Sunday, December 26, 2010

What's Ahead in 2011?

2010 was not all bad, by any stretch.

Probably the best news of all was that problems that have been swept under the rug(s) for generations have now surfaced and are regular conversation topics. It is now quite apparent that the Western economies' love affair with entitlements may be coming to an end. They now know, as they should have known earlier, that there is simply no way these entitlements are affordable. That discussion is now front and center. That's good.

Public employees are finally coming under scrutiny as virtually every one of the 50 states in the United States faces bankruptcy under the weight of the benefits that have been promised to these public employees. Teachers, for one, have long been showered with guaranteed job security and extremely generous pension and health care benefits. All of these public employee benefits are now in play. Unions are in the middle of this because almost all of union organizing successes in recent years has been in the public employee sector. Unions are not really a factor of any significance in the private sector, since everywhere they have had a major presence, the companies have gone bust.

This is all good news, because failure to notice the impending disaster of entitlements and public employee largesse was moving the US and its 50 states into certain bankruptcy. Now, there is truly some hope. No solutions, but hope.

Other good news is that President Obama seems, at long last, to have awoken to the fact that his economic policies are a serious impediment to economic recovery. The tax agreement forged between the President and Senate Republicans was a foolish package, but better than the alternatives. For the first time since January, 2009, there was some recognition in that compromise that business matters. Finally!

So, there is hope that 2011 will be a better year than 2010. There will be continual reminders as 2011 unfolds that virtually every Western European nation will eventually default, in some manner, on their public debt and that several states in the United States are headed in the same direction. But, bankruptcy can be therapeutic; bailouts are never therapeutic.

Saturday, December 11, 2010

Reconciling Tax Cuts with Long Term Debt Issues

Hail to the Wall Street Journal! In one short paragraph the Journal has summed up the heart of the US debt problem and why keeping all of the Bush tax cuts in force make sense as well. In today's Journal and I quote:

"While in a hopey-changey mood, let's note for his (Obama's) benefit that the real fiscal problem today is not the immediate deficit, which does not call for radical action. The real problem is a system of health-care and retirement finance that deters us from saving and budgeting for our own needs while at the same time piling up disencetivizing taxes on those who work and whom we expect to pay for us in old age. Fix this and the government is solvent again."

Wow! The WSJ nailed it. .

Wednesday, December 8, 2010

A Beginning

The compromise between the President and Mitch McConnell on taxes represents a new beginning for the President and, perhaps, for the country. The compromise will definitely help the economy. The economy needs it.

There are still problems, especially on the unemployment front. Employees are still too expensive, laden down by government-imposed mandates and implied litigation liabilities for businesses. But capital expansion should pick up dramatically in 2011.

It's not perfect, but this deal is definitely an improvement over the policies of the past two years.

The looming debt problems are still there -- both for the US and for Europe. Hopefully, the idea of "workouts" and "defaults" will soon take the place of "bailouts." The debt problems have no easy fix.

Tuesday, November 30, 2010

And Now for the States

State governments are drowning for two reasons: 1) obligations to public employees; 2) the state share of medicare and medicaid spending. Most states are now beginning to confront the public employee problem by reigning in the some of the worst abuses of overly lavish pay and benefits (teachers top the list, by the way).

Only Republican Governor Bob McDonnell of Virginia has opted to pour on more lavish benefits for public employees and leave the taxpayer to pick up the tab, but he is an outlier. Governor Christie of New Jersey has led the charge to begin to curb the enormous pay and benefits of public employees. Other Governors, Democratic and Republican, are following Christie's lead. Even President Obama has entered the fray by freezing public employee pay for two years in a symbolic gesture toward sanity.

But, there is much to be done. California's off-balance sheet pension liabilities are estimated to exceed $ 1.5 Trillion (those numbers are not in the budget, which now $ 25 billion out of balance). So life should get interesting in California. A similar pattern exists in New York and time is no longer on their side.

Again, much like Europe, look for debt defaults and workouts by state governments as they struggle to undo the poor policies of the forty years.

Europe and All That

First Greece, then Ireland. Now all eyes turn to Portugal, Spain, and Italy. Little noticed is that neither and France and Germany are likely to survive some type of default on their own sovereign debt. A combination of bad economics, a bad economy, and the tide of demographics will sink both France and Germany in time.

The idea that you can paper over the problems in the PIIGS (the new name for Portugal, Ireland, Italy, Greece and Spain) is ludicrous. Much of the PIIGS sovereign debt is held in German and French banks. Merkel and Sarcozy think no one knows this, I suppose.

