The Great Obama Depression

Looks like Obama is on track to preside over the second great economic depression in the United States. Only history will tell if this will by pass the FDR depression to make the current downturn the worst in US history. Obama is on track to spend $5 TRILLION before the year out through and is on track to incurr the largest deficit and expansion of debt in the history of the US.

The consumer's mind set is now turning to a economic depression according to a Rasmussen poll.

Most Americans (53%) now think the United States is at least somewhat likely to enter a 1930’s-like depression within the next few years.

The latest results are more pessimistic than those found in early January, when 44% said a 1930’s-like depression was likely in the next few years, and 46% disagreed.

In March 2008, only 38% of adults said the country is likely to slip into a depression, while most (55%) disagreed.

The most recent survey also found that half of all adults (49%) say today’s children will not be better off than their parents. Only 26% hold the more optimistic view, while another 25% are not sure. Those results have changed little from January, when only 27% said children will be better off and 47% disagreed. Twenty-six percent (26%) were undecided at that time.

Team Obama Loves The Liberal Press In Their Corner Pocket

It is clear now that team Obama has influenced the liberal media more than any one imagined. They continue to employ that charm to hoodwink the media and put the their brand of spin.

The Politico has an interesting piece on this. Some highlights:

“I’ve had more unsolicited offers for participation from the Obama people in 45 days than in the last eight years from Bush,” said Rosenthal (NYT Editorial page director).

Rosenthal said the Obama administration’s approach is consistent with the one the Obama campaign used, and for a reason: It worked. Citing an example, he said that an Obama campaign aide succeeded in convincing him back in July — before an editorial ran — that Obama had not, in fact, reversed his position on a controversial D.C. handgun ban.

Washington Post editorial page editor Fred Hiatt said in an e-mail that the Obama team has been “open and responsive” to requests from The Post’s editorial writers. Hiatt said that helps The Post “produce smarter and more knowledgeable editorials.”

But the White House knows that what gets written in Washington and New York filters out into the country — and that it needs support from those who are most likely to get their news from the inside-the-Beltway press, members of Congress, policy wonks and, of course, other journalists.

Obama Should Scrap The Stimulus & Let The Tax Payers Save

Go savings Go!!!!

From Marketwatch:

With disposable incomes rising faster than spending, the personal savings rate rose to 5%, the highest since March 1995. At an annual rate, personal savings rose to a record $545.5 billion.

A year ago, the personal savings rate was 0.1%.

"The rise in the savings rate has very positive long-term implications but in the meantime is destructive," wrote Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.

The savings rate could go even higher, with consumers trying to pay down their debts, live within their means and boost their savings to make up for their lost wealth. The savings rate "has a long way further to go," said Ian Shepherdson, chief domestic economist for High Frequency Economics.

Creszenzi figured consumers might go back to saving about 9% of their disposable incomes, the savings rate that prevailed from the 1950s through the early 1980s.

Obama Does Not Inspire Confidnece In The Economy

From Emanuel Derman:

Which brings me to the bailout.The psychological trouble with current attempts to fix the economy by stimulation is that they don't have that air of unpredictable inevitability that is associated with good music and inspired action. Everything the people in authority now do has an air of delayed predictability. The nationalization of failing banks, when it comes, will be accompanied by the sound of dragging heels. I have an image of a child being reluctantly pulled towards the bedroom, his heels scraping against the carpet as he resists the inevitable bedtime.

What's needed is to get people confident enough about the future to spend again. I'm increasingly skeptical that public spending will quickly effect this, because confidence is shot. Everyone is going to be cautious about spending for a long time from now on, Keynes or no Keynes. The velocity of money slows as everyone starts to hoard, and GDP declines despite an increase in money supply. One way to fix this is to charge a fee for saving your money, i.e. negative interest, or high inflation, use it or you lose it, but that's fearful velocity, not confident velocity. Another is lower taxes, putting more money permanently in people's pockets, but that leaves less for government spending initially, and has no effect on the unemployed. A third is a charismatic confidence-inspiring leadership, but think Germany in the Thirties. I'm a little stymied for now, and so, I sense, is everyone else. There's no quick fix and no substitute for good fresh wise leadership.

Stealing From Charity To Pay For

Talk about lunacy!

From the Washington Times:

The charitable giving deduction reduction, which would limit deductions for couples making $250,000 or individuals making $200,000, provoked the most heat Thursday. Mr. Obama is counting on that provision to raise $179.8 billion over 10 years.

"This will lead people to give less to charities if they behave the way they've behaved in the past," he said. "We've already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving."

Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference. "Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty," he said.

The Investment Biker Rips Into Obama

Comments from Jim Rogers :

The government is making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

Obama's Over Confidence In His Economic Policy

From Christina Romer:

The bottom line is that I fully believe the American Recovery and Reinvestment
Act will have the effects we said it would.

We are projecting somewhat stronger growth than some private forecasters. In part, this is due to the fact that we did the forecast two months ago, and the economic news since then has not been good. But the more fundamental reason is that we firmly believe the stimulus package, together
with financial stabilization and our housing policy, will have a tremendous impact. I understand that actual developments may prove me wrong. But everything I know from history and macroeconomics tells me that the policies we are taking will make a crucial difference.

Given the breadth, depth, and expected length of the downturn, we need broad stimulus – some that will come on line quickly and some that will give the economy a boost next year, and stimulus that will affect all sectors and regions.

Obama Will Short Change Future Generations

From Greg Mankiw:

If you are a deficit hawk who lamented the Bush budget deficits, the new administration's budget should not make you feel much better. President Obama will give us different fiscal priorities than President Bush did, but the borrowing and debt imposed on future generations will not be very different, at least if the numbers presented in the Obama administration's own budget document can be trusted.

During the period 2005 to 2007, the U.S. unemployment rate hovered in the ballpark of 5 percent. What was the budget balance? According to OMB historical documents, the budget deficit averaged just under 2 percent of GDP during those three years.

Now compare these results to the new Obama budget. According to their numbers, under their proposed policies, the budget deficit will average a bit over 3 percent of GDP during that time.

Yet Another Campaign Promise Bites The Dust...And Another One Bites

From the NYT:

White House officials said Sunday that President Obama would sign a $410 billion spending bill that includes thousands of pet projects, known as earmarks, despite campaign promises to put an end to the practice.

In appearances on television talk shows, Mr. Obama’s budget director and chief of staff both played down the issue. “We want to just move on. Let’s get this bill done, get it into law and move forward.”

Officials estimate that the omnibus spending bill, meant to pay for government operations through Sept. 30, contains nearly 9,000 provisions added by legislators to use public money to pay for projects in their home districts.

The earmarks account for at least $3.8 billion of the total spending in the package, according to estimates, including $1 million to control Mormon crickets in Utah, $162,000 to control rodents in Hawaii, and money for the presidential libraries of three Democrats: Franklin D. Roosevelt ($17.5 million), John F. Kennedy ($22 million) and Lyndon B. Johnson ($2 million).

The legislation would increase overall spending by 9 percent compared with last year, including significant increases for health care, education and energy.

Axis of Upheaval - Obama's Perfect Storm Brewing in Foreign Policy

Obama plans to reduce military spending and focus on domestic issues. But the economic slow down will ignite radicals in areas of the globe that will test Obama's decision.

From Niall Ferguson is Laurence A. Tisch professor of history at Harvard University

The resources available for policing the world are certain to be reduced for the foreseeable future. That will be especially true if foreign investors start demanding higher yields on the bonds they buy from the United States or simply begin dumping dollars in exchange for other currencies.

Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.

Barack Obama now faces a much larger and potentially more troubling axis—an axis of upheaval. This axis has at least nine members, and quite possibly more. What unites them is not so much their wicked intentions as their instability, which the global financial crisis only makes worse every day. Unfortunately, that same crisis is making it far from easy for the United States to respond to this new “grave and growing danger.”

