Saturday, July 30, 2011

A Deal Is Coming

The White House and Congressional leaders will soon announce a deal to raise the US government debt ceiling. Surprise! Surprise! This will be a victory for no one, except politicians. The debt will spiral on and should reach $ 20 trillion within seven or eight years. By 2025 we should soar over $ 30 Trillion. By that time, there will be no fix and we will face the Greece scenario without a European Central Bank handy to delay the inevitable.

So, the politicians will cheer that the system has worked. But, actually, the system, once again, failed. It simply continues the US on the path to ultimate bankruptcy. Without seriously reforming social security and medicare, we will come to a time when there is no way to avoid bankruptcy except dishonoring the social security and medicare promises to folks who are, by then, already dependent upon them. This is the endgame that Obama and the politicians are taking us to.

The rest of the Obama agenda will continue to stifle US economic growth and produce a generation of economic stagnation for the US. Europe will join us. Meanwhile the economic center of gravity of the world will shift to countries who don't have entitlement programs of any consequence -- China, Asia, Russia, etc. These countries, not the Western economies, will be the future economic powerhouses of the world. Perhaps, this was the Obama plan after all.

Friday, July 29, 2011

No Growth Obamanomics

So here we are, puffing along at 1 percent for the first half of 2011 -- the worst economic recovery in modern history. So much for "hope and change."

There are only two real economic issues: 1) freeing up the economy so that it can recover; 2) reforming the entitlements so the country doesn't go bankrupt. Neither of these items are on Obama's agenda.

You wonder why Obama hasn't noticed the utter failure of his economic agenda. By now, you would think he would begin to get a clue. But, it doesn't seem that way. He still seems to think that the economy is someone else's fault. If only we taxed businesses more, they would hire more people, he seems to think. How about more regulation, how about more unionization, how about more lawsuits, how about more demonizing millionaires and billionaires? That ought to bring about a lot of new jobs!

I am still puzzled as to whether Obama is a fool, or simply doesn't care, or does he have a master plan and the results we are seeing are what he intended after all. Obama remains a mystery.

Robert Samuelson Has It Right

Robert Samuelson's article in this morning's New York Times is right on target. Samuelson zeroes in on our fiscal problem and lays it at the feet of our subsidies for the elderly. Yes, subsidies. The idea that social security and medicare represent a safety net does not accord with the facts, as Samuelson notes. The elderly are by no means as poor as the White House would have you believe. Transferring money from working Americans to retired Americans is often a "reverse Robin Hood" exercise. Folks with less income and few assets are often subsidizing the upper incomes. As Samuelson notes more than 25 percent of the over 65 population have assets that exceed $ 250,000, which is a lost more than the asset base of the folks subsidizing them.

It is time we disabused ourselves of the notion that social security and medicare are helping poor people. Poor people die earlier than rich people. Folks that live into their 80s and 90s are disproportionately well off compared to the general population. We should stop transferring money from young married couples with children to their parents whose asset base is often far more than the future will provide for that married couple. This is robbing Peter to pay Paul's, often wealthy, grandmother. We should stop doing this.

Helping the truly needy is worthy and we should do that. Transferring money from working folks to folks that often have plenty of assets of their own is unfair and destructive.

Thursday, July 28, 2011

It's Downgrade Time

The US is on course for a ratings agency downgrade from AAA to AA. This has nothing whatever to do with the debt limit extension debate. The only mild relevance to the debt limit debate is the missed opportunity to use the debt ceiling discussion to begin to take steps to reign in the entitlements.

But, alas, no one was interested in reigning in the entitlements. So, the downgrade is now inevitable. Look for the downgrade to take place in a friendlier environment. It won't happen this week or next. But, it will certainly take place before year end.

The problem is that no one in Congress votes on entitlement spending. Entitlement spending is part of the "mandated" budget items. The spending on entitlements has no limit other than population growth I suppose. There are no funds available in the future to fund the entitlements, so selling treasury bonds is the only way to fund the entitlements until no one will buy our bonds anymore. That day is probably coming within the next five years.

