What will be the Jobs Summit’s proposed solution? I know the answer.

I am baffled by the predictability of the Obama Administration. Many are weighing in on what the administration plans to accomplish with the upcoming Jobs Summit and many are incorrect in their assumptions that this is merely a media, PR stunt. Yes, it is a media stunt, but it will also be a signal that the gears of the leftward moving political machine are about to jumpstart in a new direction and away from health care (ATTENTION EVERYONE! This is a sign that the administration is confident about passing health care soon, not that it is throwing in the towel).


The media is already signaling the change in focus. Just look at all the recent interest in unemployment and the budget. Wouldn’t it have been nice to get all this discussion in relation to health care legislation? Progressive politicians gave away the ball game a long time ago. Remember…, “We need to pass health care so that we can focus on the economy.” With health care nearly behind them, it’s time to shore up that pesky economy problem. The only question left to ask is what will be the strategy coming down from the White House in regards to the Jobs Summit? I believe I can provide you with some insight on this.


Luckily, I have a long memory. Does anyone else remember the last summit? You know the fiscal responsibility summit? The solution to all our fiscal responsibility problems was Pay-Go and…HEALTH CARE. For the next eight months, the left has been ramming their health care legislation monstrosities down American’s throats.


So what will be the result of the Jobs Summit? Haven’t you guessed it? It will be green jobs and Cap and Trade right behind it. The solution is retraining, green infrastructure, and green jobs. Why are we holding onto TARP funds? Why have we barely spent any stimulus funds? There is a little red answer painted in green and it is as the President promised, transformational.


I have some ideas on how Obama plans on playing this game out and I’ll share them with you should my prediction come to fruition. You may think this strategy seems obvious and that few are likely to fall for it. You underestimate the mind numbing power of Democrats backed fully by the media.


CBO director Doug Elmendorf told the Politico that he believes Obama will need to nix his Cap and Trade plans. This is because Mr. Elmendorf has integrity and understands the nature of the legislation. The leftists behind the levers of power in Washington are not in the same mindset. They are concerned about legislating ideology, creating a permanent leftward shift in America and the problems be damned.


Few leftists in congress seemed concerned about fiscal responsibility when they passed the congressional health care bill last week, despite the fact that eight months ago, health care was offered as a budget solution. Just to give you an idea of how unconcerned the left is with fiscal responsibility, the Senate health care plan collects taxes for ten years to cover seven years of benefits. Now does that sound like a plan that will pay for itself in the years to come? Yet the media, politicians, and supporters all act as though the ten year deficit scoring from the CBO is transparent and legit. If they can pull this off, just imagine what they will do with green jobs.

What does unemployment data mean for health care bill?

H/T Legal Insurrection
H/T Reaganite Republican

The support has been bought, congress member’s arms twisted, and now Pelosi has declared that a health care vote will occur tomorrow. Congress works on Saturday? No, this will be a “special session.” Let’s not forget that this wouldn’t be the political left if they weren’t foremost concerned with leftist politics. Connolly, a Democrat from VA, titled the Democrats cards indicating why the vote is being pushed. He said of Tuesday’s elections:

"What I saw was a depressed Democratic base. And what that told me is, Democrats are going to have to deliver for that base if they want to excite that base…"

Somebody hand these people a pair of glasses, because clearly they are not seeing the writing on the wall. It was written on the pages of newspapers today with big print reading, “Unemployment hits 10.2%!” Yet where are the special congressional sessions to discuss the economy?

What is more interesting is the complete lack of respect from congressional democrats for their base of supporters. According to Connolly, you are to overlook their failures in dealing with the economy in exchange for a health care bill only a politician would love (here and here), but never use. I pity the sheeple on the left that are not revolting with disgust at this slight.



Since Tuesday’s exit polls showed that all voters are concerned about the economy, let me show you the way to reality (Big Hat Tip to Regeanite Republican for the amazing graph (I still love graphs)). If unemployment data mirrored the White House’s projections for the stimulus, would the left be saying the stimulus is working? Would it not be reasonable to say that the stimulus is causing the problem since we are doing worse than the “do nothing” scenario?

I am well aware that unemployment is a lagging, not leading, economic indicator. This means that the economy needs to improve before unemployment improves. However, this doesn’t mean that nothing about the future of the economy can be extrapolated from unemployment numbers. By all means, the figures we are looking at today regarding unemployment points to a very serious problem with last quarter’s GDP figures.

Over the last few months, economists had been forecasting a slowing in the recession and unemployment. Today’s numbers do not show a slowing in unemployment, but stagnation. If unemployment is stagnate and not tapering off towards positive employment growth as predicted, what does this mean about our recession assumptions? It raises the possibility that the recession is also stagnate and not easing as forecasted.

That’s not all that is stagnating. The Obama administration is dithering on all fronts be it the economy, Iran or Afghanistan. Yet this Saturday, it is absolutely imperative that we pass a health care plan that won’t be implemented until 2013.

Other related posts:




Left Coast Rebel

Did MSNBC just burst my optimistic outlook on the economy?

If you read my earlier piece today on positive GDP growth and you regularly follow this blog, you may have found my post a little optimistic in comparison to my normal economic outlooks. I’m now writing to allay your fears. Thanks to our good friends at MSNBC, I’m more pessimistic then ever.

They quoted a Goldman-Sachs analyst:

“The risk of renewed home price declines remains significant,” he wrote in a research note last week. "And our working assumption is a further 5-10 percent decline by mid-2010.”

Now I expected and have predicted a double dip for a while, but 5 -10 percent by mid-2010? That’s quite a contraction that they are predicting in three quarters. Especially since the last two quarters has held around a 1% decline.

Positive GDP growth despite Obama’s failing stimulus

Today is a good day for the economy, at least as far as the economic numbers stand. The BEA just announced that the country experienced the first growth in GDP since the recession began as the projections show 3.5% growth. It is also a good day for the Obama administration. They will get to walk out to the podium and declare victory over the recession. Unlike, the previous 5 declarations, they finally have a solid number to support their repetitious claims that the economy is on the road to recovery. The administration will also get the added benefit that few will actually read the GDP report. Here are a few critical points that the media will fail to write about while they are busy lauding the stimulus.

“Cash for Clunkers” stimulated the economy by how much?

Christina Roemer came out and in true liberal fashion and declared:

"Obviously fiscal stimulus is playing a crucial role…"

The lie of omission was, which fiscal stimulus are you referring to?

According to the report:

“Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change…The third-quarter increase largely reflected motor vehicle purchases under the Consumer
Assistance to Recycle and Save Act of 2009 (popularly called, “Cash for Clunkers” Program).”

In normal person speak, this means that “Cash for Clunkers” was the big boost for GDP in the 3rd quarter. I doubt anyone will be asking the Obama administration why a $3 billion “Cash for Clunker” program was more effective in GDP growth than $768 billion in stimulus. I would love to laugh at the explanation. While it is nice to see GDP growth as a result of “Cash for Clunkers,” it has now created a nice little GDP growth hurdle for the fourth quarter when we will have to weather the massive drop in car sales as a result of the end of “Cash for Clunkers.”

Did anyone else notice that companies are still reducing inventories…by a lot?

“Private businesses decreased inventories $130.8 billion in the third quarter, following decreases of $160.2 billion in the second quarter and $113.9 billion in the first.”

This is good news and added almost a 1% growth in the GDP number. However, inventory reduction is still looking poor. It is a sign that the economy growth is very fragile and that jobs aren’t coming back soon.

Hey, look how good those ideological rightwing tax credits are doing!

“Real residential fixed investment increased 23.4 percent, in contrast to a decrease of 23.3 percent.”

Personally, I think the first-time homebuyer tax credit is going to cause a “Cash for Clunker” home sales abyss once the program ends in December. So my comments here are a little hypocritical. However, I do find it interesting that the largest growth from the stimulus is through tax credits, which are essentially tax cuts. Does anyone else find it ironic that the left is lauding the government spending side of the stimulus, while housing tax credits are having a larger impact?