But, in fact, the world markets know everything. Just watch bond yields on European sovereign debt. The are beginning the slow, inevitable surge toward infinity. (You reach infinity when the bonds are completely worthless.

Europe has no real shot other than defaulting and the sooner the better. Ireland will probably be the first. They will renounce their guarantee of bank bondholders and that will begin a tide of defaults and partial defaults (and workouts) that will begin to crush the holders of sovereign debt. That is as it should be. Those who make bad investments should suffer the consequences.

Anxious eyes watch California, New York, New Jersey, Illinois and host of small American cities that will default, at least partially, on their debt within the next 24 to 36 months. The idea of a federal bailout died on November 2nd. All appropriations, according to the US Constitution, must originate in the House of Representatives. Good luck with that. There will be no bailouts for the profligate states. That is as it should be. Those who make bad investments should suffer the consequences.

You can't repeal the laws of economics by pretending to backstop folks who make bad decisions. That just leads to more bad decisions.

Real economic recovery and growth cannot begin until the wave of defaults begins.

Monday, November 15, 2010

Relitigating the Last Two Years

When the election was over, President Obama said that voters "do not want to relitigate the last two years." Wrong.

The voters voted to encourage those who were opposed to Obama policies to reverse them. That's what relitigating the last two years is all about.

The White House says it is time to move forward constructively. That is not what the voters seemed to favor in exit polls. They favored rolling back government, repealing Obamacare, and extending the Bush tax cuts for everyone. In short, they were completely anti-Obama.

Let the relitigation begin this week with the convening of the "lame duck" Congress!

Saturday, November 13, 2010

Embarassment in Asia

President Obama's Asian trips is a catastrophe. Obama has managed to reduce America's role to whining, finger pointing, ineffective posturing. Not a single world leader agreed with any of the President's agenda, so, in that sense, Obama forged a consensus -- of opposition to Obama. Looks like world leaders hare the same view as average American voters -- Obama's policies are the problem, not the solution.

You wonder if this President is ever going to figure out why Americans have lost faith in his presidency and why world leaders no longer have any respect for him and his sidekick Tim Geithner.

This is truly an embarassing moment in history for a once great economic power.

Wednesday, November 10, 2010

Obama is Confused

Obama's comments leading up to the G20 meetings this week show a serious confusion about why America is stuggling. As usual, Obama blames someone else. This time Obama's targets are other countries with high levels of exports to the US and substantial positive trade balances with the US. He thinks they should stop doing this. Why? Americans are buying, so why should they stop selling to them.

What Obama does not understand is the reason why Americans buy and do not save. The reason is simple. Americans assume that government will take care of them in their old age through social security and medicare, so why save? Why not live for today and let future generations fund your old age? That's the Obama way.

The result is Americans borrow from abroad, don't save and consume like crazy. The only way to stop this is to dismantle social security and medicare.

China doesn't have social security or medicare nor do any important countries that are currently experiencing economic growth. Only Europe has an elaborate welfare structure like the US and it is now beginning to dismantle it piece by piece.

Obama just doesn't understand simple economics. Fortunately, the rest of the world does.

Saturday, November 6, 2010

Maybe "No" is the Right Answer

Paul Krugman, one of many NY Times partisan Democrats masquerading as a columnist, has once more asked: "What would they have done different?" How about doing nothing?

When recessions begin, politicians look for quick fixes, sometimes called "stimulus plans." Republicans look for quick fixes; Democrats look for quick fixes. In Economics, we have a subject called "Macroeconomics," which is supposed to provide guidance to the correct macroeconomic policy. What Macroeconomics is, in truth, is a collection of random fairy tales and simplistic equations, that bear little resemblance to hard science. When you ask someone, "do you favor spending increases or tax cuts," the answer you get tells you the political party of the person doing the answering. Some science!

The cold hard truth is there is no specific government policy known to be helpful in moving the economy from recession to recovery. Doing nothing may well have been the right answer in 2008 and 2009. Sometimes, time alone heals and no amount of well-intentioned policies will help. Indeed, in Obama's case, it seems pretty clear that the legislative activity by Obama-Pelosi-Reid has inhibited the economy's ability to recover.

The economy will recover, regardless of the foolishness of the Obama regime. But, had they done nothing, we might be looking at 8 percent GDP growth (like much of the rest of the world) instead of limping along at 2 percent GDP growth. Maybe, just saying "no" is the right answer.

