gains rates. They should pay the same tax rates as anyone else, which means ordinary income tax rates. Here, Obama is definitely on the side of the angels. Obama, again, seems to be devouring his own since most of the hedge fund industry supported him over his opponent in the last election and now he is going to raise their taxes...I love it.
The problem that Obama's budget is going to have is that:
1) The president is underestimating the future costs of the military. Al Queda and other problems will not fold up their tents and retire to a peaceful oasis somewhere just because America elected a "rock star" as their president and banished mean ole George Bush to Texas. These guys (Osama's gang) mean business and before long Obama will see that they mean business. Then what? Similarly, the Taliban. Is he thinking they will fold their tents as well. This is a rough tough world we live in and Chicago Southside politics may not be the necessary training ground to handle the current problems that lurk out there. It isn't as simple as "bring the troops home from Iraq" thereby saving billions of dollars and the world moves peacefully forward, as Obama will soon discover. Those troops, and more, will soon need to be redeployed.
2) The president is underestimating the cost of his health insurance plans, since the government health plan advocates expect a cornucopio of health benefits which are not remotely affordable. Things are only affordable if someone has an incentive to restrain their personal demand for services. Under the Obama plan, no one has such an incentive. Ultimately the government will ration health services and many currently available health services will be prohibited as "not necessary" (but actually not desired by government bureaucrats for reasons of cost). But, in the short run, it will all seem easy. After all, think of all the money we will save by not having the huge costs of the insurance industry. Look what our thinking has done for the Post Office. Within a decade, it will probably cost five bucks to send a postcard from New York to Philadelphia!
3.) The president is over-estimating his future tax receipts. The president seems to think tax revenues are an ever increasing function of tax rates. At 90 percent rates, he thinks he will bring in twice the revenue of 45 percent rates. He'll find out. Higher rates will depress future tax revenues for the same reason that lower rates raise future tax revenues. If you have something that's going to get taxed, people figure out how to turn it into something else. Look at Bill and Hillary. They made $ 100 million in income in the years since Bill left office, but paid tax on only $ 30 million. They contributed $ 70 million to their favorite charity -- themselves. Now, that charity supports the Clintons in the style to which they have become accustomed. But don't blame the Clintons; anyone can do the same thing if they are rich enough. That's why Buffett, Feinstein, Bill Gates, John Kerry, Ted Kennedy, Barbara Boxer don't mind tax increases (should I mention Daschle and Geithner?)...they don't have to pay them. All of these folks have large charitable foundations set up for the sole purpose of avoiding taxes that ordinary folks have to pay and cannot avoid.
At least the president is suggesting the size of the national debt matters, even if his budget doesn't do much to control it.
The problem that Obama's budget is going to have is that:
1) The president is underestimating the future costs of the military. Al Queda and other problems will not fold up their tents and retire to a peaceful oasis somewhere just because America elected a "rock star" as their president and banished mean ole George Bush to Texas. These guys (Osama's gang) mean business and before long Obama will see that they mean business. Then what? Similarly, the Taliban. Is he thinking they will fold their tents as well. This is a rough tough world we live in and Chicago Southside politics may not be the necessary training ground to handle the current problems that lurk out there. It isn't as simple as "bring the troops home from Iraq" thereby saving billions of dollars and the world moves peacefully forward, as Obama will soon discover. Those troops, and more, will soon need to be redeployed.
2) The president is underestimating the cost of his health insurance plans, since the government health plan advocates expect a cornucopio of health benefits which are not remotely affordable. Things are only affordable if someone has an incentive to restrain their personal demand for services. Under the Obama plan, no one has such an incentive. Ultimately the government will ration health services and many currently available health services will be prohibited as "not necessary" (but actually not desired by government bureaucrats for reasons of cost). But, in the short run, it will all seem easy. After all, think of all the money we will save by not having the huge costs of the insurance industry. Look what our thinking has done for the Post Office. Within a decade, it will probably cost five bucks to send a postcard from New York to Philadelphia!
3.) The president is over-estimating his future tax receipts. The president seems to think tax revenues are an ever increasing function of tax rates. At 90 percent rates, he thinks he will bring in twice the revenue of 45 percent rates. He'll find out. Higher rates will depress future tax revenues for the same reason that lower rates raise future tax revenues. If you have something that's going to get taxed, people figure out how to turn it into something else. Look at Bill and Hillary. They made $ 100 million in income in the years since Bill left office, but paid tax on only $ 30 million. They contributed $ 70 million to their favorite charity -- themselves. Now, that charity supports the Clintons in the style to which they have become accustomed. But don't blame the Clintons; anyone can do the same thing if they are rich enough. That's why Buffett, Feinstein, Bill Gates, John Kerry, Ted Kennedy, Barbara Boxer don't mind tax increases (should I mention Daschle and Geithner?)...they don't have to pay them. All of these folks have large charitable foundations set up for the sole purpose of avoiding taxes that ordinary folks have to pay and cannot avoid.