Cutting discretionary spending (or cutting nothing, as in the Reid bill) doesn't really matter in the long run. It is not Iraq, Afghanistan, Bush Tax Cuts, the Stimulus, or anything else. It is entitlement spending. That's it, nothing more. Eliminating spending on all other items does not matter in the least. Raising taxes simply takes a sledgehammer to the economy and commits the US to generations of economic stagnation. Only cuts in entitlement spending matter and no such cuts were ever considered in the recent debate. (It is true the Obama folks claim that they were willing to consider entitlement cuts, but they never really mentioned anything specific and simply saying you are for it is the not the same as putting forth specifics).

We are seven are eight years away from the numbers that apply to Greece today. That's where we are. In eight years, any plan to avoid defaulting on our debt will involve cutting payments to social security recipients and medicare recipients who are already retired. If you want to avoid doing this kind of draconian cuts in the future to recipients, you must move the age of eligibility of these programs out right now. Move social security and medicare eligibility to age 70. Anything short of that won't work and will involve cutting payments to oldfolks when they no longer have choices and are no longer working. That's where we are headed.

Wednesday, July 27, 2011

Back the Boehner Plan

Nothing good will come of this. The Boehner plan is not a good plan. It is not even close to a good plan. Unless the entitlements are tackled, there can be no real progress on the debt problem.

Nevertheless, it is now going to be either the Boehner plan or the Reid plan (which is basically to do nothing at all). So, it is time to get behind the Boehner plan, which is only slightly better than nothing at all.

At least the adoption of the Boehner plan (as modified by the Senate) will be a stinging defeat for our big spending President, and that alone is worth something.

The Phony Crisis

President Obama and his Democratic allies are shrieking daily that the world is going to come an end if the debt ceiling isn't raised. Why aren't the financial markets singing the same tune? The stock market and, more tellingly, the treasury markets are showing no signs of concern. During the two to three weeks of intense negotiations and the failure of negotiations, the markets have done mostly nothing. The stock market, on balance, is up and the treasury market is pretty much flat. So, where is the panic in financial markets?

Last Saturday, Treasury Secretary Tim Geithner was seen on Fox News hoping against hope that markets would collapse Sunday night if no debt deal was reached. So. No debt deal was reached and the markets yawned. The President, Tim Geithner, Ben Bernanke and the Democratic Congressional leadership are all praying (in the open and before microphones) all day and night that financial markets will show some concern for the phony crisis that they have created. Interestingly, the markets are not accommodating the crisis mongers.

The truth is that none of the plans put forth will have any serious impact on the trajectory of US debt and the markets know that and have known that for some time. Even if no deal is ever reached, there is no reason for financial markets to panic. What's the big deal? There is plenty of tax revenue to pay the interest on the debt, the social security trust fund permits social security payments without raising the debt limit at all, and the government itself has several trillion dollars of treasury holdings in its own hands.

As for the rating agencies, they are already way behind the curve. US debt should have been downgraded long ago. It deserves a downgrade and it will get it no matter what happens in the political arena. The markets have already factored that in. Markets aren't stupid, even if politicians are.

The truth is that August 2nd is largely irrelevant. That's why the markets are yawning.

It is true if Democratic politicians continue to cry wolf, the markets may eventually sag just out of boredom. But, panic? It's not in the cards regardless of the outcome of the current phony crisis.

Tuesday, July 26, 2011

The Poorest Among Us

Obama is forever excoriating "the rich" and claiming that he represents the average American and the "poorest among us." Really? Is that why Warren Buffett and Bill Gates and George Soros are so supportive of Obama?

The brunt of the current recession is being borne, not by Buffett, Gates and Soros, but by the "poorest among us." If you look at the data on unemployment, the unemployed are concentrated among those with the lowest education levels and concentrated among minorities. The rich and comfortable are doing fine under the Obama regime. That's why so many of the "comfortable left" support Obama and his administration.

Obama and Pelosi will never have to look for a job. Neither has spent a day in the private sector hoofing it. They fly in charter aircraft and government financed airplanes far above the common folk. It is easy to pontificate from that elevated position.

"Let them eat cake" is an expression that never grows old. Obama and his compatriots think that the slogan "tax the rich" has meaning. It doesn't. That's why Buffett, Gates and Soros are all for taxing the rich. They know that they won't pay the increased tax rates. They can hide their income, as all three have always done by their own (arrogant) admission.

The real victims of Obama are average Americans stuck reporting their income on w-2's. They are the real target of the Obama crowd. If you work for a living you are in trouble. If you don't work for a living you are in even more trouble.