Thursday, November 4, 2010

Bernanke Has Lost It

QE2 is a disastrous mistake and will only inflate asset and commodity prices and provide a major impetus to future inflation. Bernanke is misreading his mentor, Milton Friedman. Today's Wall Street Journal has an excellent article by Alan Meltzer, one of Friedman's most famous disciples, laying out exactly why Friedman would not have agreed with Bernanke's current path.

QE2 is the announced future purchases of $ 600 billion of treasuries by the Federal Reserve. This would be a major expansion in the money supply. The dollar, of course, will collapse with this kind of money creation and economic policy makers around the world are looking toward imposing capital controls to try to offset Bernanke's policies. They view this as a trade war of epic proportions.

Ironically, Bernanke is too worried about the economy. Economies recover on their own when government gets out of the way, witness the 19th century in American. The period from the civil war until 1914 was the fastest economic growth in American history. It was characterized by deflation, not inflation; financial panics every ten years on average, but no government bail outs. The end result: a massive increase in the standard of living of the average American.

A healthy economy has ups and downs. Obama and Bernanke should get out of the way and let this economy recover.


It looks like the business community may finally begin to get some relief from the oppressive taxes, regulations, and rhetoric that has flowed constantly from the first two years of the Obama regime. The historic repudiation of the Obama program sets the stage for possible progress on reducing the obstructions to economic recovery that have been put in place by the Democratic Congress and President Obama.

Watching Obama's press conference yesterday, I was struck by how little Obama understands about the economy and how little he understands about the average American. His view that voters "don't want to relitigate the past two years" completely misreads the November 2nd landslide for the Republicans. In fact, the voters do want to relitigate the past two years. They are demanding it. That's what the tea party movement is all about.

If Obama continues to misread the electorate and stand in the way of economic recovery, then we must wait until the Fall of 2012 for free markets to really begin to power us out of this economic slump. That would mean slow growth and high unemployment until at least 2013. That doesn't seem to bother the President, but, as we found on Tuesday, it bothers lots average folks and they vote.

Monday, October 25, 2010

The Deficit Commission Offers Little

The President's "Deficit Commission" is composed of members of both political parties, who are expected to make recommendations to deal with the burgeoning national debt. Fat chance! The entitlements are off the table.

Instead, the commission is exploring various ways to raise tax revenues through the mantra of "tax reform." No effort is being made to curb spending, other than military spending. This is a complete waste of time and taxpayer money.

Without a plan to phase out the entitlements, medicare, medicaid and social security, there is no hope of dealing with America's long term public indebtedness.

The Commission reports its findings on December first. At that point there will be an effort, no doubt, to ram through the commission's so-called bi-partisan suggestions that all amount to higher taxes and a weakened military. Even that won't help.

Wednesday, October 20, 2010

The Daunting Task Ahead

Krugman and other Democratic loyalists are forever pointing out that the national debt was a much higher percentage of GDP at the end of World War II and therefore we should not be concerned about the high debt levels of the present day. These arguments are completely disingenuous.

During World War II, America mobilized a huge effort to produce guns, tanks, aircraft and other war-related goods. When the war ended, there was no longer a need for all of this spending and spending levels were dramatically reduced almost overnight. There were no "hard decisions" about reducing spending. The war was over.

Today, spending is driven by entitlement programs that large parts of the American public depend upon and expect to see continued. Spending, long run, can only be reduced by essentially eliminating these entitlement programs -- restraining them won't work for the same reasons that they have never been restrained.

Both federal and state spending is mostly driven by entitlements. It isn't fraud and "wasteful" spending. It is the entitlements. It is not the war in Iraq and the war in Afghanistan. It is the entitlements.

So, unless Krugman and his loyalist band of the Democratic faithful are proposing massive cuts in entitlement spending, which last I checked they weren't, America faces a massive debt crisis that will, in the end, require the same solution that Europe is now moving toward -- eliminate the entitlements.

Wednesday, October 13, 2010

QE2, The Yuan, and The Beat Goes On

Stock markets around the world have rallied by double digit percentages since early September. The financial news, of course, must explain this. (Explain the unexplainable -- that is their mission).

Enter "QE2:" QE2 means the Federal Reserve buys huge (think Trillions of dollars) amounts of treasury securities. This is the equivalent of printing money. QE2 is thought to be the great solution to our current malaise. The fear is that we may be collapsing into a deflationary spiral and only QE2 can save us. This is ridiculous of course. Printing money is never an intelligent monetary policy and there is certainly no evidence of deflation in the US economy.