I applaud the positive economic growth. I hope that it continues. However, the truth regarding the Obama stimulus was best summed up by Republican Kevin Brady:

"While some may promote the stimulus as the savior of the economy, it is a claim only the Balloon Boy's dad would make. The critics were right: the stimulus is too slow, too wasteful and too unfocused on jobs."

Isn’t it about time that Obama claim victory over the recession?

It’s a new month which means the Obama Administration will and has begun its formulaic declaration of victory over the economic recession…again. If I remember correctly, we’ve declared victory every month since May, that would make this our fifth major declaration of victory. The only problem is that the recession still hasn’t taken the hint that it’s time to go into retirement. With new figures on unemployment showing a massive 223,000 jobs lost in August and recent news that GDP is stuck still at the falling rate of 1% per annum, who knows how many more victory declarations Obama will need to make before it’s all over? He’s like a weatherman (the non-domestic terrorist kind of weatherman) who calls for rain everyday so that he can say how right he was once it inevitably rains. Maybe it’s more like a Native-American rain dance?

I can’t just blame Obama, there are many economists that are saying stupid things lately. I guess that statement might be a bit too unfair, because honestly I’m not sure if it’s the economists or the reporters that are making the economists look foolish. For example:

"Mark Zandi, chief economist of Moody's Economy.com, said, "I don't think it's any accident that the economy has gone out of recession and into recovery at the same time stimulus is providing its maximum economic impact."

Huh? Don’t we need to see positive economic growth before we are in a “recovery?”

When he talks about making an impact, perhaps he means this?

“IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.”

A little background, we economists use GDP and only GDP as the yardstick for economic recovery or recession. No matter what is going on economically in the US, so long as GDP is increasing, we’ve recovered. GDP is defined in simple terms as Consumption (people’s spending) + Investment (company’s spending) + Government (government spending) +/- our net imports/exports (balance of trade between other nations). As with all measurements, it takes a little interpretation. If you think you are sick and the thermometer reads 56 degrees, the obvious question to ask is “are you a corpse or is your thermometer broken?”

Let’s take a look at our recession thermometer. According to last month’s GDP report:

“The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, personal consumption expenditures PCE), residential fixed investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction
in the calculation of GDP, decreased.”

In simple speak, GDP decreased a little less than the previous month, but not because of consumption or business investment were doing great, but because the government spent a ton of your money. The government spent so much of your money it made up for the fact you and your employer aren’t doing so well. If the government continues to Spend-Big (we are at a $2 trillion deficit just this year), we might finally have some positive GDP figures. This is what everybody in the economics world is getting excited about. This is how the stimulus is being heralded as a success. Since government spending is getting bigger and bigger, soon the GDP number will finally go up. The reality of the situation will be that a single number ticked up, we aren’t going to be better off because of it. It’s like getting fired from your job, but you’ve managed to get so many credit cards and loans you might be able to completely replace your income. It’s a hollow achievement if government spending does nothing for people and businesses to increase their side of the GDP equation. The USSR used to post massive GDP gains while they were a communist nation and all they had was government spending driving their GDP, the people in the country lived in squalor.

Congressman Davis had a recent Op-Ed and he gave the stimulus outlays to date:

“Despite promises that this money would be spent quickly to stimulate the economy, an estimated $80 billion of the $787 billion has been spent to date. Those funds breakout roughly as follows: $26 billion on Medicaid grants to States; $13 billion to States for education; $16 billion for unemployment insurance; $13 billion for one-time Social Security payments; $3 billion for food stamps; and $1.7 billion for transportation infrastructure.”

The ugly truth is that to date the stimulus has been more of a bail-out for government than an economic shot to the arm for consumers and businesses. It certainly hasn’t lived up to the sales pitch the Obama Administration made for the bill back in February.

So when team Obama goes out to claim victory over the recession in September and the Obamabots go out to echo the claim that the stimulus is working great, please suggest to them that we might as well repeal the remaining 90% of the unspent funds. After all, the recession is over and the stimulus has worked already. Do they need the money anyways? I’m fairly certain team Obama can package and use the properly poll-tested words on the teleprompter this month to convince the recession to leave the US, never to return.

Related Links:

Robert Verdi had a great fact check on Biden today. If you don't follow his blog The 46 you should. He finds all the interesting articles that are easily missed by the media.

Robert have another excellent find today!

Still no good news on the Economy: Obama didn't get the memo

It looks like Obama’s out there, talking about how we are back from the brink again. It would help Obama’s credibility if the economic news was actually positive. Here is a recap since I left on vacation a little more than a week ago.










GDP declined over the last most at an annual rate of 1%. Everyone’s getting excited that it’s a little better than expected. Break out the champagne at the white house. For all you on the left that think we are on the cusp of recovery, you need a little refresher in the art of big recessions. I know, we haven’t had one in 30 years, but this is what a long recession looks like (GDP for the 80’s recession at the right) and we haven’t even had an uptick in GDP yet.

It looks like incomes dropped, but according to the news it’s not bad because it was the result of timing issues in the stimulus. Personally, I find it appalling that the stimulus is so poorly timed. The benefit to the long term stimulus was supposed to be that we were going to see a continuous stream of stimulus. People aren’t going to increase spending if their incomes are constantly increasing/decreasing by historic amounts. Also, weren’t we supposed to double the rate of the stimulus spending for the summer?

The big positive news that everyone is talking about is that consumer spending increased by .04 percent. That’s great news except the increase was a result of inflation increasing in the same month. We actually had a decrease in consumer spending, because it didn’t keep pace with inflation.

It’s time to break free of the economists and their “it’s better than predicted” predictions. These guys haven’t seen a real recession in 30 years. They are rusty.

The unemployment data comes out on Friday. I can’t wait to hear the administration talk about how great the economy is doing next week.

An Intervention for Obama's Debting

It’s time to hold an intervention for Obama. We need to get him into Debtors Anonymous as quick as possible. With the economy on the ropes and hopes of economic recovery bleak, Obama has decided it’s time to spend more money, a lot more money. Obama’s health care will cost $1 trillion dollars. I’ve long been warning that our options available for stabilizing the economy have been dwindling over the last few months and new developments have been buried under the news of the Sotomayor confirmation hearings. Obama’s health care initiative was always a bad idea, but given recent economic news, moving forward with the legislation has never been more foolish.

An example of the program Obama should follow thanks to SNL.


Let me begin by summarizing the White House’s and Fed’s strategy for stabilizing the economy. The Fed has slashed interest rates to zero to lower the cost of borrowing and boost capital expenditures. At the same time the White House has been spending and sending trillions of dollars to political cronies in boxes with blue ribbons. To fund Obama, the Fed has the money printers working overtime. In short, the policy is to expand the money supply as large and fast as possible. The effects of which create inflation. Generally, no one worries about inflation during a recession because prices are usually deflating.

Great, the boring part of the post is out of the way.

So the economic wisdom in Washington has been, we can keep the economy limping along so long as we keep spending. Sounds like a party when you’ve got your hands on America’s credit card. No one seemed to ask, “What happens if things get worse?” You can’t cut interest rates when they are zero (Hat tip to Nick). Two months ago, Paul Krugman would have responded, “Well, we may not be able to cut interest rates, but since there is no such thing as inflation, we can just keep spending more.” Last month, we saw the largest increase to the CPI in a year, a jump of .06 percentage points to .08. Normally, this wouldn't be cause for alarm except, inflation is not supposed to occur when the economy is still retracting. The FOMC came out this month and is predicting that it will continue to retract throughout the rest of the year.

Let me sum this up for you. We can’t cut interest rates anymore, because they are at zero. We can’t continue to deficit spend, because our economy is so sensitve to inflation, that inflation is increasing when it shouldn't be. Inflation would have a terrible impact on people in the middle of an economic recession and a time where 16.5 percent of people are unemployed or underemployed. How are we going to keep pushing those great Obama policies without tacking onto the deficit?