At least the president is suggesting the size of the national debt matters, even if his budget doesn't do much to control it.
Friday, February 20, 2009
It Will Take a Heck of a Rally!
Sometime back in December, I forecast a strong rally for the stock market, pushing the Dow towards the 11,000 level by the end of February. I was on target, as usual, about the size of the move. The Dow is now 1,400 points from the level when I made that fearless prediction. The only minor flaw in my prediction was the direction.
For me to be proven right will require the best week in stock market history. The Dow, now at 7,365, needs about a 50 percent increase next week, to make my prediction last December come anywhere near the mark. Is that too much to ask?
I think I need a favor from the President. How about a one week moratorium on new economic programs to rescue the economy? Also, would it be okay if Tim Geithner and Chris Dodd could be made your special envoy to Bhutan for next week? They could get a flight out of Dulles Sunday night returning late Friday night. I think Geithner and Dodd are especially qualified to spend a week in Bhutan and improve our ties to that important country. It is a shame that no media is available to accompany them and that telephones are forbidden in Bhutan. But, when they get back, they can tell us all about it.
That should about do it. Strap on your seat belts...the rally is on its way!
For me to be proven right will require the best week in stock market history. The Dow, now at 7,365, needs about a 50 percent increase next week, to make my prediction last December come anywhere near the mark. Is that too much to ask?
I think I need a favor from the President. How about a one week moratorium on new economic programs to rescue the economy? Also, would it be okay if Tim Geithner and Chris Dodd could be made your special envoy to Bhutan for next week? They could get a flight out of Dulles Sunday night returning late Friday night. I think Geithner and Dodd are especially qualified to spend a week in Bhutan and improve our ties to that important country. It is a shame that no media is available to accompany them and that telephones are forbidden in Bhutan. But, when they get back, they can tell us all about it.
That should about do it. Strap on your seat belts...the rally is on its way!
Wednesday, February 18, 2009
Goodbye Mortgage Market
You wonder who is advising the President? Having thrown several monkey wrenches in the path of an economic recovery, he now seems embarked on a program to destroy the mortgage lending market. What better way to destroy the mortgage market than to toss out the enforceable contract rights of a mortgage loan? The "judicial cram down" provision of Obama's mortgage plan means that judges can, at their whim, change existing mortgage contracts between borrower and lender. Now all mortgage backed assets are worth less than before Obama's announcement of his new "$ (2)75 billion mortgage rescue plan." In the future, mortgage lending will be much less attractive and much riskier for the lender. Who knows what other arbitrary rule changes the government may see fit to impose between borrower and lender, after the fact.
Other provisions reward homeowners who took on more house then they could afford, knowingly lied on their applications, have mortgages that can be as high as nearly $800,000! Who pays? Howeowners who played by the rules, bought homes they could afford, made their monthly payments and have a mortgage, on average, of barely more than $ 100,000. It is easy to see who gets rewarded and who gets punished. Once again, Obama, rewards the speculator and liar and punishes those who play by the rules.
Imagine two families with the same $ 600,000 house. Both have $ 250,000 mortgages and identical income. Now one family decides to buy a Maserati for $ 250,000, so they refinance to a new $ 500,000 mortgage which payments they cannot afford. One of these families will end up subsidizing the other. Guess who gets subsidized and who pays?
Imagine that both buy a Maserati, but one refinances his home to a $ 500,000 mortgage, but the other uses a jumbo auto loan. Now what? Same ending. One subsidizes the other even though their situation is identical.
The parts of the country that are truly underwater (where mortgages are more than 105 % of home value) nothing happens. The Obama plan is only applicable to neighborhoods that are: 1) stabilizing or should stabilize by this summer without government involvement; 2) have folks that made some very bad decisions. (If you made good decisions this program cannot help you. You are the victim...you get to pay for this). Liar loans are encouraged to apply and the kind of mortgages that qualify can be up to $ 785,000 (the average mortgage in America is about $ 110,000).
Meanwhile, the inventory of homes on the market has fallen from 11.2 months (time on the market before sale) to an average to 9.2 months. So, what is the big emergency? The emergency, if it exists, is in markets that are not addressed by the Obama package. This seems to be the hallmark of Obama packages. They are either irrelevant to the real problem or they are counter productive (or both). They do, however, consistently reward bad decisions and punish folks who did not make bad decisions. Is that by design?
The economy is still struggling in the throes of a mild recession. If Obama would take a 12 month vacation with no further pronouncements, the economy, this time next year, would be well on its way to a vibrant economic recovery. But, if Obama succeeds with this mortgage plan and some of the other plans being rumored, we could easily be facing a decade or so of economic stagnation. One thing for certain, the mortgage market will never be the same after Obama. In the future, only the government will loan to low income borrowers or borrowers with less than perfect credit. In the new Obama world, private lenders will no longer be sure that they have title to the collateral in a mortgage loan.