The rich have nothing to fear from this president. He can't reach them. What Obama can do is use class warfare rhetoric to try to confuse and divide the American public. The real issue is that this is a failed presidency with a disastrous set of economic policies. The US is drowning in lost jobs and debt. No amount of presidential obfuscation can hide the real facts.

The great tragedy is that the "poorest among us" are the real victims of this administration. That's why Buffett, Gates and Soros are happy campers cheerleading this buffoonery on.

Monday, July 25, 2011

Same Old Tune

Nothing new in Obama's world. It's still about rich folks paying their fair share (regardless of the impact on employment). This is a silly joke. Raising tax rates does not raise revenue; eliminating deductions does not raise tax revenue. Obama is interested in only one thing: redistribution of wealth. Raising taxes won't get that done either, because it won't really increase revenues from the wealthy.

Boehner is trying to do the right thing. He gets it. But, even Boehner doesn't appreciate the seriousness of the US's predicament. Even the Boehner plan will lead to an ultimate US default. Obama would just speed up the timetable for default.

A "no" vote is still the right vote on the debt limit increase.

You are the "Big Corporations"

When Obama speaks of the "Big Corporations," he is talking about the average American. The average American owns the big corporations through their pension funds, mutual funds, and through the foundations and endowments that they support. There isn't some rich corporation guy out there to go after. If you tax Exxon, then the average American's stock holdings suffer and the average American's future pension payments will be less.

So, what Obama should say is "Let's go after the Big Corporations, so that the average American can retire on less money." The facts are that taxing large corporations is a tax that is almost totally borne by folks who buy their products and own their shares -- that's middle America.

So, if you want Americans to retire with a significantly lower standard of living, then, by all means, tax the heck out of the corporations that they own.

Voting "No" May Prevent Default

Default on the treasury debt is less likely if the debt limit extension is not approved. After all, less than $ 10 trillion of the ($ 14.3) national debt is made up of outstanding treasury securities (bills, notes and bonds). Something like $ 2.5 trillion is the social security trust fund (a figment of everyone's imagination) and another $ 2 trillion is held by various government agencies.

Default is virtually impossible if the debt ceiling extension is voted down, since the debt service requires relatively small amounts of money and social security can be completely funded (through the so-called trust fund) without increasing the national debt by a single penny. So where is the default?

Default is almost certain to occur within a few years, if the debt ceiling limit is increased. Within eight years we will be staring at nearly $ 30 trillion in debt with a GDP still in the teens (of trillions). Then, there will be no hope. Too many folks will be on social security and medicare and medicaid and only by cutting benefits to these folks will a $ 30 trillion problem get resolved.

I am assuming no tax increases. If taxes are increased, then overall revenues will decline (as will GDP) and the deficits and national debt will be much, much higher (because of tax progressivity).

The main concern for the rating agencies is not whether or not a deal gets done, regardless of what the deal is. Instead their concern is whether or not the deal will focus on reigning in the entitlements. Nothing proposed by either party will do that. That leaves the rating agencies with no choice but to proceed with a downgrade. Only if the debt limit is not raised is there a serious chance of avoiding a downgrade.

So, Obama tonight can talk all he wants about rich folks and their boats and planes, but this discussion is completely irrelevant. If you confiscated the wealth of every single person with income over $ 250,000, you still could not solve our fiscal problem.

The US has no savings: the public dissaves and the government dissaves. Their is no future for an economy with no savings. To finance investment, we run massive trade deficits and fiscal deficits. But, it won't work anymore.

The combination of large government deficits (federal and state) and absence of saving means eventual economic collapse. There isn't any way out unless someone has the courage to say no to a debt limit increase. In Obama's words, "if not now, when?"

At the end of the day, someone, somewhere in America has to save. With the entitlements discouraging private saving and guaranteeing that the government cannot save either, the future is pretty bleak.

The most charitable interpretation of Obama's position is that he just doesn't understand what is going on. There are less charitable interpretations.

So Far, So Good

Three cheers for the debt negotiations stalemate. What this shows, thus far, is that some are serious about achieving substantial cuts in government spending and that some are not serious. That is truly revolutionary. For generations, Republicans and Democrats have joined hands to "make government work" by increasing the government spending trajectory without providing the funding to support that trajectory.