Iran, meanwhile, continues to support both Hamas and its Shiite counterpart in Lebanon, Hezbollah, and to pursue an alleged nuclear weapons program that Israelis legitimately see as a threat to their very existence.

The democratic governments in Kabul and Islamabad are two of the weakest anywhere. Among the biggest risks the world faces this year is that one or both will break down amid escalating violence. Once again, the economic crisis is playing a crucial role. Pakistan’s small but politically powerful middle class has been slammed by the collapse of the country’s stock market. Meanwhile, a rising proportion of the country’s huge population of young men are staring unemployment in the face. It is not a recipe for political stability.

This club is anything but exclusive. Candidate members include Indonesia, Thailand, and Turkey, where there are already signs that the economic crisis is exacerbating domestic political conflicts. And let us not forget the plague of piracy in Somalia, the renewed civil war in the Democratic Republic of the Congo, the continuing violence in Sudan’s Darfur region, and the heart of darkness that is Zimbabwe under President Robert Mugabe. The axis of upheaval has many members. And it’s a fairly safe bet that the roster will grow even longer this year.

Jimmy Hendrix Would Ask 'Are You Entitled?'

From James Quinn:

In 1965, 27% of Federal spending was mandatory. on Today, 53% of Federal spending is on auto-pilot. The entire Social Security, Medicare, and Medicaid system will need to be overhauled or scrapped. Benefits will have to be reduced and taxes will have to be raised. There are no other choices. Medicare costs will explode over the next 40 years. The increasing debt will result in interest payments on the debt becoming the largest expenditure in the federal budget. The longer we wait to address this unavoidable train wreck, the more likely it will result in generational warfare between baby boomers and younger generations.

As entitlements and net interest grow, discretionary spending gets squeezed. Non-defense programs, which include, activities related to children, transportation infrastructure, education, training and research that should promote future economic growth and prosperity, come under increasing funding pressure. We are forced to ignore investments in the future to pay for commitments made decades ago. The short term focus of our Washington politicians has ruined our fiscal future. Children don’t vote, and younger people are less involved in the political process. As a result, the political gain from immediate increases in spending or reductions in taxes outweighs the eventual economic benefits of more politically costly but fiscally responsible choices. This is a criminal and immoral act upon our future generations. It is time to hold these politicians accountable for their actions.

Obama's Great American Ponzzi Scheme

From James Quinn:

In the time it takes to say Audacity of Hope, we’ve added $25,000 to the National Debt. There are many pundits who say the National Debt doesn’t matter. We are only paying 3.4% on our 30 Year Treasuries and there is always enough demand. The dollar continues to be steady versus the Euro. Government debt as a percentage of GDP was 122% during World War II, versus only 78% today. All of these statements are true, today. On March 1, 2008 I could have said that the American banking system was sound. I would have appeared to be right. Two weeks later Bear Stearns collapsed and the downward spiral of our worldwide financial system accelerated out of control. Are these reasonable questions to ask?

1. How long will foreign countries fund our rapidly accelerating deficits for a 3.4% return which will be wiped out by a slight decline in the USD?
2. Will foreign countries with their own economies contracting and pouring billions into domestic stimulus even have the funds to invest in U.S. Treasuries?
3. Is there a tipping point when Bernanke has printed one too many dollars? If there is, you can be sure he won’t see it coming.
4. When government debt reaches 110% of GDP next year, will we be in better or worse position as a nation than we were in 1945 as the only remaining power in the world?
5. How do you solve a $53 trillion unfunded liability problem while tripling your National Debt in the space of 10 years?

The answers to these questions will determine when the great American Economic Ponzi Scheme collapses. It is only a question of timing if we continue on the current fiscal path. As we lay in our beds watching American Idol and pondering whether Britney Spears is a good mom, our beds are burning.

Obama's Economic Smoke & Mirrors

From the WSJ:

The White House is relying on a set of optimistic economic assumptions in its budget that allows the Obama administration to claim a steeper drop in the deficit in coming years than many mainstream forecasters expect.

The budget forecast assumes that U.S. gross domestic product -- the nation's total economic output -- will decline about 1.2% this year, while private forecasts -- measured by the Blue Chip survey -- show a 1.9% decline. Next year the Obama team forecasts 3.2% growth, while professional forecasters expect a 2.1% gain.

Economic assumptions are vital to the budget forecasts. Stronger growth translates into more profits for businesses and greater income for individuals. That means higher tax receipts, which can reduce the nation's annual deficit and total debt.

The Obama budget puts the deficit at less than $600 billion starting in 2012 from $1.75 trillion this year. Getting to that point requires GDP to rise more than 4% a year by then -- meaning the U.S. would quickly return to growth rates similar to the boom years of the 1990s -- after the worst financial shock since the Great Depression. Such growth is more than a full percentage point above private-sector growth estimates for 2011 and 2012.

Debt Destruction and Reduction Will Get Us Out of This Mess

From James Quinn

The debt service as a % of disposable income for consumers is above Great Depression levels as we enter the Next Great Depression. These levels are unsustainable. Consumers normally have a limited number of choices. They can pull a Trump and declare bankruptcy to wipe out the debt or reduce spending dramatically while paying down their debt. This is what is required to purge our capitalist system of its excesses. Instead, our Government “leaders” are coming to the rescue with your tax dollars. You have already given $7 billion to Capital One and American Express so they can hand out more credit cards with $20,000 limits to pizza delivery boys. When you see someone carting a 52 inch HDTV out the door of Best Buy, you may be making his credit card payment. Barney Frank, and his band of merry Congressmen, has also provided $9 billion of your hard earned tax dollars to GMAC Financial and Chrysler Financial. GMAC Financial used the name Di-Tech to lure millions of gullible poor people into negative amortization no doc mortgage loans at the peak of the housing bubble. When you see a BMW 525i parked in front of a boarded up house in West Philly, know that you are making the car payment for that deadbeat.

The stimulus plan will be a complete failure. Politicians have not taken into account the damaged psychology of the American public. We have been hit over the head with a baseball bat and will not be stepping up to the feeding trough of debt financed spending for a long time. If we do not let people and companies fail, we will encourage the same behavior that caused the problem. It will make sense for every upstanding American to stop paying their mortgage and to run their credit cards up to the limit. Pastor Adrian Rogers explained how many Americans feel today.

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

Obama's Misguided Policy To Place A Floor On Home Prices

From James Quinn

As Congressional moron after Congressional moron goes on the usual Sunday talk show circuit and says we must stop home prices from falling, I wonder whether these people took basic math in high school. Are they capable of looking at a chart and understanding a long-term average? The median value of a U.S. home in 2000 was $119,600. It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have increased by 17% to $140,000. Instead, they skyrocketed by 86% due to Alan Greenspan’s irrational lowering of interest rates to 1%, the criminal pushing of loans by lowlife mortgage brokers, the greed and hubris of investment bankers and the foolishness and stupidity of home buyers. It is now 2009 and the median value should be $150,000 based on historical precedent. The median value at the end of 2008 was $180,100. Therefore, home prices are still 20% overvalued. Long-term averages are created by periods of overvaluation followed by periods of undervaluation. Prices need to fall 20% and could fall 30%. You will know we are at the bottom when the top shows on cable are Foreclose That House and Homeless Housewives of Orange County.