Another non-issue is the Yuan. Tim Geithner simply cannot let a day go by without blasting Chinese authorities for not raising the value of the Yuan (and thereby further crushing the value of the dollar). This is no solution to our woes either. It is time to send Geithner back to to school to sit through a few economics classes. Geithner has no clue.

No one knows why markets go up except that when folks are especially negative on the future that typically leads to good markets. That's probably why we are where we are. The average shareholder has no particular interest in QE2, the Yuan, or any other irrelevancies.

Monday, October 11, 2010

Krugman is a Broken Record; Hooray for Mortenson

In his column this morning, Paul Krugman continues to beat the dead horse of "too little stimulus." Not satisfied with a $ 13 Trillion national debt, is apparently in favoring of moving the US totals toward Greece numbers. It would just take another $ 3 Trillion to get there. Perhaps, Krugman wishes to squeeze Greece out of the headlines. This is Krugman's plan to make American number one (in debt).

It should be noted that Krugman did not receive a Nobel Prize for his work on macroeconomics. This doesn't stop him from holding forth as if he is the high priest of macroecnomics Fortunately, few outside the Obama White House, share Krugman's views and the public has long since jumped off the Krugman train.

Three economists shared the Nobel Prize, announced this morning. One of them, Dale Mortenson, is my old professor and a member of my Ph.d dissertation committee. Mortenson is a great economist and a marvelous human being. Three cheers for Dale Mortenson!

Sunday, October 10, 2010

Obama Adopts the "Big Lie" Strategy

Desperate for something to say on the campaign trail, President Obama is now simply telling baldfaced lies. Worse, hundreds of millions of dollars are being spent on television and on radio to bring those lies to the public.

What lies? That foreign money is being washed through the Chamber of Commerce and is financing campaign adds across the country.

If the lies are truth, not lies, the Chamber is subject to criminal prosecution, since such money be a violation federal law. Obama does not object to George Soros, not an American citizen by the way, spending literally billions to help elect Obama president, but he now libels the Chamber of Commerce.

This man, Obama, has no shame and no sense of decency. If the Chamber is using foreign money, then give Eric Holder, your Attorney General a ring and begin the prosecutions. Otherwise, quit lying.

Incidentally, Mr. Obama, you might let Eric Holder look into MoveOn.Org and countless other Democratic organizations who have never publicly revealed their donors. Why has this only become of recent interest to the White House? November 2nd cannot come too soon. Congress should hold hearings on Mr. Obama's lies regarding campaign finance. This man, Obama, has no shame.

Saturday, October 9, 2010

9.6 % and Counting

No good news for the President. Unemployment remains historically high and nothing in the foreseeable future will change things. The hardest hit are the "legally protected groups" -- minorities, high school graduates and older workers. This is not unusual.

Congress has mandated all sorts of special rights for these "protected" groups and as a result they will be the last to be hired and will only be hired when the economy is truly frothy. All of the "unprotected" groups, mainly white males between 18 and 40 years of age, will do much better. They are cheaper to hire, easier to fire, and less likely to sue for a workplace grievance. It's as if we designed our labor laws to favor white males and to penalize minorities and others. Whether by design or not, that is certainly the end result.

Obama's dream was to expand government and have the government hire those who support him politically. To some extent, Obama's dream was fulfilled by the Stimulus Act of 2009. But, alas, the public woke up and have called for the expansion of government to end. Bereft of ideas, Obama is now complaining that ordinary Americans simply are not smart enough to understand his policies!

The Obama Administration is now granting waivers to companies who plan to drop health care insurance for their employees. More than 120 large companies, including McDonald's, have now received government-granted waivers from the onerous requirement of Obamacare. What this means is that Obama decides who must obey the new law and who gets away with ignoring it. So much for the rule of law.

The bankruptcy (literal and figurative) of the Obama Administration is on display daily as key Administration figures desert the sinking ship. The tsunami is coming. 24 more days until November 2nd.

Friday, October 8, 2010

Leave China Alone

The level of the Yuan (the Chinese currency) is not even remotely a cause of the economic problems that the US faces. Appreciating the Yuan (and devaluing the dollar), a program advocated by Tim Geithner, is silly policy. The US has a miniscule savings rate and as long that is the case, we will have a huge trade imbalance (almost by definition, since whatever investment activity occurs in the US must have the savings provided from some external source).