Congressman Rangel gave us the answer earlier this week. We are going to raise taxes and we are going to raise them so high we are going to beat out Clinton. Everyone in the left, please take a sigh of relief. It looks like we may have Pay-Go. It looks as though Obama is not going to blindly spend our country into an inflation avalanche that buries us all (he already has). Oh, I forgot to mention that dramatically raising taxes causes higher unemployment (see my post on tax incidence). What was that figure I said again? Yes, 16.5 percent unemployed and underemployed. The best part is that raising taxes has a negating effect on stimulus when your strategy is deficit spending, which happens to be Obama's plan. So Obama’s first major bill was to stimulate the economy and his second major bill will be to cancel his first bill out.

It’s not too late to stop the madness. Please support the Obama spending intervention and tell your representatives to oppose all Obama spending sprees for the rest of his Presidency. Remember, when the addict is the President, they don’t hurt themselves, they hurt everyone else around them.

Obama Didn’t Take Himself Seriously

On Sunday, Joe Biden announced that Obama’s administration misread how bad the economy was. A comment I don’t seem to understand. Here is a quote from Obama as he rushed his stimulus bill through congress in a hurried and reckless pace.

In January Obama said:

“We are experiencing an unprecedented economic crisis that has to be dealt with and dealt with rapidly.”

I believed him, didn’t you? Why didn’t Obama?

More importantly is the question, why are we talking a second stimulus? According to Obama today, a second stimulus plan is not off the table.

Like with most policies this administration crafts, I’m confused. Obama continues to remind us that his stimulus one needs time to work. If that’s the case, why do we need stimulus two? If stimulus one is not working and is not going to work, why are we not having the discussion of repealing stimulus one when we’ve only spent 6% of it so far? The best question yet, if you misread the economy on stimulus one, why do you think we'll let you have stimulus two?"

I have long argued that Obama and his administration did not take the economic downturn seriously. Why? Back in January, the "do nothing" simulation led to 9% unemployment by the end of the year. According to that number the recession would have been the biggest in the last 30 years, but certainly no Great Depression. Plus, how hard would it be to come in under 9%, especially when economists were predicting an economic summer bounce? As a result, we were given a stimulus bill high on pork and leftist pet projects with no real relief for our economic state. It was a bill filled with “you can get a lot done in a crisis” mentality as opposed to sound fiscal policy. It’s the same mentality that is claiming that Obamacare will lower federal deficits and that cap and trade is a jobs bill.

The administration is spinning beyond belief, trying to mitigate the damage. They are trying to keep you from asking the most obvious of questions at a time when Obama is dying to pass his policies. That question being: “If Obama was misreading the economy at the same time he crafted his budget, shouldn’t we scrap his budget policies and refocus on how to address the economy?”
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Update:

Reuters has some laughable Democrat comments:

Here's Democratic Senate Leader Steny Hoyer

U.S. leaders should be open to the possibility of a second stimulus package to jolt the economy out of a recession still causing job losses

Followed by

It's certainly too early right now ... to say it's not working," Hoyer said of the initial stimulus package. "In fact we believe it is working. We believe there are a lot of people who otherwise would have been laid off, lost their jobs, who haven't done that."

As I stated. Why do we need a second stimulus if the first one is on the cusp of working great.

One of Obama's economic advisors from his election said:

Laura D'Andrea Tyson, an economist who advised Obama during the 2008 campaign, said on Tuesday in Singapore that the United States should be planning for a possible second round of fiscal stimulus and focused on infrastructure investment.

I thought that was what the first stimulus plan was? Or was it?

Still Losing Jobs; So What’s Your Excuse Now?

I can’t wait to hear the White House explanation for June’s unemployment numbers. I assure you whatever the response, it will be laughable. Today the BLS released that unemployment climbed higher than expected in the month June. That was only part of the jagged pill that the administration must swallow, the numbers also put a torch to all of Obama’s “green shoot” arguments like an ant under a magnifying glass.

We lost 467,000 jobs in June even as Obama “hopes” to mathematically create and save 600,000 by the end of August. The increased stimulus spending has done such an excellent job, that the rate at which jobs has been lost increased from May to June. This puts to bed Obama’s long held argument of “green shoots” in the economy because although we were losing a ton of jobs every month, at least this month’s ton wasn’t as big as last month’s ton. Taken together with the fact that consumer confidence has taken an unexpected dive, I can’t conceive what the Obama spin can possibly be on this one. My guess is that he won’t address it or try to move onto some other crisis.

I’m also wondering with consumer confidence in the tank, why are we still pushing a stimulus that requires consumers to spend in order to work? We could “hope” that people will change their minds, but I’d much rather try policies that work.

If you are wondering about Obama’s jobs bill, cap and trade. Right Klik had an excellent post today on the economics of cap and trade. I’m reposting his graph showing how much money will bleed to other countries once cap and trade has started.



Good thing we rushed that cap and trade bill, we’re in the middle of an economic crisis. Quick, let’s pass health care as quickly as possible. It's like being shot in one foot and treating the wound by shooting the other one.
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Update:
Obama just commented on the news. He called the news sobering and asked people to be patient for his economic policies to continue to devistate the economy...I mean work. He also stated that the rate of unemployment is slowing, which is a lie. The rate just increased.

Update #2:
AP reports that including people who have given up looking for work and part-time employees that unemployment rate would be at 16.5%. The part I love most about articles like this is quotes like the following:

"Even with higher pace of job cuts in June, the report indicates that the worst of the layoffs have passed."

Then they follow up this great news with this:

"Still, many economists predict the jobless rate will hit 10 percent this year, and keep rising into next year, before falling back."

So you see...the worst is over.

It’s stop laughing about the economy President Obama

It looks like even leftist media outlets are starting to echo truth about the stimulus. In my post on 6/4/09, I argued that the Obama administration and Obama's stimulus plan were having a negative effect on the economy. My points were that the stimulus was causing savings instead of spending and the administration had lost as many jobs as they created. Today, AP has an article about how the stimulus is causing interest rates to increase instead of drop.

Quote the AP article:
“The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.
But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.”

The article quickly comes to the conclusion:

“That's the Catch-22 threatening to make an awful housing market potentially worse and keep the economy stuck in a funk. Kick-starting the economy requires higher spending, but rising rates mean fewer Americans will be able to refinance their home loans. And some potential buyers will be shut out of the market by higher monthly payments they won't be able to afford.”

What does this mean? It means that any gains in the housing market made by the $1 trillion in TARP spending may be erased by Obama’s policies causing the bank's liquidity problem to become more serious.

All this planned spending is negatively affecting the fundamentals of our economy. Obama’s solution? He wants to spend more of the stimulus, faster and ensure the passing of his health care. Great plan Mr. President, do more of what is causing this new economic problem, faster, while trying to create bigger spending. That ought to help.

The pace at which the media is waking up to the disaster that is Obama’s economic policies is causing is a little surprising. However, don’t expect the NY Times to start covering the truth behind Obamanomics, they had a puff piece out today about how fighting amidst the Obama economic advisors adds to the value of the group and allows the President a diversity of opinions. I’m fairly certain that had Obama’s team been in complete agreement over the new economic developments, we’d have a piece trumpeting how Obama’s unified, cohesive group of economic advisors proves that Obama is going in the right direction on the economy.

Meanwhile, the article misses the point that these advisors were all in agreement over the economics of the stimulus. It was the method of spending the stimulus that they argued over. It also fails to mention that the President doesn’t understand anything about the economy and wouldn’t know what the right economic solution if it bit him. All he knows is politics and that’s evident by his handling of the auto companies.

Jobs: It’s the Chink in Obama’s Armor

With President Obama and the Democrats steamrolling their agenda, conservatives have never been more energized. With 2010 midterm elections coming into view conservative bloggers, commentators and pundits are looking for a theme or a message for an opposition platform that will lead to election victory. My take is that many conservatives are searching to bring the Republican Party back in touch with their principles. While I agree with them, I think we need something a little more tangible for a national platform. We need a single or a couple of specific issues to rally around. I suggest that the perfect opposition to President Obama and the Congressional Democrats will be jobs.

