The economy is much worse than the financial markets. The Fed's release today of their lowered expectations for the economic recovery is simply one more marker that this recovery is unlike any other except during the dark days of the 1930s. Even Obama has acknowledged in recent days that maybe the government is part of the problem, as his press aide Gibbs acknowledges that the public may take out their frustrations on Obama's political allies.
The markets are likely to sell off during the next few days and weeks, but look for a strong rally as the stock market factors in the end of heavy Democratic majorities in Congress. The political climate for business is bound to improve after November and it is highly likely that Obama will, finally, shift course from stifling economic recovery to, at the very least, removing himself as the main obstacle to recovery.
The truth is: Obama and his anti- business agenda (and rhetoric) are the problem. Obama thinks job growth is a simple matter of getting the government to hire more people. He doesn't trust the private sector, partly because he doesn't understand it, but mostly because he is ideologically opposed to free markets.
But when the stock market sells off again, and it will, buy it when all the talking heads tell you to sell. There will be a "political change" rally as we get closer to election day.
Rabu, 14 Juli 2010
Minggu, 04 Juli 2010
The Economy and the Markets
The V-shaped recovery isn't happening this time. Private employers are not adding new employees. Nearly 15 million jobs have been lost and they are not coming back anytime soon. The stock market has made a knee bend to this new, jobless reality. Only the Obama Administration seems to be oblivious to the absence of private sector job creation. Everyone else is all too aware of the problem.
In time, economics will trump politics. Companies will find a way to get around the roadblocks that politicians place in front of them. There will be a growth of off-the-books, black market activity to circumvent the enormous increase in rules, regulations and mandates faced by small to middling businesses. In the meantime, American business will continue to outsource activities that, thanks to the Obama Administration, are no longer economically feasible in the US.
What this means is that very high, long term unemployment will be a permanent feature of the new America created by Obama and the Democratic Congress. We may have several generations that grow up in a world of high unemployment and diminished opportunities. Only in the public sector will there be opportunity for young, highly educated Americans. All of this is the familiar landscape of Europe, where young people with education and talent must hop on a boat to somewhere else to find jobs that that fit their talents.
America has become much more like Europe, just at the very moment that Europe is beginning to realize that their model does not work. The G-20 meeting in Nova Scotia two weeks ago spotlighted the gaping difference in attitude between Barrack Obama and the newly chastened European leaders. The latter have simply run out of money. There is no way to provide stimulus when the markets are questioning your ability to roll over existing debt. That's where Europe is; that's where the US is heading.
The basic premise of the welfare state is that you can borrow from future generations to provide the good life for folks living today. To do that, bond markets have to play along. What is happening now is the beginning of the bond market saying "no." CDS's on European sovereign debt continue to widen; interbanking lending in Europe is collapsing. These are the realities, no matter what strange world Paul Krugman might live in.
Within a few months, perhaps a year or two, the bond markets will begin to question the viability of US debt financing and the debt financing of numerous states within the US. What then? Who bails out the US Treasury? Only then will the Obama Administration begin to realize that the game is over. Fattening the pocketbooks of public employees is not an economic program. It won't create private sector jobs.
To get the American economy going again, you have to loosen the noose that is around employers' necks -- something the Obama Administration is not going to do. It took World War II to convince the FDR Administration to lighten their attacks on private business. As a result, the economy boomed for the next five decades. Sooner or later a new and different American administration will face the realities, reign in entitlements and begin to provide an environment where business can thrive.
Until then, the main program for private business is to find ways to get around the rules and mandates and new taxes. This means don't add new employees unless absolutely necessary. Take no unnecessary risks and keep your head down. That's the Obama legacy and it won't produce an economic recovery of any substance.
In time, economics will trump politics. Companies will find a way to get around the roadblocks that politicians place in front of them. There will be a growth of off-the-books, black market activity to circumvent the enormous increase in rules, regulations and mandates faced by small to middling businesses. In the meantime, American business will continue to outsource activities that, thanks to the Obama Administration, are no longer economically feasible in the US.
What this means is that very high, long term unemployment will be a permanent feature of the new America created by Obama and the Democratic Congress. We may have several generations that grow up in a world of high unemployment and diminished opportunities. Only in the public sector will there be opportunity for young, highly educated Americans. All of this is the familiar landscape of Europe, where young people with education and talent must hop on a boat to somewhere else to find jobs that that fit their talents.
America has become much more like Europe, just at the very moment that Europe is beginning to realize that their model does not work. The G-20 meeting in Nova Scotia two weeks ago spotlighted the gaping difference in attitude between Barrack Obama and the newly chastened European leaders. The latter have simply run out of money. There is no way to provide stimulus when the markets are questioning your ability to roll over existing debt. That's where Europe is; that's where the US is heading.