It is easy to promise benefits. It is much harder to figure out how to pay for them. This is the lesson the Western world is learning from California to the European underbelly.

That is why the current stalemate is such good news. For the first time, it looks like some politicians are serious about facing up to our coming fiscal disaster. Unfortunately, President Obama is not among those politicians. But, we already knew that. Obama is mired in the rhetoric of class warfare and is unconcerned about unemployment, the stagnant economy, and the exploding national debt. Fortunately, other politicians are concerned and are standing firm.

This won't last, of course. Eventually, the House Republicans will cave because they are scared to death that the media's one-sided portrayal of the current stalemate will create a public perception that Republicans are the problem. The reality is that, by the time, you get to November of 2012, the real issues will be the stagnant economy and the high rate of unemployment.

Even the financial markets are unconcerned about the current sideshow. There was virtually no reaction in Asian markets last night to the debt impasse, even though Tim Geithner and Barrack Obama were hoping against hope that the markets would crash and bolster their side of the debate.

The markets know the President is not a serious budget cutter. The markets aren't stupid. The markets also know the Republicans will eventually cave -- they always do. Finally, not extending the debt ceiling does not imply a default, nor does it affect social security payments ($ 2.5 Trillion of which can be paid without any increase at all in the debt ceiling). So, why should markets worry. They aren't worrying.

Friday, July 22, 2011

Another Quick Fix for Greece

Germany has agreed to a new Eurozone bailout for Greece amounting to a $ 157 guarantee for Greek debt. Gradually, Germany and France are underwriting the sick Greek economy. While most observers are concerned about "contagion" spreading to Spain and Portugal, the real "contagion" is that Germany and France are en route to becoming a future Greece. The strategy of throwing good money after bad will ultimately bring the financial status of German and French sovereign debt under scrutiny.

Nothing in the bailout package alters the fact that Greek sovereign debt is growing daily and will continue to swell to ever higher numbers. There will be more hand wringing and bailouts down the road until the road comes to an end and Germany and France become the focus.

The only plus tick in the package announced today is that bondholders take an estimated twenty percent haircut on their principal. That is good news. But, it is not enough.

The cold facts are: 1) the Eurozone is not growing economically and will not grow economically over the next few years; 2) sovereign debt in every Eurozone country is growing and in most countries is exploding. Nothing changes these two facts and these two facts spell future disaster.

Absent reform of entitlements, government spending and restrictive regulatory and tax policies, there is no real hope of economic growth in the Eurozone (or in the United States which is currently in copycat mode).

Monday, July 18, 2011

European Bank Stress Tests -- More Government Obfuscation

So where are the tough regulators that were supposed to come with all the bailouts? European politicians are now blaming the messengers that are telling them that their banking systems are done for. The so-called "stress tests" on European banks were absurd. They assumed, for example, that no European country will ever default! Well, if no European country will ever default, then what's the problem?

Politicians are all for regulation -- unless you need it. Then, the politicians no longer want regulation. Witness the attack by European politicians on the rating agencies. Now that the rating agencies are doing their job, the politicians are angry. Go figure.

If there were no regulatory bodies at all and no European Central Bank (ECB), then, by now, markets would have reigned in the excesses of the PIIGS countries by denying them new funding. Eliminating new funding is, in the end, the only solution to Europe's woes. The market could have done that easily, but governments prefer to live in denial. A similar "denial" policy prevails in the US, but, fortunately, there is no one around to bail out the US, so when the markets finally say "no mas," that will be that.

The outcome of all of this is perfectly predictable. The only issue to be decided is the date when all of this comes crashing down.

Saturday, July 16, 2011

Why Are We Protecting Banks and Wealthy Bondholders?

Who owns Greek debt and Italian Debt and Portuguese debt and so forth? Banks own a lot of it and somehow that is why we are supposed to support a bailout. Why?

If banks made bad decisions and ended up putting their money up to fund folks that can't pay them back, why should taxpayers pony up? That's all that's going on in the Eurozone. Let these countries work out their debt problems with their creditors like private citizens must do. Why are banks priveleged in this deal?

What's more, if every time German and French banks make stupid decisions, their governments intervene to prevent them from taking their punishment, then why shouldn't they simply keep making stupid decisions? Why not? Taxpayers will step up to the plate and take the bad decisions off their hands.