Both the White House and Congress are careless, if not flippant in respect to job creation. Sure, Obama talks about unemployment and job creation all the time, but he really hasn’t put his money where his mouth is. Obama’s stimulus is the perfect example of his insincerity. At the beginning of May, only 6% of the stimulus funds had been spent. Obama touted at creating and saving 150,000 jobs, while sending the same number of already employed people working at dealerships to the unemployment line. The stimulus is basically a three year spending bill and all the spending is in areas not likely to promote or create a sustainable number of jobs. For example, NY has finally decided to spend some of the stimulus by extending unemployment benefits for 13 weeks. The spending may be a worthy effort on NY’s part, but where’s the job savings or creation?

Two simple facts will dramatically hurt Obama and the Democrats. Obama promised to save and create 3.5 million jobs (the OMB already has forecast that his stimulus is likely to only save or create 2.5 million jobs). Unemployment is going to get worse and is not going to ease anytime soon. That is not just my prediction, which I’ve been saying for a while. That is also the prediction of the Federal Open Market Committee.

According to their April minutes, all members of the FED Committee were in agreement that it will take 5 or more years for unemployment to recover. What is interesting in this statement is that the opinion was unanimous for all the committee members.

Obama has nothing in the works to deal with this issue. Obama’s budget agenda and policies were written with a different economic landscape in mind. You see, Obama crafted his budget plans during his primary race, which was most of 2007. Did Obama revise his plan when the 2008 recession hit? Of course not! What might have been good policy in a 2007 economy must also be good in a 2009 economy, right? Did anyone else find it weird that the same ideas Obama thought out in 2007 were then touted as the solution in 2009?

Truthfully, there is nothing about job creation in Obama’s budget. In fact, much of it is going to cause more job losses than spur job creation. Ideas like cap and trade will put many more millions out on the unemployment line. This is a huge opportunity for opponents to the President’s agenda. It was economic unrest and uncertainty that led to Obama’s election. However, it is the disillusionment of that choice that can lead to the Democrats defeat.

The President Comes Down with MPD

I've finally figured the President out. He has multiple personality disorder. The proof is below.

President Barak Working to Defeat President Obama’s Stimulus

President Barak, who acquired and took over management of GM and Chrysler in March, is working hard to defeat his arch nemesis President Obama by destroying jobs even as his opponent President Obama creates and saves them. According to recent news, GM plans to close 2,000 dealerships while Chrysler will close 789 dealerships. The average number of employees in a dealership is 62. This means that the government controlled auto makers will cut 172,918 jobs. This just tops out over President Obama’s self proclaimed 150,000 jobs created statistic. Meanwhile, the unemployment rate has reached 8.9% and GDP shrinks. Stay tuned to this blog to see who will ascend to victory.

Speaking of the battle between President Barak and President Obama…

President Obama Warns that President Barak’s Policies Will Wreck the Economy

Bloomberg reported the following from a town hall President Obama held last night:

“President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt." Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.””

I’ve been saying this for months (the borrowers have already stopped buying our debt. It would be nice for President Obama to notice this since he’s trying to run the economy). President Barak’s policies and budget which includes a $1.8 trillion deficit are completely unsustainable and I couldn’t agree more. What is worse is that President Barak is trying to convince the people of the US, that fixing health care is the answer to his devastating deficit spending. What’s the problem with this argument? Although health care does need reform the government spent $427 billion in 2007 on healthcare, even if we wiped out all government health care costs (which we won’t, we’ll increase them. I know this because it’s what happened in Mass when they tried the same thing), we are still left with unsustainable spending in the amount of $1.4 trillion. This also happens to be the same amount of deficit that President Barak originally predicted two months earlier and then realized his numbers were rosy.

President Obama has this blogger's full support in defeating President Barak’s poor policies.

Speaking of President Obama thwarting President Barak…

President Obama Nixes President Barak’s Plan to Release Detention Photos

This headline has nothing to do with economics, nor will I really comment. I just like to see headlines where President Obama is winning the battle against President Barak. The paradox of the political battle between President Obama and President Barak seems to have infected the media as well.

Speaking of media press paradox…

Media!!! So which is it? Is the economy turning around or getting flushed down the toilet?

If you thought the President seemed schizophrenic these days, it’s nothing compared to the articles in the news about the economy lately. Either Rham has been having communication problems regarding Obama’s talking points in his daily meeting with the press, or the media is just as confused over the Obama-Barak infighting as I am.

Below is an article from the AP regarding the economy (To cut down on reading time, I gave you the judge’s decision regarding who won the paragraph; Obama or Barak):

Fresh reminders that the recession likely has passed its peak, but hasn't ended, emerged Thursday in reports that first-time claims for jobless aid and wholesale prices rose more than expected. Economy is in bad shape. 1 point Barak

Economists said the jumps, while bitter reminders of the country's weak economy, were not cause for great concern. Jobless claims should ease after layoffs in the automobile industry are complete, while inflation remains under control. Economy is turning around. 1 point Obama

The Labor Department said the number of new jobless claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week. That's above analysts' expectations of 610,000. Economy is in bad shape. 1 point Barak

Economists focused on the fact that initial claims remain below the peak reached in late March, a sign that the wave of mass layoffs announced earlier this year has crested. Economy is turning around. 1 point Obama

"This is yet more evidence that we are now past the worst," Paul Dales, U.S. economist at Capital Economics, wrote in a research note. Economy is turning around. 1 point Obama

Separately, the department said wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products. Economy is confused. Tie! .5 points to Obama and .5 points to Barak

Even with the larger-than-expected gain in the Producer Price Index last month, wholesale prices over the past year have fallen 3.7 percent, the biggest 12-month decline since 1950. While falling prices can raise fears about deflation, economists believe the efforts by the Federal Reserve to combat the recession will prevent a dangerous bout of falling prices. A little more print on bad economy than good. 1 point Barak

Wall Street brushed off the reports and stocks rose modestly. The Dow Jones industrial average added about 40 points in midday trading, while broader indices also increased. Economy is turning around. 1 point Obama

Most of the increase in jobless claims was due to auto layoffs, a department analyst said. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing. Chrysler on Thursday told a bankruptcy court it plans to eliminate 789 of its dealers — or about 25 percent of them — nationwide as part of its restructuring process. And General Motors Corp. has said it will temporarily shut 13 factories beginning later this month through July, potentially affecting 25,000 workers. Economy is bad. 1 Point Barak

Still, many economists expect the downward trend in jobless claims to return once the impact of the auto industry's job cuts has passed. Economy is turning around. 1 point Obama

In another sign of labor market weakness, the tally of people continuing to receive benefits increased to 6.56 million from 6.36 million, setting a record for the 15th straight week and worse than analysts expected. The continuing claims data lags initial claims by one week. Economy is bad. 1 point Barak

Abiel Reinhart, an economist at JPMorgan Chase & Co., said the increase implies that the unemployment rate, which reached 8.9 percent in April, is continuing to rise. Many economists expect it to reach 10 percent by year's end. Economy is bad. 1 point Barak

The large number of people on the jobless benefit rolls is a sign that unemployed workers are having difficulty finding new positions. Economy is bad. 1 point Barak

Economists are closely watching the health of the labor market. If layoffs continue at a rapid pace, consumers could cut back further on spending and prolong the recession. Economy is bad. 1 point Barak

New applications for jobless benefits have declined since reaching 674,000 in late March, the highest level in the current recession. But claims remain elevated. Weekly initial claims were 375,000 a year ago. Economy is confused again. Tie! .5 points Obama and .5 points Barak

The four-week average of claims, which smooths out volatility, rose to 630,500, after falling for four straight weeks. Still, the average remains nearly 30,000 below its high in early April, a drop that economists at Goldman Sachs and JPMorgan Chase & Co. have said indicates that the economic downturn is bottoming out. Economy is turning around. 1 point Obama