All mortgage borrowers now have a very strong incentive to consider ceasing to pay their mortgage. If your current mortgage is covered in this package, then, in order to qualify, hopefully, you had the foresight to refinance into a subprime loan that you could not afford. (Otherwise you won't qualify). If your current mortgage is not covered, then hang in there, stop making your monthly payments, and the next Obama mortgage proposal will probably include you. In either case, quit making your mortgage payments as soon as possible. The Obama "judidicial cram down" only applies if you go to foreclosure. So, by all means, you need to manage to convince your bank to foreclose. Not paying your mortgage payments is one way to accomplish this. All of this should be good for the banking sector.
Goodbye to contract law. Goodbye to the mortgage market. Goodbye to the commercial banking system. We are in a whole new world with this crowd. Will there be anything left of the private sector when these folks get done?
The market reacted today to the Obama plan. Insurance companies, banks, anyone who owned mortgage backed securities were crushed. What would you expect? Is this what Obama intends?
Perhaps, the government can take over the insurance industry (they have a beginning, they already have AIG). So, once the government has the insurance industry, the commercial banking industry, the auto industry, perhaps it's time to go after the tech sector. Tech companies don't have much debt, but surely there is some way to take them over so that the Obama folks can decide what tech products should be produced, who should buy them, who should not, and precisely how much money senior management should make (and what part of that should be salary and what part bonus). Why not? It seems to be working well in financial services.
Other provisions reward homeowners who took on more house then they could afford, knowingly lied on their applications, have mortgages that can be as high as nearly $800,000! Who pays? Howeowners who played by the rules, bought homes they could afford, made their monthly payments and have a mortgage, on average, of barely more than $ 100,000. It is easy to see who gets rewarded and who gets punished. Once again, Obama, rewards the speculator and liar and punishes those who play by the rules.
Imagine two families with the same $ 600,000 house. Both have $ 250,000 mortgages and identical income. Now one family decides to buy a Maserati for $ 250,000, so they refinance to a new $ 500,000 mortgage which payments they cannot afford. One of these families will end up subsidizing the other. Guess who gets subsidized and who pays?
Imagine that both buy a Maserati, but one refinances his home to a $ 500,000 mortgage, but the other uses a jumbo auto loan. Now what? Same ending. One subsidizes the other even though their situation is identical.
The parts of the country that are truly underwater (where mortgages are more than 105 % of home value) nothing happens. The Obama plan is only applicable to neighborhoods that are: 1) stabilizing or should stabilize by this summer without government involvement; 2) have folks that made some very bad decisions. (If you made good decisions this program cannot help you. You are the victim...you get to pay for this). Liar loans are encouraged to apply and the kind of mortgages that qualify can be up to $ 785,000 (the average mortgage in America is about $ 110,000).
Meanwhile, the inventory of homes on the market has fallen from 11.2 months (time on the market before sale) to an average to 9.2 months. So, what is the big emergency? The emergency, if it exists, is in markets that are not addressed by the Obama package. This seems to be the hallmark of Obama packages. They are either irrelevant to the real problem or they are counter productive (or both). They do, however, consistently reward bad decisions and punish folks who did not make bad decisions. Is that by design?
The economy is still struggling in the throes of a mild recession. If Obama would take a 12 month vacation with no further pronouncements, the economy, this time next year, would be well on its way to a vibrant economic recovery. But, if Obama succeeds with this mortgage plan and some of the other plans being rumored, we could easily be facing a decade or so of economic stagnation. One thing for certain, the mortgage market will never be the same after Obama. In the future, only the government will loan to low income borrowers or borrowers with less than perfect credit. In the new Obama world, private lenders will no longer be sure that they have title to the collateral in a mortgage loan.
All mortgage borrowers now have a very strong incentive to consider ceasing to pay their mortgage. If your current mortgage is covered in this package, then, in order to qualify, hopefully, you had the foresight to refinance into a subprime loan that you could not afford. (Otherwise you won't qualify). If your current mortgage is not covered, then hang in there, stop making your monthly payments, and the next Obama mortgage proposal will probably include you. In either case, quit making your mortgage payments as soon as possible. The Obama "judidicial cram down" only applies if you go to foreclosure. So, by all means, you need to manage to convince your bank to foreclose. Not paying your mortgage payments is one way to accomplish this. All of this should be good for the banking sector.
Goodbye to contract law. Goodbye to the mortgage market. Goodbye to the commercial banking system. We are in a whole new world with this crowd. Will there be anything left of the private sector when these folks get done?
The market reacted today to the Obama plan. Insurance companies, banks, anyone who owned mortgage backed securities were crushed. What would you expect? Is this what Obama intends?
Perhaps, the government can take over the insurance industry (they have a beginning, they already have AIG). So, once the government has the insurance industry, the commercial banking industry, the auto industry, perhaps it's time to go after the tech sector. Tech companies don't have much debt, but surely there is some way to take them over so that the Obama folks can decide what tech products should be produced, who should buy them, who should not, and precisely how much money senior management should make (and what part of that should be salary and what part bonus). Why not? It seems to be working well in financial services.