It is becoming a bedrock of American economic polical life to blame someone else for our own foolish policies. By blaming others, you never face up to reality.

The cold, hard truth is that Obama's policies have damaged the prospects for a US economic recovery. It is not clear that Obama cares one way or another. He seems focused on other matters. But, Americans care. We will eventually have an economic recovery with permanently higher levels of unemployment. This will be the Obama economic legacy -- economic stagnation and slow economic growth.

Hopefully, after November 2nd, we can begin to remove some of the roadblocks to economic growth that the Obama team has put in the way of the economy. Most of the country would like to return to the bad old days of prosperity, even if Obama prefers not to.

Sunday, October 3, 2010

The End of the Obama Agenda

Whatever the outcome on November 2nd, the Obama agenda is finished and cannot be resuscitated. Most of the economic agenda was aimed at pumping up the income of union and public sector employees. The health care system has been trashed and the financial sector lies under the most burdensome regulatory environment in history. Meanwhile ordinary Americans are still losing their jobs, their homes, their credit cards and their health care insurance. No wonder life is tough for Democrats.

The Obama answer to the enormous backlash to his first twenty one months in office is that the public doesn't understand his program. Unfortunately, for Obama the public does understand his program and has been opposed to it from the beginning.

Having nothing to run on but an incredibly unpopular legislative record, the Democrats, actively encouraged by President Obama, are resorting to mud slinging and personal attacks. That's about all they have left. This is the new politics that will be Obama's legacy to the American system.

Obama says that Americans don't understand. Yes, they do. The two biggest lies in the past two years are: 1) No one will lose their health insurance; and 2) We are bending the (health care) cost curve down. It's hard to imagine anyone in America, including folks in the White House, believe those lies anymore.

It is an Administration in shambles. The rats are leaving the sinking ship. The dream is over. Interviewed on public radio, students who lead the charge for Obama in 2008, were unanimous in their view that "Congressional elections aren't cool...I don't even know who my Congressman is...." So the students will sit this one out, but the adults will not sit this one out.

The Republicans will gain 65-70 seats in the House and 8-10 seats in the Senate. The era of Obama is over.

Wednesday, September 22, 2010

Romer First, Now Summers....Gone

The two chief economic advisors to Obama will not be around in 2011. Summers announced today that he is returning to his secured, tenured professorship at Harvard (which he cannot do if he lingers in Obamaland past January the 1st). Romer has already returned to her protected sanctuary at Berkeley. Neither of these two need worry about the plight of the millions of unemployed Americans. Romer and Summers have safe jobs. They work for the government, i.e. they are professors.

Now, all eyes turn to what kind of Keynesian will replace Romer and Summers. It is unlikely that Obama will change stripes. He likes big government and despises the private sector, so that if he goes after a corporate type, you can be sure that the "new corporate type" will be someone whose sympathies rest with big government, higher taxes, and more regulation.

Only a new Congress can reverse the disastrous course of this presidency. Shifting the deck chairs won't help as long as the Captain Queeg is in command.

Monday, September 20, 2010

The Unemployed Over 50 -- Never Work Again?

Why can't the 50 and over population find jobs? The New York Times has a lengthy article today spelling out the cold hard one wants to hire anyone over 50 years of age. Why? The article gives no reasons and laments the problem.

The answer is obvious.

If you are an employer and you hire someone over 50 years of age, that person can sue you for age discrimination if you every decide to let them go. In fact, a large number of such folks do sue for age discrimination when laid off. They are part of the protected class along with minorities, women, etc. Who wants to hire people who can sue you if you lay them off later? The answer: no one.

Over 50s will not get hired until the absurd "age discrimination" laws are repealed or until over 50s gain the right to waive their rights to sue. As things stand now, only a fool would hire someone over 50 years of age.

You might say: well isn't that not hire someone because they are over 50 years of age. The answer is yes. But illegal immigration is also illegal.

Thursday, September 16, 2010

That We Know

Larry Summers, the main economic advisor, said on CNBC this morning that "a failure of regulation caused an economic crisis.....that we know" He could not be more wrong. A housing bubble induced by favorable tax treatment of housing combined with Fannie Mae and Freddie caused the economic crisis. Regulation actually made matters worse. The previous Basel accords encouraged banks to substitute riskier assets for safe assets (the new ones are likely to do the same).

Government regulation has never prevented a crisis and never will. Most economic crises are government induced. The government needs to get out of the way.