The basic premise of the welfare state is that you can borrow from future generations to provide the good life for folks living today. To do that, bond markets have to play along. What is happening now is the beginning of the bond market saying "no." CDS's on European sovereign debt continue to widen; interbanking lending in Europe is collapsing. These are the realities, no matter what strange world Paul Krugman might live in.
Within a few months, perhaps a year or two, the bond markets will begin to question the viability of US debt financing and the debt financing of numerous states within the US. What then? Who bails out the US Treasury? Only then will the Obama Administration begin to realize that the game is over. Fattening the pocketbooks of public employees is not an economic program. It won't create private sector jobs.
To get the American economy going again, you have to loosen the noose that is around employers' necks -- something the Obama Administration is not going to do. It took World War II to convince the FDR Administration to lighten their attacks on private business. As a result, the economy boomed for the next five decades. Sooner or later a new and different American administration will face the realities, reign in entitlements and begin to provide an environment where business can thrive.
Until then, the main program for private business is to find ways to get around the rules and mandates and new taxes. This means don't add new employees unless absolutely necessary. Take no unnecessary risks and keep your head down. That's the Obama legacy and it won't produce an economic recovery of any substance.
Minggu, 27 Juni 2010
Geithner and "Growth Initiatives"
Tim Geithner is "calling for the G-20 nations to continue growth initiatives," according to the main stream media. Geithner's idea of growth initiatives is to fatten the paychecks of currently employed public employees, which is essentially what constituted the $ 800 billion Obama-Pelosi-Reid package enacted in early 2009 "to prevent unemployment from reaching 8 percent.". Now with unemployment 25 percent higher than the Obama 8 percent target, Geithner and Obama would like to do more of the same. Even Europe's not buying the Geithner message any more. The G-20 Summit's concluding report emphasized debt reduction and getting one's fiscal house in order. Only the US is pushing for more spending and higher sovereign debt levels.
The Congress and the American public aren't buying it either. The public wants a fiscal about-face. Obama is increasingly isolated from reality and from the American public. Now, he seems to be losing his European fan base as well. Even the British public no longer consider that they have a "special relationship" with the US. In two short years, Obama and Geithner have have become shrill voices with an ever diminishing audience.
The Congress and the American public aren't buying it either. The public wants a fiscal about-face. Obama is increasingly isolated from reality and from the American public. Now, he seems to be losing his European fan base as well. Even the British public no longer consider that they have a "special relationship" with the US. In two short years, Obama and Geithner have have become shrill voices with an ever diminishing audience.
Sabtu, 19 Juni 2010
November Nears
It is interesting how Congress has suddenly developed an aversion to spending, as the November elections approach. Twice in the past week, Obama-sponsored bailouts of profligate state governments with padded public payrolls have failed in the Senate. I guess public opinion is finally beginning to matter to everyone except the President. Of course, he's not on the ballot this year, so his interest in fiscal discipline won't surface until the Spring of 2012.
The moribund economic recovery, made weaker by the President's policies, is barely limping along. The BP oil spill and the President's self-destructive moratorium on offshore drilling, only make matters worse. The only part of the economy with vigorous growth is the incredible expansion of government. The private sector has retreated into it's shell. Businesses have learned that they can do more with fewer employees, a lesson they won't soon forget. As all Americans face staggeringly higher taxes next year and staggeringly higher health care costs, direct results of the President's legislative accomplishments, don't expect much in 2011.
You might think that Democratic losses in November might get through to the White House, but I doubt it. The White House seems to be in a world of it's own, where reality never seems to intrude.
The moribund economic recovery, made weaker by the President's policies, is barely limping along. The BP oil spill and the President's self-destructive moratorium on offshore drilling, only make matters worse. The only part of the economy with vigorous growth is the incredible expansion of government. The private sector has retreated into it's shell. Businesses have learned that they can do more with fewer employees, a lesson they won't soon forget. As all Americans face staggeringly higher taxes next year and staggeringly higher health care costs, direct results of the President's legislative accomplishments, don't expect much in 2011.
You might think that Democratic losses in November might get through to the White House, but I doubt it. The White House seems to be in a world of it's own, where reality never seems to intrude.
Kamis, 10 Juni 2010
Obama Takes a Dangerous Left Turn
In an earlier blog, I defended Obama's initial reaction to the BP Oil Spill, but criticism from the political talking heads -- right and left -- have caused an abrupt shift in Obama policy toward the spill.