Sunday, February 15, 2009
The Bright Side
Since the New Year began there has been constant improvement in the credit markets. January was one of the strongest months in history for the investment grade debt market and high yield debt improved throughout the month. These trends continue into February. Treasury bill yields came off the floor. Last week Cisco sold $ 4 billion of new debt at a modest spread over treasuries. The first IPO in three months occurred on Wednesday and traded well in the after market. Expect more of the same. Bank lending in the 4th quarter of 2008 was at record levels. Stock market volatility continued its slower pace that began in December. Home sales picked up in January and retail sales were up in January over December. Unemployment claims dropped in the most recent reporting week. (Somehow, the new Adminstration seems unaware of all of this, or simply chooses to paint as bleak a picture as possible for political reasons).
The stock market has lost nearly 1,000 points, since the New Year's dawn. The stock market is ignoring the good economic news and focusing on the Obama Administration and the Congress, where the news is pretty much all bad. As misguided as government policy is, the market is usually stronger than government (which frustrates politicians) and unless the Obama Administration clamps down harder on free markets (which it might), the economy will begin to show signs of life this summer. Other punitive legislation, such as "card check," "Buy American," or other such Democratic initiatives could torpedo the private sector's bounce back and prolong this recession. Hopefully, the new Administration will, at some point, lay aside ideology long enough to give the economy a chance to recover. Left to its own, the economy is showing some signs that things are not nearly so bad as some think.
The peak in unemployment should come this summer and housing in most parts of the US should show stabilization with prices bottoming out this summer. Things will not "bounce back" quickly, but the worst of the economic slide should be over this summer and the second half of the year should show mild economic growth. This would mean that, at worst, we are in a mild recession...not a depression as some pundits have claimed. This is still likely to prove to be one of the mildest recessions since the end of World War II, despite all the hand wringing by the politicians. Watch Asia. Asia will do much better than most prognosticators think. Asia is not highly levered like the West and China's growing internal demand will replace some of the demand lost due to problems in the Western economies.
What could damage this optimistic scenario? More bad policy from the new administration could turn this into a major long run downturn that could go on for decades and eventually lead to a repudiation of the US national debt. Based upon the current Obama game plan, this should be viewed as highly likely. But, hopefully, Paul Volcker and Larry Summers and perhaps Warren Buffett can talk common sense to the new president and get him to abandon his war on free enterprise. If so, things could get begin to look better before next Labor Day.
The stock market has lost nearly 1,000 points, since the New Year's dawn. The stock market is ignoring the good economic news and focusing on the Obama Administration and the Congress, where the news is pretty much all bad. As misguided as government policy is, the market is usually stronger than government (which frustrates politicians) and unless the Obama Administration clamps down harder on free markets (which it might), the economy will begin to show signs of life this summer. Other punitive legislation, such as "card check," "Buy American," or other such Democratic initiatives could torpedo the private sector's bounce back and prolong this recession. Hopefully, the new Administration will, at some point, lay aside ideology long enough to give the economy a chance to recover. Left to its own, the economy is showing some signs that things are not nearly so bad as some think.
The peak in unemployment should come this summer and housing in most parts of the US should show stabilization with prices bottoming out this summer. Things will not "bounce back" quickly, but the worst of the economic slide should be over this summer and the second half of the year should show mild economic growth. This would mean that, at worst, we are in a mild recession...not a depression as some pundits have claimed. This is still likely to prove to be one of the mildest recessions since the end of World War II, despite all the hand wringing by the politicians. Watch Asia. Asia will do much better than most prognosticators think. Asia is not highly levered like the West and China's growing internal demand will replace some of the demand lost due to problems in the Western economies.
What could damage this optimistic scenario? More bad policy from the new administration could turn this into a major long run downturn that could go on for decades and eventually lead to a repudiation of the US national debt. Based upon the current Obama game plan, this should be viewed as highly likely. But, hopefully, Paul Volcker and Larry Summers and perhaps Warren Buffett can talk common sense to the new president and get him to abandon his war on free enterprise. If so, things could get begin to look better before next Labor Day.
Friday, February 13, 2009
The Dodd Amendment
As if the stimulus bill wasn't bad enough, Senator Chris Dodd found a way to make it even worse. Very quietly Dodd inserted a provision in the bill which is now law that: any financial institution that received TARP money (or any federal assistance) can no longer pay any of their top 25 employees a bonus that exceeds one-third of total compensation!
The Dodd Amendment shows the complete insanity and vindictiveness of the current Democratic Party orgy. Interestingly, to some extent, they are devouring their own. Most of the big Wall Street fat cats are Democrats. Richard Fuld, the Lehman chief that was publicly skewered by Barney Frank and his minions, was one of the heaviest individual contributors to the Democratic Party in the country.