If Summers doesn't understand what caused the financial collapse of 2008, then it's no surprise that his policy recommendations to Obama have been as misguided as they have been. Summers should head back to academia, where he can continue to pretend that his policies work. People in the real world know better. "That we know."

Wednesday, September 15, 2010

The Role of the Tea Party

Yesterday's Republican primary results shocked the "official" Republican establishment and showed the power of the Tea Party. Why the Tea Party?

The truth is that Republicans share equal blame with Democrats for the colossal mismanagement of the American economy and the massive national debt. Republican moderates have lined up with Democrats time and time again over the past fifty years to produce the margins required to spend our way to our current plight.

The role of the Tea Party is to say: "no more." The Tea Party is not about electing Republicans or Democrats, but about electing people who will begin to tackle the project of rolling back big government. This is an important mission. More power to them.

Who cares which party controls the US Senate? The issue is who will begin to restrain the growth of government and move the country back toward free markets. Supporters of "cap and trade" like Mike Castle are no help in this great endeavor.

Long live the Tea Party!

Sunday, September 12, 2010

The Basel Capital Requirements

This week international central bankers are forging a new set of rules for banks that would move capital requirements from 4 percent currently to 7 percent (of outstanding loans). This absurd new policy comes just as the world economy is teetering on the brink, especially in the US and Western Europe, where the new Basel rules will have the most impact.

Why is it that no one wants the world economy to have credit? By every measure bank lending has shrunk, not only in the US but throughout Europe? How is a recovery supposed to take place when every "reform" measures reduces the available amount of credit?

The time to reduce or slow credit availability is during a boom, not during a recession. The Basel rules will only make things worse and could plant the seeds of a lengthy US-Western Europe slowdown in economic activity. Combined with the wrong-headed policies of the Obama Administration -- credit card reform, debit card reform, consumer protections in the FinReg bill -- the net effect of all of this is to dramatically reduce the available credit necessary to fuel a recovery.

Policy makers and politicians should take a holiday. The more they do, the harder it is for free markets to produce an economic recovery.

Maybe, just maybe, more regulation and more government is not the answer.

Monday, September 6, 2010

The Party of "No"

We constantly hear the comment that Republicans must put forth new ideas to get the economy going. Nope. That would be a big mistake. What the Republicans need to do is make the case that had the Democrats done nothing, the US economy would, today, be in a better place. And, it would be.

What Obama and the Democrats have done is create roadblocks to recovery. What the Republicans need to do is remove the roadblocks. The party of "no" is the way to go.

Free markets will bring recovery. Government intervention will simply impede recovery and prolong stagnation. That's what happened from 1929-1940 and that is what is happening now.

No new stimulus plans...please!

Saturday, September 4, 2010

Targeted Stimulus Ala Obama

Now, with 15 million Americans out of work, the Obama folks are preparing a new "stimulus" package to be unveiled next week. As usual, the Obama plan is "targeted." Targeted plans never work, because they are very easy to "game." You simply hire a good tax attorney and shoehorn yourself into the "target."

Nothing good can come from the Obama packages. Even suspending the payroll tax temporarily won't work, because it is temporary (as well as "targeted").

The only thing that works is for government to get out of the way and let free enterprise provide the economic recovery. Reduce the size of government and reduce the role of government into free markets.

Those who thinks the 1980s and 1990s was a bad economic period(which Obama seems to think), should support Obama. The rest of us would love to return to the economy of the 1980s and 1990s, when free markets reigned and unemployment reached a low of 4 percent.

Wednesday, September 1, 2010

Going It Alone

You might think that the whole world is plunged into a depression. If so, you could not be more wrong. Parts of Europe are booming, China growth is still well above 6 percent, India clocked in at over eight percent in the most recent quarter. Even Russia has growth exceeding four percent in this past quarter.

The US is the world's laggard. We have very high unemployment and anemic growth in a world that is recovering....just not us. This parallels a similar episode in the 1930s when the Roosevelt led recovery of the 30s faltered as the rest of the world sprinted to an economic recovery. In both the current episode and the experience of the 1930s, the heavy hand of government is the culprit.

The Obama/Pelosi/Reid agenda has stifled the US economy, while the rest of the world is recovering quite nicely. Most countries in the world have chosen to expand capitalism and free enterprise, including China interestingly, while the US has moved dramatically toward a government planned economy. Even Europe has owned up to its inability to afford the welfare state, while the US has spent the past two years dramatically expanding the welfare state. US government spending rose 16 percent in 2009, a rise not matched anywhere in the civilized world.

