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Views on the News

February 21, 2009

 

Views on the News:          

Obama has completely abandoned the vapid “Hope and Change” idealism from his campaign and has now embraced the “Doom and Gloom” pessimism needed to scare Americans into supporting actions that they would never support otherwise.  Obama's use of fear and coercion to implement his plan of loading the country with insurmountable debt is shockingly reckless and blatantly inappropriate.  He has repeatedly raised the specter of another Great Depression.  This fearmongering may be good politics, but it is bad history and bad economics.  It is bad history because our current economic woes don't come close to those of the 1930s.  Other economic statistics also dispel any analogy between today's economic woes and the Great Depression.  Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous.  Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future.  In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup.  Obama has been able to control his self-fulfilling prophecy of a worsening stock market by fear mongering and talking down the economy.  The looming threat of his monstrous, debt-inducing spending package itself is enough to make investors queasy.  People look ahead at this and don't like what they see, and their gloomy view of the future further saps their confidence in the present.  More than ever, Americans need what candidate Obama promised: hope, but unfortunately it is not what they're hearing from Obama as President.  No sooner was the stimulus bill passed than Obama was hinting that it may not work as promised and a second stimulus bill may be required.  Fear will only work for so long before disappointment sets in, and shortly thereafter by rejection and loss of trust.

 

 

The Democrat President was able to ram an "emergency" spending package through a lopsidedly Democratic Congress in the midst of a recession but passage required a party line vote.  It should be no surprise that the Democrat “stimulus” bill was a 4 decade long liberal wish list of spending programs that could never be passed individually.  Democrats have the votes and the raw political power to pass most of what they want, but they will often find it difficult to gain bipartisan cover because they have already unseated most of the Republicans who had a political incentive to cut deals with them.  Obama broke one of his transparency promises for a minimum of 48 hours to read all legislation by delaying the release of the 1,073 page stimulus bill until 11pm prior to the vote.  Republicans named this "a bill no one has read," and also a bill no one knows how to pay.  Republicans offered three different and better economic stimulus plans: the McCain Plan, the Vitter Plan, and the Thune Plan all of which were less expensive and more effective.  Obama is trying to redefine bipartisanship as listening to opponents and then expecting them to capitulate to his preconceived conclusions, but he was notoriously unsuccessful.  It should also be no surprise that no real Republicans (RINOs of course excluded) voted for this bill since the only transparency was on how partisan it was in creation and content.  The best indicator of the expected result of Obama’s  economic plans is the stock market: down 2,200 points since his election, and down another 400 points this week after the stimulus bill has been digested and the bank bailout plans have been announced.   Just over half of Americans, 51%, support the economic stimulus and spending plan passed by Congress last week and 40% oppose it.  Moreover, 58% think legislation was necessary, but 34% think the economy would have improved on its own without government intervention.  When it comes to pork 79% of Americans "really care" if the stimulus bill included earmarks and pork spending.  Adding insult to injury this “stimulus” bill was sold as critical and rushed through Congress but once passed President Obama took the long weekend off and waited until Tuesday to sign it.

 

 

Obama is “stuck on stupid” and determined to make all the same mistakes that elongated the 1929 two year recession into a 12 year Great Depression as a smokescreen to implement his socialist ideas.   Historically free market capitalism will self correct economic anomalies in about 24 months on average when unobstructed by government meddling.  These recessions display a negative GDP growth, higher than normal unemployment, and increased inflation.  Just like the 1930s, the 2009 Democrat “porkulus” bill diverts money to the public sector thus impeding the private sector from growing their businesses and generating long term private sector jobs.  Another mistake made by FDR that Obama is determined to repeat is to maintain wages artificially high by requiring union labor  and “prevailing wage” rates for all federal projects.  The Buy America provisions are the harbinger of increased protectionism which will undermine free trade.  Tremendous deficit spending undermines the value of the dollar and almost guarantees future inflation growth.  It is only a matter of time before the deficit is used as an excuse to increase taxes (another FDR error), which will then be used to further exaggerate the redistribution of wealth all socialist crave.