The next group that will feel the wrath of these maniacs will be the hedge funds and the private equity firms. They were also mostly heavy Democratic contributors. After that, they should get around to their good pals Buffett and Gates. It shouldn't take much to put those guys on the hot seat as well. After all, everyone knows how evil Microsoft is and Buffett has been aiding and abetting shops like Goldman Sachs and others.
As Obama and his Democratic allies push the economy over the cliff, they seem to revel in holding business people up to ridicule. One wonders how deep the hatred for free enterprise runs in our new President and his Congressional allies. They can't seem to let a day go by when they are not villifying and demonizing the very people that they seem to expect to provide jobs for American workers. Or perhaps they no longer consider the private sector worth preserving.
Their next move to destroy jobs and damage the country will be the move for "card check." This will make having employees more odious and business folks will obviously be looking for ways to reduce their employment rolls if this passes. Maybe we could get to the end game sooner if Obama and the Congress just passed a law saying that anyone who hired a new employee would be shot at dawn. Why temporize?
The Dodd Amendment shows the complete insanity and vindictiveness of the current Democratic Party orgy. Interestingly, to some extent, they are devouring their own. Most of the big Wall Street fat cats are Democrats. Richard Fuld, the Lehman chief that was publicly skewered by Barney Frank and his minions, was one of the heaviest individual contributors to the Democratic Party in the country.
The next group that will feel the wrath of these maniacs will be the hedge funds and the private equity firms. They were also mostly heavy Democratic contributors. After that, they should get around to their good pals Buffett and Gates. It shouldn't take much to put those guys on the hot seat as well. After all, everyone knows how evil Microsoft is and Buffett has been aiding and abetting shops like Goldman Sachs and others.
As Obama and his Democratic allies push the economy over the cliff, they seem to revel in holding business people up to ridicule. One wonders how deep the hatred for free enterprise runs in our new President and his Congressional allies. They can't seem to let a day go by when they are not villifying and demonizing the very people that they seem to expect to provide jobs for American workers. Or perhaps they no longer consider the private sector worth preserving.
Their next move to destroy jobs and damage the country will be the move for "card check." This will make having employees more odious and business folks will obviously be looking for ways to reduce their employment rolls if this passes. Maybe we could get to the end game sooner if Obama and the Congress just passed a law saying that anyone who hired a new employee would be shot at dawn. Why temporize?
Wednesday, February 11, 2009
Redistribution of Income is Not a Stimulus
Congressional Democrats and the President have confused relief and redistribution of income with stimulus. Presumably, the point of all of this is to get somebody to hire someone. Getting the government to hire someone just requires passing a law and spending money. That part is easy. How do you get a businessman or a private company to hire workers? That is what stimulus is supposed to accomplish, is it not?
What does the Obama package do? It provides relief to middle and lower income folks and old folks (regardless of need). In order to do this it imposes taxes on present and future generations of taxpayers. Since wealthy folks pay most of the taxes in the US, this is basically a redistribution of wealth and income. Does it provide stimulus? If you are a family having trouble paying your bills and making your mortgage payment and the government gives you a $ 1,000, what would you do? Presumably, you would pay down the most pressing bills. The last thing you would consider is to spend this money on something...debt repayment is the name of the game for families in trouble, not embarking on a consumption binge.
While helping people in trouble is a nice thing to do, it has nothing to do with stimulating the economy. Imagine that President Obama and the Congress agreed to cut corporate income taxes in half starting in 2011 and lasting until 2016. That announcement would cost a fraction of the current stimulus bill (indeed, it might cost nothing) and would provide dramatic incentives for business to hire new employees and embark on investment designed to pay off in 2011 and beyond. It would cost no tax dollars in 2009 and 2010. This is stimulus. What Obama and the Democrats are doing has nothing to do with stimulus.
Instead once this Obama plan is spent, there will be a demand for another. Redistribution schemes creates their own new constituencies. The economy meanwhile will have less money available for private investment, businessmen will be demoralized (and, of course, demonized by President Obama and the Congress). Businesses, after Obama and the Democrats put "card check" into place, will hire fewer employees, abandon expansion plans and many will simply close up shop. Some stimulus!
President Obama doesn't seem to be able to utter the words "tax cut" without saying "tax cuts for the rich." This is how he sees the world. It is clear that Obama despises folks that pay taxes and absolves his own supporters of the obligation to pay them (witness: Tim Geithner, Tom Daschle). This Administration does not like private enterprise and free markets and Obama shows his contempt for the private sector on every occasion. Not surprising for someone who learned everything he knows about the private sector listening to Harvard law professors.