Instead of allowing the housing market to correct to its fair value, President Obama and Barney Frank will attempt to “mitigate” foreclosures. Mr. Frank has big plans for your tax dollars, "We may need more than $50 billion for foreclosure [mitigation]". What this means is that you will be making your monthly mortgage payment and in addition you will be making a $100 payment per month for a deadbeat who bought more house than they could afford, is still watching a 52 inch HDTV, still eating in their perfect kitchens with granite countertops and stainless steel appliances. Barney thinks he can reverse the law of supply and demand by throwing your money at the problem. He will succeed in wasting billions of tax dollars and home prices will still fall 20% to 30%. Unsustainably high home prices can not be sustained. I would normally say that even a 3rd grader could understand this concept. But, instead I’ll say that even a U.S. Congressman should understand this.

Obama's Perfect Storm

Nice analogy by James Quinn: He is alluding to the movie The Perfect Storm.

The Andrea Gail (United States) is captained by Billy Tyne (Barack Obama) with his young first mate Bobby Shatford (Timothy Geithner). Their fishing boat was fighting the rough waves of the North Atlantic (Financial Crisis) as they sought their prize of swordfish (Economic Recovery). While they were concentrating on the task at hand, the remnants of Hurricane Grace (Unfunded Liabilities of $53 trillion) was moving up the Atlantic coast. A low pressure system ($787 billion stimulus bill) moved off the East Coast and a strong disturbance (Bank Bailout) along a cold front coming from Canada combined to create a strong Nor’easter. The intensifying storm was already dangerous (Causing Unemployment and Bankruptcies), but when the subtropical power of Hurricane Grace was sucked into the maelstrom, it became a Perfect Storm (Financial Crisis of Epic Proportions). With 75 mph winds (Deficits) and 60 foot waves (Unsustainable Spending on Social Programs & Military Spending), the storm had become enormously treacherous.

Captain Tyne (Barack Obama) received frantic warning calls from Captain Linda Greenlaw (David Walker) that the storm had grown into a killer and must be avoided. Cocky Captain Tyne (Barack Obama) thought he knew better and could make it through the storm and safely back to port in Gloucester to reap the riches of his catch. Instead of maneuvering (Reigning in spending and allowing banks to fail) to avoid the storm, Captain Tyne (Barack Obama) decides to double down and plough full speed ahead into the heart of the Perfect Storm. The Adrea Gail (United States) gets caught in the vortex of the storm. Ultimately, Captain Tyne (Barack Obama) and Bobby (Timothy Geithner) realize they will never get out alive. They make one last effort to climb a 60 foot wave and the Andrea Gail (United States) capsizes (Collapse of American Financial System), and all men are lost at sea.

US government is on a “burning platform"

James Quinn writes:

President Obama has been only concerned with speed rather than long term corrective actions. The $787 billion 1,074 page stimulus bill has been passed. President Obama has signed it. The market immediately dropped 500 points. It will have no impact on the economy in 2009. The bill will stimulate nothing but the National Debt. Within months, plans for another stimulus plan will be demanded by the Democratic led Congress because speed and the appearance of action are how politicians get reelected.

"Delay is preferable to error." – Jefferson

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” – Lincoln

Why Thomas Friedman Doesn't Know What He is Talking about

Thomas Friedman, yet again spews spurious ideas, passing himself off as a domain expert. Too bad his readers can't call him on his.

In yesterday's OpEd piece in the NYTimes Thomas 'hothead' Friedman wrote:

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

Fred Wilson, a VC at Union Square Ventures responds:

So Tom's idea, while it looks good on paper, is a dream. The top venture firms don't want, don't need, and are never going to take government money. The same is true of the top entrepreneurs.

the venture capital business, thankfully, does not need any more capital. It's got too much money in it, not too little. Just ask the limited partners who have been overfunding the venture capital business for the past 15-20 years what they think. You don't even need to ask them. They are taking money out of the sector because the returns have been weak.

And the top 20 firms in the venture capital business are the least in need of a bailout of any group I've ever thought about. These firms, the Sequoias and Benchmarks and Accels and Kleiner Perkins etc etc can raise a fund anytime they want. Accel raised a ton of money last fall in the midst of the worst global financial meltdown in my lifetime.

The venture capital business is an asset class where the top 10-20 percent of the firms make 80%+ of the returns. That's how its always been and that's how it will likely always be. It's because the best entrepreneurs want to work with firms with reputations for making money, making connections, recruting top talent, and getting the right exit at the right time. And those are the top 10-20 percent of the firms.

How Government Intervention Was/Is The Problem

By Marc Faber:

Sadly, government policy responses -- not only in the U.S. -- are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

The bad policy started with the bailout of Mexico following the Tequila crisis in 1994. This prolonged the Asian bubble of the 1990s, because investors became convinced there was no risk in growing current-account deficits and continued to finance Asia's emerging economies until the bubble burst with the start of the Asian crisis in 1997-98.

Then came the ill-advised bailout of Long-Term Capital Management in 1998, which encouraged the financial sector to leverage up even more. This was followed by the ultra-expansionary monetary polices following the Nasdaq bubble in 2000, which led to rapid and unsustainable credit growth.

So what now? Unfortunately, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner were, as Fed officials, among the chief architects of easy money and are therefore largely responsible for the credit bubble that got us here. Worse, their commitment to meddling in markets has only intensified with the adoption of near-zero interest rates and massive bank bailouts.

The best policy response would be to do nothing and let the free market correct the excesses brought about by unforgivable policy errors. Further interventions through ill-conceived bailouts and bulging fiscal deficits are bound to prolong the agony and lead to another slump -- possibly an inflationary depression with dire social consequences.

Brief History Of The Current Crisis

By Marc Faber.

Following the March 2000 Nasdaq bust, the Federal Reserve began to slash the fed-funds rate from 6.5% in January 2001 to 1.75% by year-end and then to 1% in 2003. (This despite the fact that officially the U.S. economy had begun to recover in November 2001). Almost three years into the economic expansion, the Fed began to increase the fed-funds rate in baby steps beginning June 2004 from 1% to 5.25% in August 2006.

But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies. Indeed, total credit increased in the U.S. from an annual growth rate of 7% in the June 2004 quarter to over 16% in early 2007. It grew five-times faster than nominal GDP between 2001 and 2007.

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages. A consumption boom followed, which was not accompanied by equal industrial production and capital spending increases. Consequently the U.S. trade and current-account deficit expanded -- the latter from 2% of GDP in 1998 to 7% in 2006, thus feeding the world with approximately $800 billion in excess liquidity that year.

When American consumption began to boom on the back of the housing bubble, the explosion of imports into the U.S. were largely provided by China and other Asian countries. Rising exports from China led to that country's strong domestic industrial production, income and consumption gains, as well as very high capital spending as capacities needed to be expanded in order to meet the export demand. An economic boom in China drove the demand for oil and other commodities up. Rapidly accumulating wealth allowed the resource producers in the Middle East, Latin America and elsewhere to go on a shopping binge for luxury goods and capital goods from Europe and Japan.

As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms -- of the 19th century under colonial economies, or after World War II when 40% of the world's population remained under communism, socialism, or was otherwise isolated -- were not nearly as global as this one.

Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world -- real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.

The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.

Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact -- except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) -- because the private sector tightened monetary conditions.

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

Hey You Liberal Doctors Who Voted For Obama, You Got What You Asked

So your so called expertise and experience is for naught. The Feds will call the shots. Just what you trained so hard for!

From Bloomberg:

One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

New Penalties

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.

Yet Another Campaign Pledge Goes By The Wayside

From the Hill.com

If President Obama signs the $787 billion economic stimulus legislation Monday, he’ll again be dodging a campaign pledge he made on transparency.

During the campaign, Obama pledged to post legislation online for five days before signing it. But administration officials have said they don’t have to do that for the stimulus because the pledge applied only to non-emergency legislation.

The first bill Obama signed into law, the Lily Ledbetter Fair Pay Act, wasn't posted online until after he signed it Jan. 29.