 

 

Although sold as a way to avoid an economic “catastrophe,” the “European Socialism Act of 2009” will actually guarantee a second economic depression.  Anyone can spend billions and trillions of dollars, but the hard part is not to bankrupt America over the long run.  We started this year with a projected trillion-dollar budget deficit for the 2009 fiscal year.  In 2008, we spent $451 billion just to pay the interest on our debt.  With the stimulus bill now becoming law, we’re digging even deeper into debt.  The headline price tag of $787 billion doesn’t include the extra $348 billion it will take to finance the new debt, or what it will cost when Congress extends the spending programs in the bill, as is likely — as much as $2 trillion more.  Add in the billions that are being used to prop up the financial system, and when the dust settles on 2009, with millions of baby boomers retiring and entitlement spending exploding, taxpayers will face a financial nightmare.  The cost of borrowing will rise.  Today we fear deflation, but eventually our fears will turn to inflation.  It seems that no one in Washington is discussing what happens when the world begins this gargantuan borrowing spree.  How high will interest rates rise?  And more fundamentally, who will have the money to buy our bonds?  It is possible that the Federal Reserve will succumb to pressure to “monetize” our debt — that is, print new money to buy our bonds.  Combine high inflation and high unemployment and you have stagflation.  Hindsight shows how the pain of the late 1970s and early 1980s could have been avoided, yet we’re now again planning to borrow and spend, and raise taxes just like Jimmy Carter.  Soon we may again find ourselves watching a rising “misery index” of inflation and unemployment together.  If that happens, individual earning power will evaporate, and our standard of living will decline.  FDR’s own Treasury secretary, Henry Morgenthau in 1939 said: “We have tried spending money . . . it does not work . . . we have just as much unemployment . . . and an enormous debt to boot.”  Sprinkling perfume on this “porkulus” plan will not hide the curly tail on this pig… nor will attacking the critics or trying to erase projected benefits used to sell this corpulent program.

 

The next financial crisis will occur when all these new “investments” in emerging technologies are proven to not be economically viable, but the financing was guaranteed by the federal government.  Now that the price of oil has returned to a more realistic range, a majority of the ethanol plants have filed for bankruptcy finding themselves unsustainable even with government subsidies.  The “stimulus” bill included a number of “investments” in energy such as:

·         $8 billion in loan guarantees for wind and solar projects.

·         $4.5 billion for "smart grid" upgrades.

·         $6.5 billion to help the Bonneville and Western Area Power Administrations upgrade their grid to ferry renewable energy from remote regions.

·         $600 million to help the Department of Defense convert facilities to wind and solar.

·         $200 million for biofuel refineries.

Governments have assumed that windmills, solar collectors, and biofuels are the wave of the future.  Therefore the only logical course is to hasten that future by subsidizing it and forcing utilities to adopt it ahead of schedule.  Without a doubt, there will soon be a huge shakeout in alternate energy business.  The real problem is that all these enterprises have been propped up by government subsidies from Day One.  The financial impact shouldn't be anything of the magnitude of the subprime meltdown, but the dot-com bust of 1999 is probably a good model.

 

Let us not forget that the financial sector collapse was a direct result of the Democrats using banks as a tool for social engineering and forcing them to lend to people who could afford to borrow.  The party line is that the market has failed so disastrously that only the government can save us, and it is proclaimed in Washington and echoed in the Mainstream Media.  The low interest rates of the early 2000s may explain the growth of the housing bubble, but they don't explain the poor quality of these mortgages.  For that we have to look to the government's distortion of the mortgage finance system through the Carter’s Community Reinvestment Act (CRA) and the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.  Long-term pressure from the House Financial Services Committee and his colleagues to expand home ownership connects government housing policies to both the housing bubble and the poor quality of the mortgages on which it is based.  In 1992, Clinton gave a new affordable housing "mission" to Fannie and Freddie, and authorized the Department of Housing and Urban Development to define its scope through regulations.  Shortly thereafter, Fannie Mae made its first "trillion-dollar commitment" to increase financing for affordable housing.  On a parallel track was the CRA that in 1995 Clinton required banks to demonstrate that they were making mortgage loans to underserved communities, which inevitably included borrowers whose credit standing did not qualify them for a conventional mortgage loan.  To meet this new requirement, insured banks, like the GSEs, had to reduce the quality of the mortgages they would make or acquire.  As the enforcers of CRA, the regulators themselves were co-opted into this process, approving lending practices that they would otherwise have scorned.  Housing bubbles are nothing new.  The reason that the most recent bubble created a worldwide financial crisis is that it was inflated with low-quality loans required by government mandate.  The fact that the same government must now come to the rescue is no reason for gratitude.