What does the Obama package do? It provides relief to middle and lower income folks and old folks (regardless of need). In order to do this it imposes taxes on present and future generations of taxpayers. Since wealthy folks pay most of the taxes in the US, this is basically a redistribution of wealth and income. Does it provide stimulus? If you are a family having trouble paying your bills and making your mortgage payment and the government gives you a $ 1,000, what would you do? Presumably, you would pay down the most pressing bills. The last thing you would consider is to spend this money on something...debt repayment is the name of the game for families in trouble, not embarking on a consumption binge.
While helping people in trouble is a nice thing to do, it has nothing to do with stimulating the economy. Imagine that President Obama and the Congress agreed to cut corporate income taxes in half starting in 2011 and lasting until 2016. That announcement would cost a fraction of the current stimulus bill (indeed, it might cost nothing) and would provide dramatic incentives for business to hire new employees and embark on investment designed to pay off in 2011 and beyond. It would cost no tax dollars in 2009 and 2010. This is stimulus. What Obama and the Democrats are doing has nothing to do with stimulus.
Instead once this Obama plan is spent, there will be a demand for another. Redistribution schemes creates their own new constituencies. The economy meanwhile will have less money available for private investment, businessmen will be demoralized (and, of course, demonized by President Obama and the Congress). Businesses, after Obama and the Democrats put "card check" into place, will hire fewer employees, abandon expansion plans and many will simply close up shop. Some stimulus!
President Obama doesn't seem to be able to utter the words "tax cut" without saying "tax cuts for the rich." This is how he sees the world. It is clear that Obama despises folks that pay taxes and absolves his own supporters of the obligation to pay them (witness: Tim Geithner, Tom Daschle). This Administration does not like private enterprise and free markets and Obama shows his contempt for the private sector on every occasion. Not surprising for someone who learned everything he knows about the private sector listening to Harvard law professors.
Tuesday, February 10, 2009
The Geithner Plan
A consistency of sorts is beginning to emerge in the Obama economic policy. After much speculation and constant leaks to the press, the much-ballyhooed bank rescue plan was announced by Treasury Secretary Tim Geithner. The plan was essentially a rerun of many of the ideas of the Paulson era. Nothing new. The stock market applauded Geithner with one of the worst sell offs in history as the market shed nearly five percent of its value after hearing the "details" of Geithner's rescue plan. The financial sector, the sector that the rescue plan was designed to save, dropped by over 12 percent on the day.
The most interesting thing about the plan was the insistence by Obama and Geithner to include absolutely no Wall Street input into the plan. This was essential, as the Obama folks now view anyone connected with Wall Street as morally unclean. Therefore, the essential prerequisties for working on this new plan was that you have no prior knowledge or experience regarding financial markets. The outline presented by Geithner was just what you might expect from a plan crafted under this mandate.
We now have a stimulus package with no stimulus elements and a financial rescue plan designed by folks with no experience with financial markets. The Obama Administration is convinced that successful businessmen and folks who succeeded on Wall Street are little more than common criminals. The right way to fashion a reform is to gather together people who have never dirtied their hands in private business and the financial markets and let them design our program for recovery reform.
One virtue of Geithner's announcement and the Senate approval of the stimulus plan today was that panic was restored to the stock and bond markets and treasury security prices rose and their yields collapsed. I guess the Obama strategy is to scare the hell out of everyone and keep people buying treasuries and avoiding all other securities. This should keep financing rates low on our burgeoning national debt -- at least for the next few weeks. Then I guess they (the Obama crowd) will try something else that sounds good to people who have no knowledge of financial markets. Sounds like a plan.
The most interesting thing about the plan was the insistence by Obama and Geithner to include absolutely no Wall Street input into the plan. This was essential, as the Obama folks now view anyone connected with Wall Street as morally unclean. Therefore, the essential prerequisties for working on this new plan was that you have no prior knowledge or experience regarding financial markets. The outline presented by Geithner was just what you might expect from a plan crafted under this mandate.
We now have a stimulus package with no stimulus elements and a financial rescue plan designed by folks with no experience with financial markets. The Obama Administration is convinced that successful businessmen and folks who succeeded on Wall Street are little more than common criminals. The right way to fashion a reform is to gather together people who have never dirtied their hands in private business and the financial markets and let them design our program for recovery reform.
One virtue of Geithner's announcement and the Senate approval of the stimulus plan today was that panic was restored to the stock and bond markets and treasury security prices rose and their yields collapsed. I guess the Obama strategy is to scare the hell out of everyone and keep people buying treasuries and avoiding all other securities. This should keep financing rates low on our burgeoning national debt -- at least for the next few weeks. Then I guess they (the Obama crowd) will try something else that sounds good to people who have no knowledge of financial markets. Sounds like a plan.
Sunday, February 8, 2009
Obama Economics -- Our First Real Look
We are three weeks into the Obama presidency and some things are becoming very clear. First and foremost, the post-partisanship theme, "changing the way Washington does business," is dead on arrival. Obama's stimulus package has nothing in it that could conceivably appeal to Republican voters or lawmakers. It was nothing more than a wish list of every half baked proposal from the unions, environmentalists and protectionists. If the package that was presented to Congress survives in toto, it would undermine international trade, violate most of our international trade agreements, discourage workers from looking for new jobs,increase the current inefficiencies in health care provision, create higher unemployment by keeping wages artificially high on government spending projects, and waste more taxpayer dollars than any proposal put before the US Congress in history.