He signed legislation expanding children’s health insurance on Feb. 4 after posting it online Feb. 1.

“The honorable thing to do is to give us the time to see the bill,” said Rep. Charlie Melancon (D-La.), a leader of the centrist Blue Dog Coalition. "When you make commitments you follow through on them."

Will Obama Spend Our $$ on Cool Copters

From the NYT. Will we see more hypocrisy from the LOTUS

President Obama has slammed high-flying executives traveling in cushy jets at a time of economic turmoil. But soon he will have to decide whether to proceed with some of the priciest aircraft in the world — a new fleet of 28 Marine One helicopters that will each cost more than the last Air Force One.

The choice confronting Mr. Obama encapsulates the tension between two imperatives of his nascent presidency, the need to meet the continuing threats of an age of terrorism and the demand for austerity in a period of economic hardship.

Equipped to deflect missile attacks and capable of waging war from the air, the new VH-71 helicopters would fly farther, faster and more safely than the current decades-old craft. But each improvement pushes up the cost. The program’s original $6.1 billion contract has ballooned to $11.2 billion, and the Pentagon notified Congress last month that it was so far over budget that the law required a review. The Obama administration now must determine if the project is essential to national security and if there are alternatives that would cost less.

Let the taxpayers eat cake while go zoom zoom zoom, zooma, zoom zoom zoom!!

Shaft - How Obama Roped The Dopes For Support

From Reason:

Supporters of the package describe the legislation as transportation and infrastructure investment, the idea being to use new spending to put America back to work while at the same time fixing decrepit infrastructure. However, only 17 percent of the discretionary spending in this package is for infrastructure items. More worrisome still, the final version lacks any mechanism to ensure that spending will be targeted toward infrastructure projects with high economic returns.

If we include the massive amount of interest that will accrue on the increased debt, the overall cost will total to $1.14 trillion.

The conference report dedicates 30 percent of all discretionary spending to 33 new programs totaling $95 billion and expands 73 programs which are normally part of the regular appropriations process by $92 billion.

So now funds can go to museums, stadiums, arts centers, theaters, parks, or highway beautification projects. Most significantly, this reopens the door for many of the projects on the U.S. Conference of Mayors' wish list of "shovel ready" projects that includes many items that are nothing but waste and pork, such as doorbells, construction of dog parks, replacement of street lights, and money for a "mob museum."

Don't Believe the Blather From Barak - It is not about jobs!

If you believe the blather from Obama, that the pork bill making it way through Congress is about jobs, then consider the following from Mr. Practical:

“I have written that what makes an economy and wealth grow is productivity. Don't think of wealth as more money, as the government wants you too (because they can always just create more of that); think of it as standard of living. I have illustrated how productivity makes standard of living/wealth rise.

But notice the government's plan of fiscal stimulus directly opposes productivity. Its objective is to create as many jobs as possible. But the definition of productivity is to do as little work as possible for the most output. So the objective of creating a lot of jobs is by definition unproductive

Everyone wants jobs and it is unfortunate that the is in this state. But we are here because we have borrowed future standard of living, living beyond our means. We now have to pay it back. Creating unproductive jobs will merely forestall that process.”

Barney Frank, Chris Dodd, Team Obama Should Be Questioned

Bank CEO operated in an environment carved out by government regulations and implicit rules. Unfortunately now the government is getting itself more involved and preventing the markets from functioning.

From Mr. Practical.

The government isn't the solution since they're the enabler. They'll enable until the currency is literally destroyed. A former Chinese bureaucrat already stated that the US needs to guarantee its debt. That's code for you now work for us.

That will happen unless we just stop and let the markets correct the problem. There's too much debt, and creating more debt is no longer an option. This is sad, but economics is like physics: You can’t expect to jump out of a window and go up.

The 2 most important were excess government spending and the continued backing of the GSEs. Very simply, banks would probably have not been able to keep lending without Fannie Mae (FNM) and Freddie Mac (FRE) guaranteeing and buying up debt from banks, which encouraged them into moral hazard: lending to people that, in even a modest downturn, could never pay back their loans.

Team Obama Should Learn From Economic History

Here is an excerpt from Friedrich Von Hayek's speech when he accepted the Nobel Memorial Prize in Economics in 1974. It applies to what is going on today and what Obama wants to do.

In fact, in the case discussed, the very measures which the dominant "macro-economic" theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate - or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.

Why Obama's Government Actions Won't Work

Simply put, if you cut taxes and spend freely today, you have to raise taxes and cut spending later. If you were a rational taxpayer and you think the government does not have the will power to do the later then you won't believe the former. It might explain why the private markets and the taxpayers don't believe in the current stimulus package.

Here is another take from Naked Capitalism

For a fiscal stimulus (current tax cut or public spending increase) to boost demand, it is necessary that the markets and the public at large believe that sooner or later, measures will be taken to reverse the tax cut or spending increase in present value terms. If markets and the public at large no longer believe that the authorities will assure fiscal sustainability by raising future taxes or cutting future public expenditure by the necessary amounts, they will conclude that the government plans either to permanently monetise the increased amounts of public debt resulting from the fiscal stimulus, or that it will default on its debt obligations. Permanent monetisation of the kind of government deficits anticipated for the next few years in the US and the UK would, sooner or later be highly inflationary. This would raise long-term nominal interest rates and probably give risk to inflation risk premia on public and private debt instruments as well. Default would build default risk premia into sovereign interest rates, and act as a break on demand.

Beacause I believe that neither the US nor the UK authorities have the political credibility to commit themselves to future tax increases and public spending cuts commensurate with the up-front tax cuts and spending increases they are contemplating, I believe that neither the US nor the UK should engage in any significant discretionary cyclical fiscal stimulus, whether through higher public spending (consumption or investment) or through tax cuts or increased transfer payments...

Obama's Too Beholden To Unions to Avoid a Trade War

This is troubling. Perhaps history does not repeat but looks like it rhymes. The Smoot-Hawley Act contributed to the Great Depression. Now we have a looming trade war. Given Obama's promises to big labor it will be easy for the Democrats to place tarriffs and protect American industries.

From the WSJ

The World Trade Organization is gathering nations in a special meeting Monday to try to stem the rising tide, just two weeks after saying protectionism was largely under control. On Thursday, 10 European Union commissioners headed to Moscow for talks Friday with Prime Minister Vladimir Putin and other Russian officials, where they plan to air complaints over the pace of new Russian trade barriers.

Economists and trade analysts say the current rash of trade constraints could make it harder for global economic growth to recover from the current downturn. Global trade is expected to shrink by more than 2.1% this year after growing by 6.2% in 2008, according to the WTO.

Keynes Was Not All About Spending. He Liked Tax Cuts

In correspondence with the economist James Meade in 1942 Keynes says he is “converted” to Meade’s idea of altering the social security payroll tax over the business cycle. Here are Keynes’s words:

I am converted to your proposal…for varying rates of contributions in good and bad times. (June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

From Think Markets

Obama Makes Sausage, Compromises on Ethics

From the NYT

Obama on his first day in office imposed perhaps the toughest ethics rules of any president in modern times, and since then he and his advisers have been trying to explain why they do not cover this case or that case. “This is a big problem for Obama, especially because it was such a major, major promise,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. “He harped on it, time after time, and he created a sense of expectation around the country. This is exactly why people are skeptical of politicians, because change we can believe in is not the same thing as business as usual.”

In the campaign, Mr. Obama assailed Washington’s “entire culture” in which “our leaders have thrown open the doors of Congress and the White House to an army of Washington lobbyists who have turned our government into a game only they can afford to play.” He vowed to “close the revolving door” and “clean up both ends of Pennsylvania Avenue” with “the most sweeping ethics reform in history.”