 

Bank Bailout continues to be an example of throwing “good money after bad” with the apparent objective of “no bank holding company left behind.”  If Geithner had spoken with any clarity, he would have revealed that his "new" plan is basically a continuation of the one that failed spectacularly in the closing months of the Bush administration.  Washington intends to deliver vast additional sums of public money to the very largest banks while demanding little in return for the public interest.  Neither he nor Larry Summers, Obama's chief economic adviser, can think his way out of the problem or propose a more aggressive approach, as both men are wedded to the old way of doing things.  The predicament is now deeply threatening to our new president; very swiftly he will own the disaster he inherited.  The fundamental, terrifying fact of this crisis, widely understood among experts and cautious investors, is that many of our largest financial institutions are insolvent.  It is not in the public interest to exhaust the Treasury trying to keep them alive.  In some ways, Obama did this to himself.  Ignoring the pleas of skeptics and reformers, the president surrounded himself with familiar players from the old order and rigorously excluded anyone identified as an unorthodox thinker.  At what point will Obama finally say “No” to any more bailout funds for the Big Three automakers, since they seem to come begging back every couple of months?  Government cannot prop up companies that no longer make products people want to buy in large enough numbers for them to remain profitable.  Obama’s latest massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92% of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford.  This is Obama’s spread-the-wealth program in action which rewards bad behavior.  Obama’s $75 billion proposal is, in fact, a $475 billion proposal: $75 billion to subsidize the renegotiation of mortgages and a $400 billion capital injection into Fannie Mae and Freddie Mac, the government-sponsored enterprises at the center of the housing market’s troubles.  It is enlarging moral hazard by expanding its welfarist approach to economic policy.  The inconvenient fact is that over half of all restructured mortgages default again within a year.  With a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

 

Liberals feel that intentions are key and results are optional, while conservative believe that results are key and intentions are principle based.  Obama is fond of the appearance of bipartisanship.  Democrat intentions to reach bipartisan agreement on the “stimulus” bill was admirable, but the results were a party line vote with Republicans clearly disagreeing with the approach and content.  Symbolism is important, but ultimately Presidents are judged on substance.  A new Rasmussen poll reflects mixed reviews of the Banking bailout plans with 45% of Americans oppose the federally subsidized mortgage bailouts, while only 38% approve.  Several Governors have already stated that they will reject provisions of the “stimulus” plan that promote unemployment, expand welfare, and undermine stimulating the economic recovery.  Since positive results will few and far between, expect Obama to start claiming mythical jobs “saved” to demonstrate the mythical results of his gigantic liberal spending program.

 

Obama is an honor graduate of the Saul Alinsky School of Radicals.  Alinsky, in his Rules for Radicals, emphasized the importance of getting-in-their-faces personal attacks.  This tactic is becoming well-known and understood, and came straight from Alinsky: Pick the target, freeze it, personalize it, and polarize it.  It is obvious that polarizing our former President was a calculated, well-financed, nearly ubiquitous effort played out in concert by various left-wing 527s and mainstream media useful idiots for the past eight years.  Blaming an organization, a government or a big, fuzzy corporation just would not do, Alinsky admonished his acolytes.  A proper target needed to be an individual, not a legal entity.  One of the primary objectives in picking a target for polarization is to bring the target's supporters out of the woodwork where they can be seen and identified as adversaries.  Picking a President for demonization may have seemed a bit over the top, but in this, the leftist guerilla operatives were counting on several pertinent modifiers:  (1)  The President has his hands full and cannot adequately do his job and defend himself from scurrilous attacks; (2)  The Presidency demands certain protocol, which prevents him from stooping to the level of his adversaries; and (3)  When the Nation is at war with foreign enemies, the President cannot be overly concerned with domestic enemies.  These rather simple elements provided the Alinsky-ites, well-funded by their shadow general George Soros, to flood American media outlets with the polarization of one man for every single problem under the sun.  Now that there is a Democrat President, Senate and House, Alinsky-ites may have a bit more of a problem finding and polarizing suitable Republican targets to distract American voters.   

 

Republicans must keep track of all the socialist missteps so they can be undone (executive orders, policies, and legislation) as soon as Republicans return to power in 2010 and 2012.  Repeal the Neighborhood Stabilization provisions that Obama’s old friends at ACORN  can use to fund their “Home Savers” campaign to fight foreclosures by legal and illegal tactics.  Return to the 1996 Welfare Reform Act to eliminate the provision rewarding states for increasing caseloads and eroding the barriers to long-term welfare dependency.  Abolish the Office of the National Coordinator of Health Information Technology that will monitor treatments and decide which are cost-effective and which will be permitted or denied based on a bureaucrat deciding what is cost-effective or has "clinical effectiveness."  Liberals love to control and ration as much as they love to tax and spend.  Based on the contents of the stimulus bill, there is a significant possibility that Obama’s administration may become Jimmy Carter’s second term with high unemployment and high inflation and quickly voted out of office.

 

If you are sick and tired of government and politics as usual, read my web site with its individual issue analysis and recommendations at: http://www.returntocommonsensesite.com Remember this site is updated every Saturday. Individual issue updates this week include:

 

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David Coughlin

Hawthorne, NY