Even the Congressional Budget Office (CBO), now controlled by Democratic Congressional leaders, couldn't find a kind word for the Obama package. The CBO, last week, said the package would provide almost no new jobs and would make things worse, not better, within a few years. Robert Harrow, Jr's article in the Washington Post of February the 8th, lays out in detail why the proposed spending package will very likely be mostly wasted. My suspicion is that President Obama reads the Washington Post. Perhaps, he should check out Harrow's article. It's on the front page.
The chief reason the CBO is negative on the package is the enormous impact this bill (and the various bailout schemes) will have on treasury debt financing. There is now a serious possibility that the US may not be able to fund its debt in the near future. What if double digit rates are required to fund the national debt? This might be the most optimistic scenario. The Obama Adminstration is so convinced that the economy is in a depression that they are ignoring positive signals from the economy. You are beginning to see substantial vulture bidding in the housing market. Even markets in south Florida are beginning to show some life. January was one of the best months in history for investment grade debt, high yield debt rallied in January as well, stock volatility continued to drop and short term treasury yields came off the floor, Pfizer announced a $ 22 billion acquisition of Wyeth and Pfizer announced that they had secured financing for the acquistion! These are all important signs that the world is not coming to an end.
What about commercial bank lending? If you watch major networks including CNBC, you would think that bank lending was falling? The facts are exactly the opposite. Commercial bank lending in the 4th quarter of 2008 set a new record and was 2 1/2 percent higher than 3rd quarter 2008. For the 2008 year as a whole, commercial bank lending in the US was 5 1/2 percent higher than in 2007. This information is all available at the Federal Reserve website...just check out the Federal Reserve Bulletin which provides the real data for all to see. So much for news reporting!
True, unemployment is growing. If another two million lose their jobs then we might be looking at the percentage unemployed in the 1989-9 recession. If five million lose their jobs from here, then we might reach the level of the only other important recession since the 70s, the 1979-81 recession. We are a long way from approaching a serious recession. We may get there, especially if the stimulus bill passes and the bailouts continue, but we are not there yet, not by a long shot. The reason the press keeps saying that unemployment is the highest in 30 years is that the country's population is seventy percent higher than it was 30 years ago. Absolute numbers are a poor measure, it is the percentage unemployed that counts and that percentage is still well below the level for any recession since the end of World War II and is below the unemployment levels considered to be full employment by every European economy.
Obama's rhetoric makes it clear that he is more interested in "getting even" with people that have made money, particularly Wall Streeters, than seeing the economy improve. Witness the Obama grandstanding this week on executive compensation. This is classic "form over substance." This is "change" that represents a serious effort to duck an issue, while making headlines as if you are really doing something.
At some point there has to be a realization that if you want lenders to lend and businessmen to hire people, perhaps constant demonization of businessmen and lenders from the White House and Congress is not a good strategy. Business folks do not, by law, have to hire anyone. They need incentives to do that, not constant verbal abuse from the politicians. Same with lenders. Most of the Obama program, for example the "Card Check" bill and most of the stimulus package are counterproductive.
Much of the problem is simply one of attitude. President Obama and the entire Congressional leadership have never held a job in the private sector. Indeed, none of them has ever done anything other than map a career in politics. To these folks, anyone in the private sector is a borderline criminal because he/she is trying to make money. These politicians like Daschle who extract millions as inflluence peddlers (without,or course, taking the time to register as lobbyists) think they are above the ordinary rules of morality and law. In their minds, it is not possible for them, by definition, to be as corrupt as folks in the private sector. So, they just do whatever the hell they want (Geithner, Daschle, Rahm Emanuel, Charlie Wrangle, Christopher Dodd, Barney Franks, and the list goes on and on). They have one standard for themselves and another standard for everyone else. Guess which standard is higher?
The problem with all of this is that the attitude of the President and the Congress is not helpful. They are not as interested in getting the economy going as dividing up the shrinking economic pie. If you look closely at the stimulus package, it has absolutely nothing to do with economic stimulus and everything to do with rewarding constituencies that have labored in the Democratic vineyards and are expecting payback. This bill is mostly about payback.
Even the public is not buying this. The latest Rassmussen poll shows a clear plurality against the president's stimulus package. Only 37 percent now think it will do any good. That number will fall. The package is a terrible waste of money and an incredible expansion of the role of government, but contains no short term stimulus for the economy.
Obama was in a marvelous position to create a stimulus package that could have been 50 percent infrastructure spending and 50 percent tax cuts. This plan is 5 % infrastructure spending and practically zero percent tax cuts (It is not a tax cut to give money to someone who does not pay taxes). It is 95 percent pork and payback. Obama is a not new kind of politician. He turns out to be a Democratic hack who is more interested in dividing us than uniting us.