There have been other signs the pace of job cuts is moderating, though still brutal. Employers eliminated 539,000 jobs in April, the fewest in six months and below the average of 700,000 in the first quarter of this year. Economy is turning around. 1 point Obama

Still, more than 5.7 million jobs have been lost since the recession began in December 2007. Economy is bad. 1 point Barak

More job cuts have been announced recently. Steel giant ArcelorMittal said Wednesday it will eliminate nearly 1,000 positions at an Indiana steel plant in July, while DuPont said last week it will cut 2,000 jobs. Economy is bad. 1 point Barak

Among the states, Illinois reported the largest increase in initial claims, which it attributed to layoffs in the construction and manufacturing industries. The next biggest increases were in Kansas, Puerto Rico, Indiana and Ohio. Economy is bad. 1 point Barak

New York reported the largest drop in claims of 13,386, which it said was due to fewer layoffs in the transportation and service industries. The next largest drops were in Michigan, North Carolina, Massachusetts and Connecticut. The state data is for the week ending May 2, one week behind the initial claims data. Economy is turning around. 1 point Obama

Final score: 11 points Barak to 9 points Obama. Perhaps this is why Obama has come out so strongly against Barak this week? I just hope Obama can somehow make up the ground Barak has gained. Thanks to schizophrenia, both progressives and conservatives now have a President we can support.

American Economy Backed into a Corner: What Obama is not Interested In

I contend that our country’s economy is in dire circumstances. Two news stories that have recently come out highlight the dichotomy and complexity of the situation we are in. One was today’s release of the unemployment figures and the second is that China is still buying gold, lots of gold. I strongly contend that we will either be thrown into a devastating long term recession or inflation that will have us begging to be back in the days of Carter.

I understand that there is a lot of press talking about how we are coming out of this recession. They may be true, though I do not believe it. Regardless of whether I am correct or not, we will not be out of the woods until the unemployment rate tapers off. It is not. According to a WSJ article, the rate dropped another .4% bringing us to 8.9%, the same level as 1983. At this rate we would be up at 12% by the end of the year. Forecasters predict it around 10%, but trending shows it could go as low as 18% by next year. This is huge in significance, because so far we haven’t seen a dramatic number of companies going out of business. However, with every job lost we are one more step closer to consumer spending jumping off a cliff. Once that happens we will be in an economic free fall where unemployment breeds a drop in consumer spending, leading to companies closing their doors, which leads to more unemployment. I believe the positive economic news lately has created confidence in consumers and is encouraging people to not reduce their spending behavior. This confidence cannot be sustained if people are continuing to be laid off or continue to be unemployed.

If that isn’t the worst of our problems, China is buying gold, lots and lots of gold. Thanks to the Canadian media, I have this quote from the Montreal Gazette:

“It is a chilling statement from an expert on both gold and China. But he is just speaking truth to power: In a G2 world (the United States and China), the piper calls the tune and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others who lend money to the United States such as Saudi Arabia, will determine the value of the U.S. dollar and gold. And they have spoken. They are not buying more U.S. treasuries and are buying gold as a new as set class. China announced that it was doing so quietly and recent reports are that the Saudis and others have been buying bullion and hocked gold jewelry from around the world to be melted down in Middle Eastern refineries.”

I actually applaud China and think they are brilliant. China is looking to emerge from this crisis as the strongest economy in the world. As the US government destabilizes our currency with rampant government spending and money printing, China is looking to stabilize their currency with large holdings in gold. This will make China’s currency extremely attractive. This is especially true after US banks dropped the ball with the mortgage crisis. Our currency is far and away the biggest reason why our country is so prosperous. China's investment in the dollar may be the biggest factor to our country's economic successes over the last 10 years. China holds about $2 trillion in US debt, which has funded the money expansion of our monetary policy since 2001.

The problem is that China is ditching the dollar for gold. With the US printing money at the same time, high levels of inflation are on the way. However, dollar devaluation is not the only thing that will mean inflation for the US. What if China succeeds in replacing the US as the world’s strongest economy? It means that China's goods will be more expensive in the US. Now where was it again that we buy all our goods?

If you think my prognostication is dire, read the conclusion to the Canadian article:

“It is an irreversible trend that China and others will continue to dis-invest and diversify out of U.S. dollars and that inflation will further impair the U.S. dollar's value.

That's because the U.S. monetary/economic rescue hasn't fooled anyone and is simply Washington's version of the excesses and overleveraging that led to the need for a rescue in the first place.”

I'm proud to say that Obama didn't fool me. His stimulus plan was a complete farce.

It is times like these that I dislike being right (I predicted this in March). Obama needs to get on the train fast and start putting the machinery together that will make our economy competitive again. Invest his time and political capital in fiscal responsibility, bringing us closer to a gold backed dollar, and supply-sided economics. Unfortunately, he is not interested in the economy. He never has been. No, it’s time to loot the economy and give to those he and the progs feel have been kicked around. That’s the mission, no matter what the cost.

Driving the Economy with Your Eyes Closed

On April 14th, Obama himself touted that there were “signs of economic progress." Now, I’m not a Nobel Prize economist or even a vaunted one. In fact, I'm a disgrace because I work in the real world as opposed to sitting in a college office running complex and unrealistic econometric models. For what it's worth, I believe we are sitting in the eye of an economic hurricane and whether the next half of the storm hits us up to the President.

Let’s dissect what has happened and what could happen. To do so, I will break down this recession into 2 phases. We are at the end of phase 1 and inching close to phase 2.

Phase 1:

At phase 1, the recession was mostly in the financial industry. Bad mortgages and increasing foreclosures caused banks to run out of money to lend businesses. This is called a problem of liquidity. The timing of the economic downturn is important. You see, phase 1 really started to impact economy in the 4th quarter. In response, companies sought to tighten their financial screws to salvage their financial statements for the year. Being that the whole year was not a bad year, the financial wizards in most companies saw an opportunity to make quick sweeping moves to pad the only quarter that looked abysmal, their last quarter. As a result, we saw large increases in unemployment, but not many companies closing their doors. The problem for companies right now is there are no more screws to turn. Companies threw all their eggs into 2008 in the hopes that the recession will subside by the end of 2009. Why wouldn’t CEOs have a bullish outlook on the future? They see that their consumers still want their products and are still buying, they are just buying less. Keep in mind, many of today’s CEO has never had to steer their company through a serious recession. In fact, if you look at the MBA programs of today and there is an overwhelming focus in managing market competition, not market collapse.

The Calm before Phase 2:

Right now we see consumer spending dropping, but not as quickly. This is being padded in part by the time of year. Many people are receiving their tax refunds. Also, this is the time of year that most companies give raises and bonuses. It’s common to see spending pick up a little in the retail business this time of year. We’ll need more than a seasonal boost to pull out of this recession.

Phase 2:

In this phase the recession seeps into the consumer market. Yes, we’ve seen consumer spending fall, but there is still a long way to go. When you loose millions of jobs in a few months, you are most certainly going to see a sudden drop in consumption. In 1929, consumer spending ground to a complete halt instantaneously. This was because most people only had access to cash. So far consumer spending has been greatly padded by credit cards. If you are paying attention to news stories, there have been a number of articles on the beginning of a consumer credit crunch.

Smartmoney.com has an article regarding the growing credit balances that card companies are seeing. According to the article, credit card balances have nearly doubled from 4% lows over the last 4 years to 7% today. It sounds small, but it is huge! With unemployment on the rise and no equity in their homes, people are turning to their credit cards to finance their spending. The problem is that credit card companies are running out of money to give to consumers. Part of the problem is that Obama and Geithner have been doing a poor job of fixing the first part of phase 1. We are starting to see a battle between companies and consumers over who will get the little cash still flowing out bank vaults. The article, incorrectly downplays the problem, but at least recognizes the storm brewing.