The language, however, was always more sweeping than the specifics. He spoke of refusing campaign money from lobbyists but took it from the people who hired them. The ethics plan he outlined, and eventually imposed on his administration, did not ban all lobbyists outright but set conditions for their employment and did not cover many who were lobbyists in everything but name.

Liberal Economist Joesph Stiglitz Thinks Bad Bank is a Bad Idea

Obama wants to spend $2 TRILLION on saving banks.

From Bloomberg:

Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.

That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”

Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers paying for years of excess lending by banks.

Consumers Are Rational So Obama Should Leave Them Alone

Consumers are saving more and spending less. That is good. They have been spending way beyond their means for the last 30 years and now is the time to work off the bad habits, save and then resume a 'normal' rate of consumption.

That means demand is going to fall to natural levels. Which will lead to deflation and more rational consumption choices. If we have a decade of low consumption we will gain a decade of savings. That means those that save will need less social security and help from the government.

“Consumers are rational,” said Joshua Shapiro, chief United States economist at MFR. “They respond to incentives and conditions, and right now the conditions and incentives are: spend as little as you can, and pay down as much as you can. You hunker down. That’s what the consumer’s doing.” -NYT

“We have to expect spending to keep falling for some months yet,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note to clients. “The concomitant rise in the saving rate, now at 3.6 percent compared to 0.8 percent in August, is good news in the long run but the key source of pain right now.” - NYT

Team Obama is trying to stimulate the economy by getting consumers to spend. The Fed is pushing down interest rates to zero, tyring to force consumers to move their money to higher yielding asset classes which contain more risk.

Obama should focus on long term INVESTMENTS that will retrain current workers and provide the incentives to the private market to invest. That means providing higher investment tax credits that will shield cashflows, increasing the internal rate of returns on those projects. The tax credit basically says that the government won't tax those cashflows for investors that take calculated risks.

At the same time Obama should cut tax rates on small and medium size businesses to lower their costs and reduce the risk of future cash flows. 60% of the workforce is employed by small and medium sized businesses. One proposal is the cut the payroll taxes so that employers will have more cash to shore up their balance sheet and lower the cost to hire workers. It will incent businesses to hire that additional work or keep workers instead of laying them off.

Unfortuantely team Obama is following the text book response to a atypical down turn. Let him fall on his own sword.

Time To Swallow The Bitter Pill - Say No To Democrats' Lunacy

From James Quinn

We have borrowed ourselves to the brink of disaster. The only logical way to resolve this quandary is to reduce spending, pay down debt, and increase savings.

It took 28 years to get to this point, and it will take at least a decade to repair the damage. Some indisputable facts will put our current predicament in perspective:

• The US National Debt was $930 billion in 1980, or 33% of GDP. Today it is $10.7 trillion, or 76% of GDP. The national debt has grown by 1,150% in 28 years.
  
  
• GDP was $2.8 trillion in 1980. Today, it is $14 trillion - and declining. GDP has grown by 500% since 1980 - which means the national debt has grown more than twice as fast as GDP.
  
  
• Total US consumer debt in 1980 was $352 billion. Today, US consumer debt totals $2.6 trillion - 738% in 28 years. Revolving credit increased from $56 billion in 1980 to $982 billion today, a 1,750% increase in 28 years.
  
  
• The real median household income was $41,258 in 1980. The real median household income in 2007 was $50,233. Over the course of 28 years, households are bringing home 22% more. The trickledown theory turns out to be a drip.
  
  
• The personal savings rate was 12% in the early 1980s and reached negative 1% during the Bush administration. It has inched above 2% in the last few months.

Real Leaders Take Their Medicine - Team Obama Is On Drugs

Few thoughts from James Quinn:

I know that many Americans are looking for President Obama to solve this crisis painlessly. But there is no easy way out. The debt must be paid off and/or written off.

The politically unpopular steps that need to occur are as follows:

• Housing prices need to drop another 15% to 20% to reach fair value. This will result in more foreclosures. When prices fall far enough, the houses will sell and inventories will fall. If you cannot afford the payment on your home, you should become a renter. Not everyone should own a home.

• The government and Federal Reserve need to shine a bright light on the bad debt within the financial system. The collateral or lack thereof backing up government loans needs to be revealed by Treasury and the Federal Reserve. Covering up the worthlessness of these assets is contributing to the frozen system.

• The remaining mega-banks that have caused this crisis -- including Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), and any other insolvent banks -- need to be allowed to fail, if failure is indeed their destiny.

• Failed companies with failed strategies must go bankrupt. Allowing companies (such as General Motors (GM) and Chrysler, for example) to fail brings about restructuring; the remaining healthy companies can buy the good assets.

• Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges.

• Keeping interest rates at zero in an effort to force savers to borrow and spend is penalizing the frugal to benefit the profligate. Borrowing our way out of a debt crisis will never work.

• Consumers should be encouraged to pay down their debt loads and increase their savings rate. The sooner this can be accomplished, the sooner the country can resume growth.

• The median 401k balance was $18,942 at the end of 2007, with 39% of workers having a balance below $10,000. Approximately 8,000 Americans turn 65 every day. 20% of the U.S. population will be over 65 by 2030. An aging population with virtually no retirement savings must increase their savings and cut consumption dramatically.

Luigi Zingales Thinks Geithner, Incumbent Bankers & Lobbyist Are Bed Fellows

Luigi Zingales, Prof at the UofC writes:

Mr Geithner, incumbent bankers and their lobbyists will always make you believe there is no alternative to the plan that benefits them the most. You cannot fall for this old trick.

We can save the banks as institutions and restart lending without a massive transfer of money from taxpayers to investors and bankers, and here is how.

One solution is the one I advanced last fall. It requires passing a new piece of legislation introducing a new form of bankruptcy for banks, where derivative contracts are kept in place and the long term debt is swapped into equity.

An alternative would be to allow banks to divide themselves into two entities, a bad bank with all the toxic assets and a good bank, with lending etc.

If the solution is so simple why has it not be done before? First, because it is much simpler to get money from the government than to obtain it through hard work. So no bank would consider doing this spinoff if it hopes to receive extra TARP money. Second, because most bank debt has covenants prohibiting exactly these splits. Even if the liabilities are shared equally between the two entities, the equityholders tend to gain from this split and the debt holders tend to lose. If the shortfall in the value of toxic assets is large enough equity in the whole entity would be entirely wiped out, while with the two split entities equity holders will retain some value in the good bank, at the cost of a lower overall repayment for the debt holders.⁸

This problem, however, can be dealt with by giving debt holders of the bad bank a warrant on the equity of the good bank, increasing their payoff at the expense of the equityholders. Furthermore, the creditors have benefited so greatly from all the government infusions of money so far that it would only be fair that they will share some of the pain for their bad investment. To allow banks to spin themselves off in two units, however, we need to pass a new law. As in October the “nay sayers” will say it is impossible. It was possible to write a $700 billion check to Paulson, it is possible to approve a $825 billion stimulus package, why it is not possible to pass a very short law allowing banks to spin off?

Gary Becker Takes Issue With the $800 BILLION Pork

Gary Becker of the UofC states:

Recessions would be a good time to increase infrastructure spending only if these projects can mainly utilize unemployed resources. This does not seem to be the case in most of the so-called infrastructure spending proposed under various stimulus plans.

The likelihood that such a rapid and large public spending program will be of low efficiency is compounded by political realities. Groups that have lots of political clout with Congress will get a disproportionate amount of the spending with only limited regard for the merits of the spending they advocate compared to alternative ways to spend the stimulus.