Even the Congressional Budget Office (CBO), now controlled by Democratic Congressional leaders, couldn't find a kind word for the Obama package. The CBO, last week, said the package would provide almost no new jobs and would make things worse, not better, within a few years. Robert Harrow, Jr's article in the Washington Post of February the 8th, lays out in detail why the proposed spending package will very likely be mostly wasted. My suspicion is that President Obama reads the Washington Post. Perhaps, he should check out Harrow's article. It's on the front page.
The chief reason the CBO is negative on the package is the enormous impact this bill (and the various bailout schemes) will have on treasury debt financing. There is now a serious possibility that the US may not be able to fund its debt in the near future. What if double digit rates are required to fund the national debt? This might be the most optimistic scenario. The Obama Adminstration is so convinced that the economy is in a depression that they are ignoring positive signals from the economy. You are beginning to see substantial vulture bidding in the housing market. Even markets in south Florida are beginning to show some life. January was one of the best months in history for investment grade debt, high yield debt rallied in January as well, stock volatility continued to drop and short term treasury yields came off the floor, Pfizer announced a $ 22 billion acquisition of Wyeth and Pfizer announced that they had secured financing for the acquistion! These are all important signs that the world is not coming to an end.
What about commercial bank lending? If you watch major networks including CNBC, you would think that bank lending was falling? The facts are exactly the opposite. Commercial bank lending in the 4th quarter of 2008 set a new record and was 2 1/2 percent higher than 3rd quarter 2008. For the 2008 year as a whole, commercial bank lending in the US was 5 1/2 percent higher than in 2007. This information is all available at the Federal Reserve website...just check out the Federal Reserve Bulletin which provides the real data for all to see. So much for news reporting!
True, unemployment is growing. If another two million lose their jobs then we might be looking at the percentage unemployed in the 1989-9 recession. If five million lose their jobs from here, then we might reach the level of the only other important recession since the 70s, the 1979-81 recession. We are a long way from approaching a serious recession. We may get there, especially if the stimulus bill passes and the bailouts continue, but we are not there yet, not by a long shot. The reason the press keeps saying that unemployment is the highest in 30 years is that the country's population is seventy percent higher than it was 30 years ago. Absolute numbers are a poor measure, it is the percentage unemployed that counts and that percentage is still well below the level for any recession since the end of World War II and is below the unemployment levels considered to be full employment by every European economy.
Obama's rhetoric makes it clear that he is more interested in "getting even" with people that have made money, particularly Wall Streeters, than seeing the economy improve. Witness the Obama grandstanding this week on executive compensation. This is classic "form over substance." This is "change" that represents a serious effort to duck an issue, while making headlines as if you are really doing something.
At some point there has to be a realization that if you want lenders to lend and businessmen to hire people, perhaps constant demonization of businessmen and lenders from the White House and Congress is not a good strategy. Business folks do not, by law, have to hire anyone. They need incentives to do that, not constant verbal abuse from the politicians. Same with lenders. Most of the Obama program, for example the "Card Check" bill and most of the stimulus package are counterproductive.
Much of the problem is simply one of attitude. President Obama and the entire Congressional leadership have never held a job in the private sector. Indeed, none of them has ever done anything other than map a career in politics. To these folks, anyone in the private sector is a borderline criminal because he/she is trying to make money. These politicians like Daschle who extract millions as inflluence peddlers (without,or course, taking the time to register as lobbyists) think they are above the ordinary rules of morality and law. In their minds, it is not possible for them, by definition, to be as corrupt as folks in the private sector. So, they just do whatever the hell they want (Geithner, Daschle, Rahm Emanuel, Charlie Wrangle, Christopher Dodd, Barney Franks, and the list goes on and on). They have one standard for themselves and another standard for everyone else. Guess which standard is higher?
The problem with all of this is that the attitude of the President and the Congress is not helpful. They are not as interested in getting the economy going as dividing up the shrinking economic pie. If you look closely at the stimulus package, it has absolutely nothing to do with economic stimulus and everything to do with rewarding constituencies that have labored in the Democratic vineyards and are expecting payback. This bill is mostly about payback.
Even the public is not buying this. The latest Rassmussen poll shows a clear plurality against the president's stimulus package. Only 37 percent now think it will do any good. That number will fall. The package is a terrible waste of money and an incredible expansion of the role of government, but contains no short term stimulus for the economy.
Obama was in a marvelous position to create a stimulus package that could have been 50 percent infrastructure spending and 50 percent tax cuts. This plan is 5 % infrastructure spending and practically zero percent tax cuts (It is not a tax cut to give money to someone who does not pay taxes). It is 95 percent pork and payback. Obama is a not new kind of politician. He turns out to be a Democratic hack who is more interested in dividing us than uniting us.
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