Phase 2 will either be triggered by an increasing unemployment rate or a persistently higher than normal unemployment rate. As I stated in phase 1, people are buying, just not as much. The trouble with current levels of unemployment is that we can sustain our current level of consumer spending for only so long. Once consumers run out of cash, spending stops. Once spending stops, companies are going to fail. Thus begins a never ending chain where companies fail and lay people off, causing further drops in consumer spending, causing more companies to close their doors and so on.

Recent polling data shows that of the people currently approving of the Obama administration, their approval is based primarily on his economic policies. This shows two things. First of all, Obama now owns what happens in the economy (He has instituted policies and he is getting credit for them). However, it also shows his downfall. Although he has most certainly taken actions regarding the economy, he has not enacted, proposed, or taken any action that would stem this recession in a meaningful way. His stimulus plan is an utter failure. In fact, I was surprised to see how quickly it could fail. The $13/week “tax cut” is on the chopping block for his budget and has done nothing to change and increase consumer spending. Infrastructure spending is turning into a nightmare. Sure there is spending on infrastructure programs, but not new programs. No, the spending is going to programs that States were going to fund in the first place, but are using government funds instead as a way to fill in their budget gaps. The green jobs investment has also been proven a failure. Vestas, the largest wind power company in the world and the sole supplier of wind blades to the US has gone out of business. Even in the face of UK subsidies, the promise of US green jobs stimulus spending, and Cap and Trade the company has decided that there is no money to be made in wind energy (read the UK Guardian Article). In the US, the same story is being played out. In fact an Ohio company who makes wind turbine bolts and was visited by Obama himself to promote his stimulus, laid off workers in February (read the article).

Where Obama’s stimulus was a poor effort to create jobs, his budget agenda is aimed at eliminating jobs. Cap and Trade will result in lost jobs from coal miners and carbon based power companies and manufacturing. The higher energy costs passed on to businesses as a result of Cap and Trade will be offset by companies in the form of unemploying labor. Arthur Laffer estimates a family of four will pay about $10k/year for Cap and Trade, further stifling spending. Likewise, Obama’s healthcare will cost thousands of jobs in healthcare. Obama’s education will create new jobs in education, but how many? Education is already saturated with consumers since all children go to school and most people go to college. The gains will be more than offset by losses from Healthcare and Cap and Trade.

Early in his Presidency Obama stated, “We can handle multiple problems at the same time.” However, the real question is, “should he tackle them at the same time?” It’s the equivalent of building 10 bridges halfway across the Grand Canyon. Sure there are now ten bridges, but we still end up jumping off the cliff at the end. The time is running out for Obama. Every policy he enacts brings us closer to a “phase 2” recession. It’s already on its way and Obama is responsible.

Read my earlier post on why Obama's stimulus plan won't work.
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Update:
I found this little nugget of a story on MSNBC. Proof that occasionally they do have interesting stories. The article talks about the problem of counting stimulus jobs. Of course, the administration can inflate the job number as much as they want, having the stimulus work is what is most important.

Government Economic Policies: Ready, Fire, Aim

I’ve been railing on Obama’s and Bush’s responses to the economic crisis. Thanks to recent events, there are a few stories out there that I felt were eye raising. The links are on the side bar dated 4/13. They reminded me that I had been meaning to do a piece on who is responsible for the current crisis and who is benefiting.

I felt like doing a little finger pointing today. I used to have a job assigning blame so here are the winners, losers, the innocent and the guilty in the housing bubble.

1) Loan originators – Despite everyone’s hatred for the evil big banks and their predatory lending, most of these predatory loans were originated by someone else. Most loans these days originate with a group of companies who specialize in originating loans (think Quicken Loans), then sell them off to banks. When I worked with Citimortgage, almost all loans originated through these origination specialists. Guilty! They had no trouble lending to whomever because they were not the one receiving payments for the loans, just the origination fees paid at closing. Winner! They made a ton of money and no one seems to be concerned with how they made it.

2) Big Banks – They are one of the few that are innocent, guilty, winners, and losers all in one. Innocent Was greed involved? Yes! Are they getting bailed out? Yes! Are they mostly responsible? Yes and No. A Little Guilty! They bought these toxic assets from loan originators and bought up a lot of other banks loans that were toxic as well. The motivation was to make the company a behemoth instead of making smart business decisions. Citibank, Chase, and Wells Fargo were in a giant race to see who could hold more mortgages. The bit about predatory lending is ridiculous here (that falls on the loan originators). No, these banks were just stupid. Loser! Like hot potato, they were stuck holding the potato when the music stopped. They deserved it of course. They were acquiring loans to build their kingdoms, not to make money for their shareholders. Winner! Thanks to Bush and Obama, one does not need to live with poor decision making, they can get a bailout.

3) Borrowers with Unconventional Mortgages - Guilty! There are all kinds of interesting stories on these people. There was the heart sobbing story of the women with an $80k conventional mortgage who was tricked into a $400k refinance that she couldn’t afford. Now she’s being threatened with foreclosure. Why is no one asking where the $320k she received from the refinance went? There is an article on the side bar on how street gangs were making profits on these. Even those who are now underwater got a taste of the high life if only for a while, living in a house they could not afford. Winners! They got the house they wanted and the attention of President Obama, who is going to help them pay those evil mortgages. They are able to live in their house payment free twice as long as usual. I believe they should also be bigger winners too, because banks should be writing down the principle due on these mortgages. This may not make sense to you, but being in accounting I believe in having balance sheets reflecting what the value of an asset is. This means writing down the mortgage principles in my opinion. However, these mortgage holders should not get government help or special treatment. If they still can’t make the payments they should be kicked out.

4) People in foreclosure because they lost their jobs - Innocent They did everything right. Had the money needed and had a job. They made their payments and were responsible with their loans. Losers There’s nothing in the Obama plan for these people because they are probably not underwater. Surprisingly, it is these folks most likely to be in foreclosure according to AP (see the article on the side bar).

5) The Presidents Bush and Obama - Guilty! They have horribly assessed the situation above and made sinners and saints out of the wrong people. Obama continues to miss what needs to be done to make serious changes to avoid this occurring again. Winners! They both got to enjoy new executive power all without any of the trappings of the crisis. They even managed to reach out and rescue the wrong parties without scrutiny from the media. It’s not likely they will lose their homes or suffer in any way from the harm of this crisis. It’s nice when a President says they feel the pain of the people. It would be another thing if they actually did feel the pain of the people. Politicians 2 – Citizens 0 in this crisis.

6) The American Tax Payer - Innocent The average person played by the rules and did not get caught up in the bubble. Losers We’ve paid for all the stupidity and then some. Our retirements were hit hard and our national debt is going sky high.

Do you still feel like Obama is doing a great job here? Common sense says that when there is a problem you try and fix it. That usually includes not punishing the innocent and fixing the problem. When you make it all about the greed of the banks, you miss the big picture.

Obama’s Economic Group Think

Over the weekend I read a very enlightening article in New York Magazine (I admit it. I was in a waiting room). The article was a think piece on the three main minds in Obama’s economic think tank, namely Geithner, Summers, and Volker. The article was pretty fair in my opinion, although disturbing in it’s omission to point out the serious implications regarding the problems of these three. It may seem moot since they are already in their positions, but I wanted to give account to those whom have Obama’s ear.

I was originally going to go through each of these guys’ resume, but realized that I would only be repeating myself. Therefore, I will enlighten you on the important aspects on or missing from their truly impressive resumes. The first of which is their resumes themselves.

I’m not going to give you spin on this one. These men have impressive resumes. Volker a former FED Chief, Summers a former President of Harvard, and Geithner one of the youngest FED Chairman of New York, the most important FED location. What’s most important about their resumes is not what is in their resumes, but what is missing. Neither Geithner, Summers, nor Volker have any experience in the private sector. They all are academics, who worked for universities and government agencies since graduating college and all with a degree in government economics. Now I have a degree in economics and am quite familiar with the academia behind the study. It is one of the most fractured fields of study you can find. You’ll find those that believe in fiscal and monetary policy, those that believe in monetary policy only, those the believe in fiscal policy only, those that believe in demand side fiscal policy, those that believe in supply side fiscal policy, and those that believe in no fiscal or monetary policy. All of these schools of thought with their own Nobel Prize Laureates. You can see already the trouble in picking a winning economic model to follow. That is why it is important to understand economics from the market perspective by taking place in the market. Those on the outside can only guess, but in the end economic theory needs to be applied and you only get to understand that where the rubber meets the road. How is Geithner supposed to run the Auto Industry and the Banking Industry? At the same time no less? He has never been at the reigns of similar companies, nor does he have any understanding outside his governmental paycheck.