Obama and his cohorts are on a lonely path to economic stagnation that the rest of the world wants no part of. Come November 2nd, the American public finally has an opportunity to change this disastrous course.

Tuesday, August 31, 2010

Same 'Ole, Same 'Ole

President Obama talked about the economy yesterday, punctuating the end of "recovery summer." According to the President, the weakening economy is all the fault of stubborn Republicans who refuse to endorse the so-called "small business tax break" bill. This bill is another "targeted" tax break bill that is easily gamed and will contribute nothing to economic recovery. Republicans are correct to oppose this wasteful bill.

The President has no new ideas. His agenda is mostly a redistributive agenda with job-killing rules, regulations, taxes. The lack of job creation and the stultifying impact of Obama policies are a big surprise only to the President and his Congressional allies.

I wonder if this President will ever understand how jobs get created in the private sector? So far, Obama just keeps whistling the same discredited message of tax and spend. Fortunately, the Congress will have no more of this and November 2nd is fast approaching.

Sunday, August 29, 2010

Out of Bullets?

How do you restart the economy? At this point, every government policy prescription has been tried. The net result: zero. The economy is struggling and some even expect the economy to show negative growth in the second half. That's unlikely, but certainly possible.

Maybe, just maybe, government policy is the problem, not the solution. The economy, had there been no TARP, no bailouts, no credit and debit card reform, no Obamacare, no demonizing rhetoric from the President, may have been well on the road to recovery by now. The government could well be the problem.

Macroeconomics is no science. When you ask an economist whether he favors spending or tax cuts, his answer tells you whether he is a Republican or Democrat? What kind of science is that? The cold, hard truth is that economists don't know what to do. Obama is now learning that truth to his chagrin.

Obama thought this would all be easy. With folks like Larry Summers, Tim Geithner, and Christina Romer telling him to use the usual Keynesian tactics and to declare personal war on the insurance industry and the financial sector, it was assumed that by the Fall of 2010, the economy would be on the mend. Such nonsense.

Government is the enemy. Banks won't lend because government regulators are forcing them not to lend by raising capital requirements and discouraging loans to anyone but the best credits. Absent this kind of ridiculous government policy, banks would be lending and credit would be available. But, government is blocking that.

There is a similar impact from debit and credit card reforms. These so-called "reforms" have the effect of eliminating credit for middle income Americans and small businesses. Credit card limits have been drastically reduced for many Americans as a result of the Obama debit and credit card reforms. The law of unintended consequences is bearing a bitter fruit.

It is government policy, not the free market, that is denying much-needed credit to the American economy and without that credit, true recovery is not possible.

Meanwhile, the so-called stimulus and other government give-aways to political friends, have ballooned the deficit to unimagined levels. America is now considered one of the most irresponsible countries in the world from a fiscal standpoint.

Just to square the circle, the Obama crowd and their allies in Congress, jammed through Obamacare which not only imposes huge additional future spending at the federal and state levels, but threatens to destroy the best health care system in the world. Quite an accomplishment!

As bad as all of this is, it is reversible. The naivete of Obama, Pelosi, and Reid is now obvious to the public. Nothing they have done has worked and virtually every program they have pushed has been trumpeted with misleading, if not outright false, rhetoric. The economy is staggering, housing is struggling, businesses are frightened of the future (and of Obama) and not hiring.

Fortunately, the public is now wise to the absurd and destructive policies of the Obama Administration and the Democratic Congress. There is hope of changing policies if things go well in November.

Then, hopefully, Congress can begin to reduce the barriers to economic recovery that have been thrown up by the Administration. The economy, if left alone and unhampered with undue regulation and taxation, can recover on its own. It doesn't need stimulus programs or anything else. It needs government to get out of the way and let the natural juices flow.

Saturday, August 28, 2010

Reasons for Optimism

Don't let the national political scene get you down. Things are actually beginning to look up. November 2nd is the big day and no matter the result, there is an almost certain feeling that the political environment will get better for business.

Post November 2nd, Obama might change course. Not likely, though, as he seems to have his playbook memorized and can live with declining public approval. More likely, Republicans will block any new anti-jobs legislation that Obama and the Democrats can dream up. Moreover, there seems to real hope of gutting ObamaCare and shifting the health care discussion to a more rational plane. Progress can be made on repealing much of the finreg fiasco. Congresional committees can expose the enormous graft and corruption of the Obama Administration and their Congressional allies.