What should the government's response be? The government should declare that this is a two-part national disaster: Part I -- fix the leak; Part II -- prepare defenses for the environment to protect beaches, fisheries, wetlands, whatever is threatened by the spill. These are two separate activities. On Part I. BP had (but no longer, see below) enormous economic incentives to fix the leak and were working feverishly to do so. If BP plugs the leak, they can potentially save enormous amounts of money in liability and clean up costs. That is, until yesterday.
Yesterday, Ken Salazar, Secretary of the Interior, announced that BP should be responsible for all the layoffs that result from Obama's six month suspension of off shore drilling. That changed the incentives. If BP is responsible for bad policies enacted by the US after the spill, then they probably face bankruptcy. Whether they fix the leak or not may not matter to BP's future. BP may be toast no matter what. That dramatically alters their incentives to fix this leak. Big mistake by Salazar and, of course, by Obama. John McCain, not to be outdone in bi-partisan stupidity, quickly chimed in on the Larry Kudlow CNBC show last night that he supports making BP responsible for anyone laid off by the Obama drilling suspension directive. Thanks John. Good thing we didn't elect you president.
As for the clean up, here, the administration could show some real leadership. They could bring together environmentalists, including those of the far left, and fisherman, and oil cleanup experts from the industry and fashion a play to save our beaches and our shoreline. Instead, Obama is playing golf and laying plans to increase taxes big oil (and further alienate the oil industry, just at a time when he needs their help). By exerting real leadership Obama could bring the country into a unified effort to save our environment. Instead it's politics as usual, divide one from another, and villify any easy targets you can find.
The net effect of Obama policies will be to beggar pensioners in the UK and in the US (BP is a big pension dividend payer to lower and middle income Brits and Americans), to terrify the oil industry and move offshore drilling to other countries (with much more lax regulation, which means much more of a threat to the environment). Companies will be spending more time trying to figure out how to ward off the Obama threat to their existence and less concern on how to contain the oil spill and prepare to defend our coasts.
The Obama policy is now set on this disastrous course and the US (and the Brits) will suffer greatly. Obama has not even spoken once to Tony Hayward, the CEO of BP! That is an amazing fact. When quizzed about this, Obama says, and I paraphrase, I don't want to hear his lies. That should ensure Hayward's cooperation.
Obama only understands confrontation. He has no experience in dealing with conflicting and complicated problems and little understanding about how to unify people around a common theme. In short, Obama is a disaster. The result will be much, much higher energy prices for Americans, more job losses and more political division. As for the environment, the absence of a unifying program to defend our environment will prove to be disastrous in the end and destroy the hopes and the livelihoods of the Americans dependent for lifestyle and sustenance on our southern coasts. (I guess if it reaches NYC, Obama might begin to show some serious interest). It probably means the effective end of the Obama Administration. Growing number of Americans, including many prominent Democrats, are now openly questioning Obama's competence. He will not recover from this.
It could have been so different.
What should the government's response be? The government should declare that this is a two-part national disaster: Part I -- fix the leak; Part II -- prepare defenses for the environment to protect beaches, fisheries, wetlands, whatever is threatened by the spill. These are two separate activities. On Part I. BP had (but no longer, see below) enormous economic incentives to fix the leak and were working feverishly to do so. If BP plugs the leak, they can potentially save enormous amounts of money in liability and clean up costs. That is, until yesterday.
Yesterday, Ken Salazar, Secretary of the Interior, announced that BP should be responsible for all the layoffs that result from Obama's six month suspension of off shore drilling. That changed the incentives. If BP is responsible for bad policies enacted by the US after the spill, then they probably face bankruptcy. Whether they fix the leak or not may not matter to BP's future. BP may be toast no matter what. That dramatically alters their incentives to fix this leak. Big mistake by Salazar and, of course, by Obama. John McCain, not to be outdone in bi-partisan stupidity, quickly chimed in on the Larry Kudlow CNBC show last night that he supports making BP responsible for anyone laid off by the Obama drilling suspension directive. Thanks John. Good thing we didn't elect you president.
As for the clean up, here, the administration could show some real leadership. They could bring together environmentalists, including those of the far left, and fisherman, and oil cleanup experts from the industry and fashion a play to save our beaches and our shoreline. Instead, Obama is playing golf and laying plans to increase taxes big oil (and further alienate the oil industry, just at a time when he needs their help). By exerting real leadership Obama could bring the country into a unified effort to save our environment. Instead it's politics as usual, divide one from another, and villify any easy targets you can find.
The net effect of Obama policies will be to beggar pensioners in the UK and in the US (BP is a big pension dividend payer to lower and middle income Brits and Americans), to terrify the oil industry and move offshore drilling to other countries (with much more lax regulation, which means much more of a threat to the environment). Companies will be spending more time trying to figure out how to ward off the Obama threat to their existence and less concern on how to contain the oil spill and prepare to defend our coasts.