New York pointed out that Summer’s is almost solely Obama’s economic brain. Regardless Obama’s think tank has some serious issues with group think. Volker was a Harvard professor and so was Summers. Geithner served under Summers when Summer’s was Treasury Secretary in 1999. With all of them from the same school of thought, is it any wonder why the same idea is being trumpeted? The idea of control more and spend more, is a product of academics overconfident with their theories of economics. Think USSR here. No government controlled industry has ever proven efficient. We’ve already seen it ourselves over the last six months.

Geithner’s a completely new face, but Summers and Volker have been around. Volker may have been one of the worst FED Chiefs we’ve ever had. He’s the one that sent interest rates up to 20% to stop inflation, sending the country into a recession. It is no surprise that the government is not worried about inflation with all the spending going on. You can be sure that Volker style inflation fighting is likely in the future from this administration. Don’t worry though, Obama is not giving Volker or his vaunted economic council the time of day. It’s all on Geithner and Summers. Summers wanted to be Treasury Secretary, but was denied because of his well known ego. It was this same ego that cost him his Presidency at Harvard for his sexist comments regarding how women can’t do math.

Now Obama does not have a clue about how to run an economy. There can be no denying it. I’ve been told that Obama is great at holding sessions where he gets multiple opinions on the economy, but I’m not impressed. I’m not impressed, because the private sector is far better than Obama at creating these sessions. Any corporation in the US will have a diverse group of ideas when making decisions. Ideas from executives in law, accounting, finance, engineering, economics, law and business are all easy to find in the board rooms of your standard company. It’s no wonder why US private companies are so much better at running things then the government. The CEO of one of my own company has a music degree from Julliard and an MBA as well as 30 years of experience in the industry. Our CFO’s are accomplished CPAs. Where are these points of view in Obama’s think tank? Obama has three academics in the field of government economics. It is not only likely good ideas will be missed, it is a certainty.

A Call to Sanity: 3 of 3 on the new TARP bill

It was February 13th, 2008 that George Bush signed his stimulus check bill into law and thereby began the most irresponsible, inefficient, and ineffective fiscal stimulus policies that government has ever enacted. It started with the rebate checks, then TARP, then auto company loans, then the Obama’s stimulus, then the omnibus bill, now proposed new regulations, the take over of the auto industry, a proposed new TARP plan, and the Obama budget. Bush spent almost 1 trillion and Obama has spent 1.2 trillion with plans to spend another 2.8 trillion with new TARP and his budget (please note, his budget is far more, but I’m only counting his deficit spending in his budget). These plans have already weakened the position of the nation, limited our options in a time of recession and are or will be utter failures. All the while, congress has barely lifted a finger in opposition, nor have they been open to opposing views and bipartisan ideas.

I’ve been blogging on all of these over the last two months, but wanted to tie it all together with my opposition to the new TARP Proposals and Obama’s budget. I feel it is important to pause for a moment and look at what has been done and what we are doing, before we continue this wanton bleeding of the American economy. I urge you to please consider these failures and ask yourself if we should continue allowing our elected officials to cram the same ideas into law over and over again, without debate and without consideration of alternatives.

So here is a brief history on the policies and failures. See my February post for a discussion on Keynesian Economics. The general rule is that stimulus most change the rate of consumption which also increases investment or change the rate of investment which increases consumption:

Bush’s Stimulus - This was a step in the right direction, but had no staying power. Although the large payments were likely to increase spending, it did not have any long term change in consumption. It was a one time spending spree. Also, the high cost of gas over the summer ate up most of the funds.

TARP - Although it helped to stabilize banks in the short term, it created a large veil of secrecy that has caused instability in the markets to this date. Investors in stocks and companies investing in new capital will not take risks where there is a large degree of uncertainty regarding the risk they are taking. The TARP bill laid out no frame work aside from the dollar amount of the bill and that the Treasury Department was in charge. As a result, you have companies sitting on their funds waiting to see what happens to these banks and investors shuffling their money around trying to guess at what the government is going to do. What do we expect? The bill was rushed into law and set no specifics as far as how the bill was to be carried out. Who was to get what, how much, and what were they supposed to do with the money once they got it? The idea was that institutions were supposed to use the money to back their troubled assets or rid themselves of it. Little of this occurred. Instead, institutions sent the money into their regular operations treating the cash like it was some buried treasure recently found in their basement. In the wake we’ve found miss appropriation to the tune of 40 billion from the Treasury and AIG preferences in paying out billions to foreign companies. Let’s not forget how Geithner dropped the ball with the AIG bonuses. All of this caused the persistence of the credit crunch while a billion dollars sifted through the system like clutching a fist full of sand. The more sand the banks grabbed, the more the sand slipped through their fingers.

Auto Industry Bailout - You can look at my previous post. In taking over the auto industry we have both set a dangerous precedent where government can seize control on a whim, while at the same time causing more uncertainty. The structure of a corporation has always been to allow the shareholders a say in how the company is run. What investor would buy into a company and relinquish their ownership rights to the government. I know many think the rich run companies, but CEOs run the company, they do not own it.

Obama’s Stimulus - I have previously tackled this waste of a bill in my February posts. However, only a month later and we can see how immeasurably useless this bill is. The $400 a month per person, though the general economic theory is an excellent idea, fails in the same way Bush’s stimulus fails and that is that $13 dollars a pay check does not change one’s rate of consumption. Infrastructure spending has become an utter joke as many Republican and Democrat controled legislatures move to use the money to fill in budget gaps. Green energy may create jobs one day, but we’ll be waiting years to see the impact. The reason I’m going back through all of this is because we had an opportunity to get it right. I’ll be the first to admit that Bush did not leave Obama a lot of room to work, but I strongly disagree that this let’s Obama off the hook. A true leader works with what they’ve got. I can only imagine Obama leading the revolution instead of Washington and the endless complaints at each battle lost. How he was hindered by the fact he only had farmers for soldiers where the British were carrier professionals. Obama has missed the important step of American ingenuity, which has almost always been leaders finding solutions to problems using the resources available even if those resources are limited. Obama failed this test of leadership and used his first legislation as President to pass a wish list of “down the road” agendas that will have no impact on the economy in the short run. Since then the world has ceased to finance American debt, leading us to print our way out of the problem. Though I am speculating, I have no doubt that a serious and well thought out stimulus would have been supported by international investors. Instead we are dooming ourselves to devastating amounts of inflation in the future and it only gets worse with every deficit trillion that continues to be spent every month. The promise of inflation is not speculation, it is economics.

Omnibus Bill - A continuation of the irresponsible spending that started with the stimulus. This bill was more about earmarks than keeping the government running. Obama should have stood up for the people of this country and sent it back for revision.

New Regulations and TARP 2 - Like the original TARP, these new regulations are too vague, do not define any limits on the Treasury’s power and lead to instability. Geithner has proposed to hedge systemic risk, by promising bailouts and government take over, instead of creating rules that would minimize systemic risk so as to avoid the need for bailouts altogether. In addition, we are going to waste money on regulation that has never stopped institutions from exploiting the loop holes. We need legislation that will not hedge but minimize systemic risk and end the too big to fail scenario. This will limit the damage of the inevitable loop holes in regulation. All the while, keeping the tax payer dollars away from the danger of constant bailout and keeping the power hungry bureaucrats from nationalizing our banking system.