So, things will be changing for the better by late Fall and I would expect a very different public dialogue in 2011. All in all, I expect a better political environment for business as we approach the new year.

Good things lie ahead.

Thursday, August 26, 2010

Forget the "Hindenburg Omen"

The latest craze among stock market pessimists is the "Hindenburg Omen.". If you subscribe to this view, you will sell everything you own and retreat to a cave somewhere....immediately. According to "HO," the stock market will get crushed in September and October -- maybe to 5,000 on the Dow, maybe to 1,000!

Don't listen to this silliness. The stock market is cheap and serious Investors should be fully invested. There will soon be an "end-of-Obama" rally, as the enormous political sea-change that will take place on November 2nd gets factored in. There is a real chance of sweeping political change that will bring capitalism back to the US. There are good signs in Europe that even Europe realizes the welfare state must be dismantled.

Things can turn around and it looks more and more like that is where we are headed. So, put on your optimist hat, buy stocks, and enjoy the coming rally.

Thursday, August 12, 2010

New Unemployment Claims Surge Once More

More bad news -- unemployment claims on the rise. Hovering just below 500,000, new unemployment claims is a window into what employers are doing at the moment. They are beginning to add to layoffs again.

For reasons laid out over and over again in earlier blogs, this is a perfectly rational response by private employers to actions taken by the Obama Administration and the Congress in 2009-2010. Commercial banks have, as a predictable response to Obama and the Congress, dramatically curtailed business lending. Can't be pilloried for making bad loans, if you don't make loans.

So, in some sense the Obama plan is working: the private sector has been brought to it's knees: way to go, Barrack! You paid those guys back. A little collateral damage, but so what if the unemployed ranks continue to grow.

Sunday, August 8, 2010

The Future of Medical Care in the US

By waving magic wands in the air and declaring (almost) universal health insurance for all Americans, the Obama folks think that they have really accomplished something of significance. Actually, they have, but their main accomplishment is not what they think.

Obamacare, Medicare, Social Security will not succeed as advertised simply because there is no payment mechanism to fund these pipedreams. Instead, generations of Americans will find nothing in the well when their turn comes to receive benefits. The politicians that created this looming nightmare will be long gone, leaving a disillusioned populous with nothing but dark memories.

But beyond this. The assault on the the health care industry, the insurance industry, the medical supplies and technicians industry by the Obama Administration will destroy those various components of the health care industry. It will further erode the necessary supply of doctors and nurses required to service even past levels of American health care. The new Obama world will be health care without doctors and nurses. That should be interesting!

Like everything else in Obama-land, there is a huge disconnect between dreams and reality.

The Hidden Cost of Labor-Friendly Government

Why don't ordinary folks rob banks? That's where the money is, said famed bank robber Willie Sutton. The answer is: "you might get caught." If you a rob a bank, you might end up in prison (but, you might get away with it). This is what economists call a contingent liability. You have to do something first, then sit back and see the consequences.

What if you're a businessman, choosing between hiring an employee and a more expensive machine alternative. What would you do? Normally you would hire the employee. But this assumes that both choices have the same contingent liabilities. But, there are no government laws to protect machines...hence no real contingent liability to acquire the machine.

But, what about hiring an employee? Employees have "rights.". Literally, hundreds of rights. These "rights" enable employees to sue their employer, even for things that occur off the job site! The contingent liability of hiring a single employee can run into the hundreds of thousands of dollars! Even a small workforce, especially if it satisfies modern notions of diversity, can impose millions of dollars of contingent liabilitiies upon a small business.

So,what to do? The only way to avoid these massive contingent liabilities is to not trigger the enabling event: if you want to avoid jail, don't go around robbing banks; if you as a businessman want to avoid crippling litigation costs over presumed "employee rights," hire fewer employees and, almost as important, do not create a diverse workforce.

Employees with "rights" impose huge contingent liabilities on employers. There is a way out -- don't hire!

This seems to be what is happening in today's labor market.

Friday, August 6, 2010

The Employment Nightmare Continues

Today's job report simply re-emphasizes the Obama dilemma. The Obama effort has been aimed almost exclusively at preserving jobs in the public sector. Ultimately, the cost of preserving public sector jobs is unaffordable and a drag on the rest of the economy.

It's the private sector, now buried by Obama mandates, taxes, regulations, imposed government restrictions on lending, where the majority of new hiring must come from. Large businesses will begin to do more hiring, but small to medium businesses will not. The expiration of the Bush tax cuts will only add to the reluctance of medium size businesses to commit to new employees.