The Obama policy is now set on this disastrous course and the US (and the Brits) will suffer greatly. Obama has not even spoken once to Tony Hayward, the CEO of BP! That is an amazing fact. When quizzed about this, Obama says, and I paraphrase, I don't want to hear his lies. That should ensure Hayward's cooperation.
Obama only understands confrontation. He has no experience in dealing with conflicting and complicated problems and little understanding about how to unify people around a common theme. In short, Obama is a disaster. The result will be much, much higher energy prices for Americans, more job losses and more political division. As for the environment, the absence of a unifying program to defend our environment will prove to be disastrous in the end and destroy the hopes and the livelihoods of the Americans dependent for lifestyle and sustenance on our southern coasts. (I guess if it reaches NYC, Obama might begin to show some serious interest). It probably means the effective end of the Obama Administration. Growing number of Americans, including many prominent Democrats, are now openly questioning Obama's competence. He will not recover from this.
It could have been so different.
Selasa, 08 Juni 2010
What Should Be Happening
Had there been a simple, across the board, tax cut for all Americans and all American companies, and had there been no stimulus package, no credit card reform, no FinReg, no Obamacare, the economy would be chugging along, creating between 500,000 and 1,000,000 jobs a month. That's what normally happens in a recovery in Post World War II USA.
Obama has changed all of that. We now are more like Europe: economic stagnation, slow and virtually non-existent economic growth, burgeoning sovereign debt, suffocating employer mandates, and unsustainable entitlements. Don't expect real economic recovery any time soon. We are in serious economic trouble as a nation, brought on by the worst set of economic policies in the nation's history.
It did not need to be that way. Had Obama played a little more golf and a little less time in front the mirror, the US economy would be well on its way. But, alas, Obama intervened and here we are.
Obama has changed all of that. We now are more like Europe: economic stagnation, slow and virtually non-existent economic growth, burgeoning sovereign debt, suffocating employer mandates, and unsustainable entitlements. Don't expect real economic recovery any time soon. We are in serious economic trouble as a nation, brought on by the worst set of economic policies in the nation's history.
It did not need to be that way. Had Obama played a little more golf and a little less time in front the mirror, the US economy would be well on its way. But, alas, Obama intervened and here we are.
Minggu, 06 Juni 2010
Jobs and the President
Last week, two days before the Labor Department's official release of May employment data, the President was gushing over the employment numbers that were soon to be released. Seemed like an abuse of "insider trading" rules for the President to give an early indication that the number would be "terrific." Market analysts, following the President's lead, began to forecast 500,000 to 750,000 new jobs for the May report. The stock market rallied 230 points based upon Obama's presumed leak of the wonderful employment report. But, Friday, as night follows day, the report was released at long last. The result: disaster!
41,000 private sector jobs were created in the month of May. If that pace continues, the unemployment rate will find its way to 20 percent in time. The total number of jobs created was 431,000 but that included 411,000 temporary Census workers, whose jobs disappear soon.
It is obvious, in retrospect, that the President thought this employmnent report was a "good" report, 431,000 new jobs, and is not bothered by the fact that 95 % of the new jobs are temporary Census worker jobs. This reaction by the President once again demonstrates his contempt for the private sector. It doesn't bother the President that the private sector is not creating jobs. He seems to think another stimulus (pumping up the compensation of public sector employees) is the right answer). The combination of Obama's contempt for private enterprise and free markets and his lack of understanding of economics is shining through.
Meanwhile, when the financial markets discovered the truth, the market suffered once of its worst days in history, dropping 325 points. The market cannot be fooled, even by a glib and ignorant President.
41,000 private sector jobs were created in the month of May. If that pace continues, the unemployment rate will find its way to 20 percent in time. The total number of jobs created was 431,000 but that included 411,000 temporary Census workers, whose jobs disappear soon.
It is obvious, in retrospect, that the President thought this employmnent report was a "good" report, 431,000 new jobs, and is not bothered by the fact that 95 % of the new jobs are temporary Census worker jobs. This reaction by the President once again demonstrates his contempt for the private sector. It doesn't bother the President that the private sector is not creating jobs. He seems to think another stimulus (pumping up the compensation of public sector employees) is the right answer). The combination of Obama's contempt for private enterprise and free markets and his lack of understanding of economics is shining through.
Meanwhile, when the financial markets discovered the truth, the market suffered once of its worst days in history, dropping 325 points. The market cannot be fooled, even by a glib and ignorant President.
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