Obama’s Budget - Simply, this is a continuation of Obama’s denial to deal with the crisis we are in. I understand that a recession is not fun to manage, but most be managed none the less. I understand that Obama would rather work on health care and global warming, but was handed a recession to fix first. However, his denial to act only continues to compound the problems. Obama truly is the exact opposite of Bush in this regard. Where Bush was focused only on the situation at hand, like the war in Iraq, he failed to plan what to do once America gained control of Iraq. Obama on the other hand is so focused on what he wants to do once the recession has ended that he’s failing to make any realistic plan to bring the recession to an end. This of course prolongs the recession, weakens the recovery, and burdens those suffering. Is it any wonder his budget mimics his shortsightedness?

Now the fault of our two Presidents is evident from my remarks, those to blame are continuing to get a pass. I hold the democrat controlled congress most responsible. These are the officials directly elected by the people. Congress has done nothing in the way of creating new ideas, participating in sincere debate regarding the President’s plans, nor offered alternatives. I am tired of seeing the same failed policies being tried time and time again without a second thought from congress.

I apologize for the long post, but someone needs to call a spade a spade. Obama has not been secretive in his grab for power and narrow focus on policy for future years. He’s stated this time and time again. However, anyone can see the folly of counting the chickens before they hatch. Bush gravely mismanaged the war and like such, Obama is gravely mismanaging the economy. We have learned nothing from the last President. As conservatives failed to hold Bush’s feet to the fire, the liberals fail to hold Obama to account. Let’s change the paradigm and hold the President accountable on new TARP legislation and his budget. Let’s force some honest debate and public bipartisan discussion. Just as the President is running out of options with the economy, we are running out of time to force the issues and direct our representatives in a meaningful way.

Too Big to Fail - 2 of 3 on the new bank bail out

Too big to fail is more than just a media word being thrown around in the news lately, but a term that has been studied in great detail over the last 30 years in the academia of money and banking. However, many are probably not too familiar with the concept.

Most are already familiar with the first part of the too big to fail scenario. The largest financial institutions are too interconnected to the economy to be allowed to fail when they become distressed. Therefore, the government must come in and bailout the institution. However, there are consequences to the bailout. Many probably are not aware that bailouts promote risky behavior in the financial sector.

Bailouts are nothing new to the Fed and government. Over the past 30 years there have been a consistent number of bailouts including Continent Illinois and the Savings and Loan crisis at the end of the 80’s. The successes of these bailouts have only bolstered the idea that a bailout is a certainty. Most people outraged by the collapse of Fanny and Freddie Mac were people confident that the government would insure the bank's losses. It is important to note that Lehman was the first financial institution that failed to receive a bailout since bailouts began. In fact, it is likely that today’s mortgage crisis is a result of the too big to fail concept playing itself out over the years.

With the confidence of government assistance, where is the threat of failure which forces prudence and good decision making? Going back to Lehman, the company was so sure of a bailout, they had not made strides towards an alternative when they found out they were not going to get assistance. I used to work in the mortgage industry and I worked closely with Citimortgage (the 3rd largest mortgage company with over 3.5 million mortgages). Citimortgage gives us a clue of management’s mentality regarding their risk taking. Prior to the economic meltdown, Citimortgage was working hard building their kingdom of mortgages in their race to be the largest mortgage company in the US. They acquired company after company. All the while, not reviewing loan origination standards nor assessing the risk they were taking by acquiring these loans. In fact, few loans were ever originated by Citimortgage themselves, but were bought up second hand. The focus was clearly on the size of the portfolio and not the substance. Now that they are bailed out, what lesson will they learn and what incentive do they have to change?

Another aspect is that by mitigating the losses of an ailing financial institution, the government allows the poor business practices of the past and often the present to continue without redress. When companies are bailed out, we are not guaranteeing a change in management behavior. The purpose of TARP was to provide money to financial institutions so that they could relieve themselves of their burdened assets. Just as the state stimulus money was to be used for infrastructure, but in actuality many states are using the money for budget gaps. TARP funds were not used to relieve the assets as intended but used as an influx of cash to go into their various operations and protect the company’s earnings. Bailout does not promote change! While AIG may have needed to keep people on the payroll using retention bonuses to do so, how hard were they negotiating when the tax payers were subsidizing the payroll? How much time was spent looking into alternative options? I can only speculate.

Most would rather chalk the recent problem to deregulation, but that is only a piece of the puzzle. Despite deregulation, there are still regulations and regulators, but regulators rarely catch on until it’s too late and no amount of regulation will change that fact. This is because regulation violations are rarely evident until there is a problem. If you walked through the halls of AIG 2 years ago, I'm sure anyone would have been convinced of their stability. Even if there was proper regulation, that does not mean that banks cannot exploit holes in the regulation system. AIG’s troubles were related not to deregulation, but taking advantage of regulation holes. Like computer viruses, no regulation written can be perfect and cover all possibilities. Most regulation issues are not from a lack of regulation, but a gray area in regulation. By the time a regulator has figured it out, the damage is already done.

We are now looking at a new bailout bill, complete with new regulations looking to gain new bailout power (please stay tuned for the next post on why the new regulations are bad). Yet, how will this bailout and these regulations fix the underlying problem above? It will not end the problem of too big to fail, but promote it. It will not deal with the trouble of regulation loopholes; it will create more of them. It will not promote good management in the bailed out companies; it will grant amnesty to them. Finally, it will not end the fact that these bad mortgages have borrowers who cannot pay; it will only forestall the reality until bank bailout number three is needed.

We don’t need new bailouts and we don’t need new regulations. We need the old regulations that helped limit the size of these financial institutions from the time of FDR. This may tighten up the easy credit this country has enjoyed, but in limiting size it should promote competition and keep the cost of credit low. Finally, I believe we need to break up these large companies so that the healthy segments can continue while the troubled ones are allowed to fail.

Biggest Critic of Obama the Stock Market, Not Republicans

It’s been in the news every day since Obama’s election, but has not been covered by the main stream media. As of Today, the Dow has dropped 2,400 points since Obama was elected. That’s one third of the total 7,500 points since the stock market peaked during Bush’s term. The Dow has dropped nearly 600 points (25% of the total 2,400 drop) since the day the stimulus was signed. So what is causing the stock market to drop? After all, if the stimulus, omnibus, budget, and other government programs proposed by Obama were sound financial and economic theory, then the stock market should gain ground after at least some of Obama’s announcements.
No, instead the stock market drops.

February 26th was almost a hallmark day for the Obama team. Stocks opened bullish with news that the new administration would inject another $250 Billion into the banks. Additionally, FED chairman Ben Bernanke promised that the administration would not look to nationalize banks. For the first time since taking office, the Dow was up 140 points and it seemed the market would reflect positive gains as a direct response to Obama’s policies and actions. Then Obama released his new budget, which promised to cut subsidies to private health care providers. Instantly, the stock market fell finally closing 88 points lower than the opening.

What does this mean? Well first of all, I had to rewrite this blog post. This post was originally going to commemorate Obama’s first victory with the stock market. More importantly, it shows that the investors in this country and the world do not have faith in our current President. You see the markets don’t reflect people’s feelings of the economy today, but their feelings of the future of the economy. They are betting against Obama. Please keep in mind that Obama needs to stimulate more than consumption if he wants to turn the economy around. More important than consumption, he needs to increase investment. We need to at least pause and take note of this. Who has more knowledge about finance and the economy? All the investors in the world or a lawyer turned politician for a few years before becoming President?

Below are several links about Obama’s stock market failures and almost success. In the meantime, I’m left to wonder when if at all Obama can bring confidence into the stock markets. Today the Dow fell another 119 points as the government became the largest stockholder in Citigroup. Bernanke, I thought we weren’t going to nationalize banks?

http://finance.yahoo.com/news/Wall-Street-slides-after-apf-14501283.html
http://finance.yahoo.com/news/Weak-health-care-stocks-drag-apf-14483774.html
http://finance.yahoo.com/news/USbank-shares-up-on-stress-rb-14479312.html