The rebuilding of "crumbling roads, bridges, and schools" highlighted by in various speeches by President Obama is likely to make greater use of unemployed workers in the construction sector. However, such spending will be a small fraction of the total stimulus package, and it is not easy for workers who helped bStimulating the economy when employment is falling requires rapid spending of this huge stimulus package, but it is impossible for either the private or public sectors to spend effectively a large amount in a short time period since good spending takes a lot of planning time.uild residential housing to shift to building highways.

The Economic Team at White House Are Wearing Rosy Colored Glasses

The proposed stimulus spending plans by team Obama is based on the historical actions of the FDR admin. But economists are pointing out that the WWII related spending was massive as a % of GDP. It won't work today.

From Mathew Yglesias:

One is “whether a large multiplier ever exists” and one is whether such multipliers suffer from diminishing returns. World War II spending was enormous relative to GDP. Wartime spending on that kind of scale goes way beyond the conversations we’re having right now about fiscal stimulus—the equivalent today would be something like a $5.2 trillion package rather than the $800 billion or so we’re talking about. And to get spending up to that level the government had to resort to quasi-forced savings (”war bonds”), rationing, etc.—deliberate efforts to direct production away from where demand was highest and toward the national objective of military production. The 0.8 multiplier is probably the result of diminishing returns. The question is whether you got a decent multiplier out of the first 5-10 percent of GDP you spend on stimulus. It shouldn’t surprise us if it turns out that defense spending eventually got somewhat higher than would be economically optimal in the middle of the largest war in history.

Obama's Economic Team Playing Russian Roulette

Interesting analysis Van R. Hoisington and Lacy H. Hunt, Ph.D. The Obama economic team wants to perform a grand experiment by utilizing massive fiscal spending to get us our of this depression. The US tax payer will be on the short end of this.

Fiscal stimulus will not work well, and may even be counterproductive, and this applies to both spending programs and to certain tax programs as well. One of the major problems on the expenditure side is that the government sector is smaller than the private sector.

The only really viable option for federal stimulus is a permanent reduction in the marginal tax rates, as highlighted in the research of Christina Romer, incoming Chair of the Council of Economic Advisors. This would have the benefit of raising after tax rates of return, but the drawback in the short run of still having to be financed by an increased budget deficit. Over time, a massive reduction in marginal tax rates would be beneficial, but the operative word is time.

With consumers confronting such hostile wealth and income prospects, the saving rate is likely to rise sharply as it did after the Great Depression and, excluding the distortions created by World War II, continued to do for a half century. If the deflation now apparent in specific sectors of the economy spreads, the rise in the saving rate is likely to continue for a very long time. In the past, debt deflations have caused consumers to avoid at all cost the pattern of living beyond their means. Thus, the rising saving rate will constitute a major headwind for the U.S. economy.

As the experience from U.S. and Japanese history indicates, many "false dawns" will occur, with investors assuming that the long-delayed cyclical recovery in economic activity is at hand.

Jeremy Grantham Has No Love for Obama's Economic Team

Great observation from Jeremy Grantham of GMO.

One can only admire Bob Rubin’s ability to retain influence and have his protégés in powerful positions. Rubin is the guy who was last seen exhorting Citibank to take more leverage and keep swinging.

His man Summers has proven he has some bite. He runs no risk of being on any of the many lists of people who gave clear warnings of potential financial disaster. And dozens did. Summers was
emphatically not a whistleblower. He did not rail against falling financial standards. What he did, with his allies Greenspan and Rubin, was beat back a heroic attempt in late 1998 by Brooksley Born, then boss of the CFTC in Chicago, to supervise OTC derivatives.

Obama appointed Gary Gensler to lead the CFTC. Gensler has a good reputation, but was hired into Treasury by …you’ve guessed it … Robert Rubin.

And as for Tim Geithner! He was, if anything, a cheerleader, and wrote in support of the new era of “Great Moderation.” He, however, was not picked by Rubin. No, he was picked by ummers, who was picked by Rubin. These guys are very, very loyal!

What a missed opportunity this all is. Obama was given a mandate that could have included some serious bottom kicking. We could have quickly taken quite a few steps down the long road leading to a credible financial system deserving of respect. The time to do that was now.

Tim Geithner Should Be Judged Like Zoe Baird & Kimba Wood

Both Zoe Baird and Kimba Wood were considered for the Attorney General's position during Bill Clinton's Admin. Both withdrew their names when it was revealed that they had hired undocumented workers as nannies.

Tim Geithner's seems to have run into similar problems with his housekeeper and then some. He owed personal income taxes that went unpaid until he was nominated to be Treasury Secretary.

The most damming case against Geithner is his role as the governor of the New York Fed. Here is a question from Anna Schwartz, a prominent economist at the National Buereau of Economic Research:

Ordinary taxpayers would like an answer to this question: Why have they been billed more than $45 billion to rescue Citigroup from failure when, as president of the Federal Reserve Bank of New York, you were its primary supervisor? Three major problems led to Citigroup’s downfall: bad investment policy; overexpansion, which overwhelmed Citigroup’s management; and an inadequate capital base. Why was Citigroup’s supervision inadequate to deal with these problems?

Senators should not confirm Geithner and the Obama admin should be chided for their audacity to give Geithner a break. Any self respecting liberal feminist should be appalled and disgusted by this.

What Is In Store for The Global Economy - from Jeremy Grantham

Jeremy Grantham, chairman of GMO, has some wise advise and comments in his quarterly newsletter. Here are some highlights:

It is obvious to all of us that these are momentous days in which government actions
may well have make-or-break impact, but my confidence in government and leadership is at a low ebb.

Economic advice for President Obama covers the waterfront, and even the near consensus case for great stimulus is lacking in historical certainties or intellectual rigor.

Even the Japanese often express dismay at the costs they have paid due to their heroic level of public spending. Bridges to nowhere have not been as stimulating or productive long term as a focus on energy conservation and oil and coal replacement technologies would have been.

Japanese individuals went into the 1989 event with a very high savings rate and very high accumulated savings. In contrast, our households go into our crunch borrowed to the hilt (or beyond) and painfully undersaved.

It is worth remembering that real wealth lies not in debt but in educated people, laws, and work ethic, as well as in the quality and quantity of fixed assets and the effectiveness of corporate organization.

What is the half life of Obama's after glow?

The election after glow will sparkle and fade in a world that is experiencing one of the worst economic down turns, a society that is hung over from 30 years of consumerism, low rate of saving, and a belief in government to save their economic souls.

Obama's masterful milking of the post election praise will only turn to bitter medicine that will be consumed by all of us. It will be our fault for leading astray from what has made this country so great: individual contribution, individual accountability, thriftiness and that government is not the answer to our problems.

Obama's ponzi scheme of massive deficit spending, like Madoff's $50 billion scheme, will be exposed in time. Hope is not an option!

Is Obama A Symbol of Jean Baudrillard's simulacrum?

Jean Baudrillard wrote:

'The simulacrum is never that which conceals the truth--it is the truth which conceals that there is none. The simulacrum is true.'

'Baudrillard claims that modern society has replaced all reality and meaning with symbols and signs, and that the human experience is of a simulation of reality rather than reality itself. The simulacra that Baudrillard refers to are signs of culture and media that create the perceived reality; Baudrillard believed that society has become so reliant on simulacra that it has lost contact with the real world on which the simulacra are based.'

Obama's painting of reality with childlike chants (Yes We Can, Change,) and the multitude of extraordinary promises to artificially lift the nation's somber mood will fall flat once reality hits the fan, unencumbered by liberal media bias and the half life of the after glow!

Liberal Democrats Should Read Up on MLK instead of getting their info from the Liberal media. Part II

It was the Republicans who fought to free blacks from slavery and amended the Constitution to grant blacks freedom (13th Amendment), citizenship (14th Amendment) and the right to vote (15th Amendment). Republicans passed the civil rights laws of the 1860's, including the Civil Rights Act of 1866 and the Reconstruction Act of 1867 that was designed to establish a new government system in the Democrat-controlled South, one that was fair to blacks. Republicans also started the NAACP and affirmative action with Republican President Richard Nixon‘s 1969 Philadelphia Plan (crafted by black Republican Art Fletcher) that set the nation‘s first goals and timetables.

Few black Americans know that it was Republicans who founded the Historically Black Colleges and Universities. Unknown also is the fact that Republican Senator Everett Dirksen from Illinois was key to the passage of civil rights legislation in 1957, 1960, 1964 and 1965. Not mentioned in recent media stories about extension of the 1965 Voting Rights Act is the fact that Dirksen wrote the language for the bill.

Over $7 trillion dollars have been spent on poverty programs since President Lyndon Johnson's War on Poverty with little, if any, impact on poverty. Diabolically, every election cycle, Democrats blame Republicans for the deplorable conditions in the inner-cities, then incite blacks to cast a protest vote against Republicans.

Liberal Democrats Should Read Up on MLK instead of getting their info from the Liberal media

From the National Black Republican Association:

From its founding in 1854 as the anti-slavery party until today, the Republican Party has championed freedom and civil rights for blacks. And as one pundit so succinctly stated, the Democrat Party is as it always has been, the party of the four S's: Slavery, Secession, Segregation and now Socialism.

It was the Democrats who fought to keep blacks in slavery and passed the discriminatory Black Codes and Jim Crow laws. The Democrats started the Ku Klux Klan to lynch and terrorize blacks. The Democrats fought to prevent the passage of every civil rights law beginning with the civil rights laws of the 1860's, and continuing with the civil rights laws of the 1950's and 1960's

During the civil rights era of the 1960's, Dr. King was fighting the Democrats who stood in the school house doors, turned skin-burning fire hoses on blacks and let loose vicious dogs. It was Republican President Dwight Eisenhower who pushed to pass the Civil Rights Act of 1957 and sent troops to Arkansas to desegregate schools. President Eisenhower also appointed Chief Justice Earl Warren to the U.S. Supreme Court which resulted in the 1954 Brown vs. Board of Education decision ending school segregation. Much is made of Democrat President Harry Truman's issuing an Executive Order in 1948 to desegregate the military. Not mentioned is the fact that it was President Eisenhower who actually took action to effectively end segregation in the military.

Democrat President John F. Kennedy is lauded as a proponent of civil rights. However, Kennedy voted against the 1957 Civil rights Act while he was a senator, as did Democrat Senator Al Gore, Sr. And after he became president, John F. Kennedy was opposed to the 1963 March on Washington by Dr. King that was organized by A. Phillip Randolph who was a black Republican. President Kennedy, through his brother Attorney General Robert Kennedy, had Dr. King wiretapped and investigated by the FBI on suspicion of being a Communist in order to undermine Dr. King.

Secratary of the Treasury Designate Tim Geithner Fails To Pay Taxes!

Looks like Timmy is going to be on the hot seat.

Timothy F. Geithner, President-elect Barack Obama’s choice for Treasury secretary, failed to pay more than $34,000 in federal taxes over several years early this decade, and also faces questions about the employment papers of a former household employee, suddenly complicating what had seemed to be an easy confirmation process in the Senate.

Obama Outs Closet Keynesian

From the Becker-Posner Blog:

As Posner and others have indicated, there appears to have been a huge conversion of economists toward Keynesian deficit spenders, but the evidence that produced such a "conversion" is not apparent (although maybe most economists were closet Keynesians all along). This is a serious recession, but Romer and Bernstein project a peak unemployment rate without the stimulus of about 9%. The 1981-82 recession had a peak unemployment rate of about 10.5%, but there was no apparent major "conversion" of economists at that time. What is so different about the present recession compared to that one, and to other recessions since then, that would greatly raise the estimated stimulating effects of government spending on various types of goods and services?

But it is not obvious why this should lead to greater confidence in the power of government spending stimulus packages. Of course, perhaps the prior emphasis on crowding out, and skepticism toward the stimulating effects of government spending, were wrong, or that recessions were too short and mild after the 1981-82 recession to call for Keynesian-type stimulus packages.

Obama's first 100 days will be no cake walk

It seems that Obama's team is signaling that they are ready to take on anybody in Congress that will oppose his economic agenda.

From the NYT:

Brad Woodhouse, who was a senior Democratic Party strategist in the campaign, has assembled a group of 25 organizations — including unions like the American Federation of State, County and Municipal Employees and grass-roots groups like MoveOn.org and Acorn — to build public and Congressional support for Mr. Obama’s economic package.

Mr. Woodhouse said the group was in the process of raising money for television advertisements that would pressure local lawmakers to support the plan. He said he had consulted with several of Mr. Obama’s senior strategists.

“We’re doing this with the notion,” Mr. Woodhouse said, “that if we can help in any way, even at the margins, to make this any easier on Obama, it will preserve some of his political capital.”

It gives the Republicans a chance to take a stand and marshal the unity and pave the way for a cohesive theme for 2010. They have nothing to loose and everything to gain. It also gives the RNC a chance to get back to basics and focus on their brand: less centralized government and more economic freedom.

Bring In The Austrians, Kick Out The Clowns!

From Kevin Depew of Minyanville:

While it may be true that "all economists" at the annual meeting of the American Economic Association favor drastic public spending measures to end a "bad recession," it is hardly true that "all economists" everywhere favor this kind of spending.

Not ALL Economists Agree

The Times article completely ignores an entire school of economic thought:

All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production.
- Ludwig von Mises, The Causes of the Economic Crisis

Of course, ignoring the Austrian school makes sense in this day and age. Ludwig von Mises certainly discovered there is no popularity gained from being right about economic doom. Being "right" about doom is the quickest way to create more enemies than you can shake a stick at.

That really is the only way to explain why, today, the very people in charge of driving the global economy over the cliff - global central banks and Keynesian economists - are now charged with "rescuing" it from its death dive.

Popping Obama's Stimulus Hype

Greg Mankiw does a good job questioning Obama's stimulus hype in a piece in the NYT:

When the Obama administration finally unveils its proposal to get the economy on the road to recovery, the centerpiece is likely to be a huge increase in government spending. But there are ample reasons to doubt whether this is what the economy needs.

.., by doing the math, we find that when the G.D.P. expands, less than a third of the increase takes the form of private consumption and investment. Most is for what the government has ordered..

If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being.

One possibility is that he wants to use a temporary crisis as a pretense for engineering a permanent increase in the size and scope of the government. Believers in limited government have reason to be wary.

But don’t expect such qualms to stop the juggernaut. The prevailing orthodoxy among the nation’s elite holds that increased government spending is the right medicine for what ails the economy.

Mr. Samuelson once said, “I don’t care who writes a nation’s laws or crafts its advanced treaties, if I can write its economics textbooks.”

The coming stimulus bill, warts and all, will demonstrate brilliantly what he had in mind.

Obama The Spending Liberal

From WSJ

President-elect Barack Obama says he is planning the largest public-works program since the 1950s construction of interstate highways. He also plans to use stimulus funds to repair schools, expand broadband Internet access and put energy-efficient technologies in public buildings.

For any infrastructure investment to succeed as stimulus, nations must ensure people are hired quickly to work to reverse the downturn -- and don't become part of a permanent program. U.S. governors say their states have $136 billion in "shovel ready" projects that are fully planned and simply lack funding.

But critics doubt those claims. Historically, infrastructure projects have proven to fall behind schedule and over budget. Boston's Big Dig highway project started out in the 1980s as a $3 billion effort but topped $15 billion two decades later.

Lawmakers and a variety of interest groups are already grasping for the government cash. Last month, the Association of Zoos and Aquariums, noting New Deal programs that funded zoos decades ago, made a plea for its "shovel-ready" zoo and aquarium projects to be eligible for federal stimulus funding.

Inflation has quickly disappeared as a concern around the world. It's likely to reappear once growth perks up.

Obama Lack of Leadership Shines Through

Obama defended his trillion dollar plan as the nirvana to get us out of this terrible economic funk. The easy road is to spend and create massive deficits, the likes of which we have never witnessed int the history of the nation or any other industrialized nation.

The road less traveled is to do the right thing and cut government spending. entitlements, cut income and capital gains taxes on productive assets such as labor and capital, and use the bully pulpit to encourage Americans to save more, be more frugal, cut waste, be more efficient etc.

His economic team, that does not have a credible track record, seems to look to the past to come up with same old solutions: spend, spend, spend. The WSJ states:

'Still, with the U.S. economy facing 1930s-style threats, the Obama administration is looking back to that period for guidance. President Franklin Roosevelt's Works Progress Administration provided jobs to millions of Americans during the Great Depression, though it had critics who said the program wasted money on unnecessary projects.

..limits of Keynes-inspired growth were reached in the following decades. Many countries mistimed their spending, pouring money into their economies just as they were riding out a downturn and leading to economic overheating. Latin America regularly succumbed to hyperinflation, while in the U.S. the "misery index" -- the combination of inflation and joblessness -- climbed to 20.8% in 1980, from 10.8% a decade earlier.

Many nations also wasted their money on unnecessary projects: Japan became notorious for investing in little-used airports and bridges leading into sparsely populated islands. Indonesia started a national car project that lost money and was riddled with corruption.

With the rise of Ronald Reagan and Britain's Margaret Thatcher, critics of stimulus policy came to the fore. The goal became to shrink government.

How The Chinese Can Take Out Obama's Vision

Nice piece in the NYT on the importance of the Chinese in the US debt market. When the Chinese decrease their appetite for US government debt, the Obama admin will have a difficult time funding the $ 1 trillion spending spree.

'China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.

“All the key drivers of China’s Treasury purchases are disappearing — there’s a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates,” said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland.

At the same time, three new trends mean that fewer dollars are pouring into China — so the government has fewer dollars to buy American bonds. The first, little-noticed trend is that the monthly pace of foreign direct investment in China has fallen by more than a third since the summer. The second trend is that the combination of a housing bust and a two-thirds fall in the Chinese stock market over the last year has led many overseas investors — and even some Chinese — to begin quietly to move money out of the country, despite stringent currency controls. A third trend that may further slow the flow of dollars into China is the reduction of its huge trade surpluses.

More Bla Bla from Oblama!

Obama wants to spend close to a $1 trillion dollars to revive our morbid economy. Any idiot can spend the money we don't have. That is politics as usual. Deficit spending has been the modus operandi for the last 30 years when the normal business cycle heads down.

Where is Obama's so called 'different' kind of politics? Borrowing massive amounts and sacrificing the future generation's earnings is not a sign of intellect! None of his economic advisors saw the economy tanking! Why should we belive them when they insist that massive deficit spending will get us out of this mess. They are relying on a small data set of past policy actions to defend their recommendations.

It takes a different type of politicitian, one who truly understands the trade offs, to cut government spending (including entitlement programs such as Social Security, Medicare), encourage savings, cut income taxes and capital gains taxes. It takes a different of politician to let the housing bubble correct and send the right message for those that took a risk and lost. Those that saved and avoided risk should be rewarded. Clearly Obama does not understand this.

Republicans need to take a stand, right here, right now.

'Senator Judd Gregg of New Hampshire, the senior Republican on the Budget Committee, and his House counterpart, Representative Paul D. Ryan of Wisconsin, said the extensive borrowing by the government could be a disaster if Congressional Democrats and the new Obama administration did not also work on long-term solutions including changes to Social Security and Medicare. ' - NYT

Obama Has Confidence in Public Schools - NOT!!

Michelle Rhee the chancellor of the DC public school system sends her two daughters to DCs public schools. She is doing an amazing job cleaning up DC schools while fighting the entrenched bureaucracy and the teachers union.

Obama could have boosted her efforts by sending his daughters to DCs schools. He could have walked the talk on improving education by leading from the top. Ah well, being an elitist has its privileges. What happened to change you can belive it? I guess it went by the wayside.

From the BBC
Malia and Sasha are attending Sidwell Friends, a private Quaker school in Washington's north-western suburbs.

Sasha, 7, will be going to Sidwell's elementary school campus, while Malia, 10, will attend its middle school.

Throwing Stones At Obama's Transparent White House

Richardson's withdrawal is a sign that Obama's over confidence has it's limits. The Republicans in the Senate should use this to their advantage and dig deep into every cabinet level appointee's ties. With Blago's ties, Rahm Emmanuel's dealings, Fannie Mae and Freddie Mac ties, the Senate Republicans can diffuse Obama's momentum effectively.

From the NYT

The Richardson withdrawal, first reported Sunday afternoon by NBC News, raises questions about the thoroughness of the Obama team’s vetting process, which had been touted as one of the most stringent ever. Stories about the investigation of the CDR contract and of the donations by David Rubin — the president of CDR and a major Democratic contributor — to the Richardson-linked political action committees have appeared in news reports at least since August.

In 2003 and 2004, Mr. Rubin gave about $100,000 to two political action committees that Mr. Richardson controlled, according to published reports.

An individual knowledgeable about the grand jury proceedings, who requested anonymity because of the secrecy of the proceedings, said last month that a grand jury was investigating “how CDR gets business in New Mexico and whether the governor’s office was involved in getting them business here.”

Will Obama's Policies Lead To a Depression

A common misconception is that the stock market crash of 1929 cased the Great Depression. The major cause of the Depression was the protectionist policies of Herbert Hoover's administration and the bungling of FDR's first two terms.

Looks like Obama might be going down Hoover's path.

From Bloomberg:

President-elect Barack Obama’s advisers are looking at including a “buy American” provision in the economic-stimulus legislation that the incoming administration has made its first priority.

“We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs, including jobs in manufacturing,” said Jen Psaki, a spokeswoman for Obama’s transition team.

Nucor Corp. Chief Executive Officer Dan DiMicco said he will use his position as a member of the U.S. Department of Commerce’s manufacturing council to push for the use of domestically produced steel in such projects. Current requirements that American-made material be used in government projects are unevenly enforced, he said.

This is how trade wars start. It will destablized the interconnected world econonmy, leading to the failure of the very policies that the administration hopes to help the economy!

With a fragile enconomy in a deep recession, it won't take much to push us into a depression.

Obama Waltzes To The White Hosue On a Carpet of Green (Millions!)

From Bloomberg:

Fundraisers who helped Barack Obama amass a record $746 million for his presidential campaign are among those who have funneled more than $21.4 million to his inauguration committee, roughly half of the donation goal.

Those who brought in $300,000 to pay for inauguration- related costs include Chicago businesswoman Penny Pritzker, who headed Obama’s campaign finance committee. Two others were John Rogers, chairman of Ariel Investments LLC in Chicago, and Julius Genachowski, the managing director of Rock Creek Ventures, an investment firm in Washington. Genachowski is in contention to head the Federal Communications Commission in the new administration.

The inaugural committee’s Web site shows that 23 of the 47 people who raised more than $500,000 for Obama’s White House race are among 157 supporters who have collected large amounts of money to be spent on festivities connected to the swearing-in Jan. 20.

Yes they still can! I find it funny that they have placed limits as to who the bribes, uh, donations come from! As if making these arbitrary restrictions makes it palatable! Gobama! Go!