The usual hue and cry by the bailout proponents is that a financial and economic debacle will occur if we let those who made bad decisions suffer the consequences of their own bad decisions. Really?

It is convenient for the bailout crowd to argue "what ifs." The reality is that all bailouts do is postpone disaster and guarantee that disaster will result in a much larger financial and economic conflagration at some later date.

Take the current US national debt issue. If we default now on $ 14 trillion, we will be far better off than if we default in ten years when the national debt may be pushing $30 trillion and millions more Americans will be dependent (through the entitlements) on benefits that are going to be savagely reduced. Now the problem will be a serious one, In ten years, the problem will be catastrophic and could easily usher in major political changes that none of us would be happy to see.

The idea that the entitlements in the US can be preserved is essentially the argument of the street-demonstrators in Greece that their lifestyle (retirements at age 52) can be preserved. This is simply a matter of numbers. It can't and won't happen, no matter how the current political battles unfold.

Worse, the western economies have no economic growth in their future. This means growing stagnation and limited opportunities for the young, the disadvantaged and the unemployed. Buffett, Gates and Soros will do fine. They have theirs and they will not give it up. But, for the rest of the country, especially those in the bottom half of the economic pile, their future is pretty dim. No economic growth and a world of massive economic regulation restricts any real opportunities for folks who need it the most.

Is destroying the economic future of the western world a reasonable price to pay to protect rich bondholders and banks?

Friday, July 15, 2011

Is He Dumb or Devious?

Obama's press conference today was masterful -- Mr. Niceguy, pleading for reason. If you do what he wants, you virtually guarantee a generation or two of economic stagnation and a potential total collapse of the US economy within a dozen years. But, listening to him, you would think that all all is well, except for the intransigence of a few (Republican) politicians intent on helping the super rich.

Surely he knows better. Getting millionaires and billionaires to pay more taxes isn't even one of the options, given the tax code. Raising tax rates simply guarantees economic stagnation, as potential employers shift assets around to avoid the taxman. So much for job creation.

Obama seems to want to usher in a permanent decline in US economic growth. we come. Is he watching the Eurozone? They have already adopted the Obama plan.

Maybe, just maybe, economic stagnation is the real goal of this Administration.

Tuesday, July 12, 2011

The US Will Default Sooner or Later -- Why Not Now?

There is little question that the US is headed for an ultimate default on its sovereign debt. This is almost guaranteed to take place within less than 20 years. So why not simply do it now while the debt is relatively small. Defaulting on 14.5 Trillion is a whole lot better than defaulting on $ 40 trillion, which is probably where we will be in fifteen to twenty years.

Yes, it will be painful. Yes, it will be disruptive. But why create three times the problem for our children and our grandchildren. Why not deal with it now?

Simply default and then make the necessary adjustments. The markets will force a rationality on government that the politicians are not likely to ever be able to do.

A default now is a whole lot better solution than a much, much bigger default in fifteen years.

Blinder Has Blinders On

Alan Blinder has an op-ed in the Wall Street Journal that reveals in stark terms the irrelevance of modern macroeconomics. Blinder is a Princeton economics professor and former Vice Chairman of the Federal Reserve. He is often trotted out by the Democratic Party to defend big spending by Congress or inflationary monetary policy by the Federal Reserve. He's back on the podium this morning asking:

"What might a real job-creation program look like?"

Dig this answer:

"Creating jobs costs money -- whether it's via tax cuts or more spending." Could have fooled me. Would it really be possible to spend more than Blinder and his allies have done in the past three years.

Blinder, like most other Democrats, believes that the cost of labor is irrelevant in the decision to hire. So long as you believe cost doesn't figure into the hiring decision, you will never be able to understand our current unemployment problems.

Monday, July 11, 2011


Uncertainty has been the big buzzword. No one wants to hire anyone because of uncertainty, according to Obama and the media. Really? I think the problem is the opposite.

It seems fairly certain that the environment for business is pretty terrible. The White House hates business and businessmen. The regulators have declared war on American business. Taxes have already gone up dramatically and the plan is to increase taxes even more. Litigation costs and employer mandates are an everyday reality. The minimum wage is up over 20 percent in just the last five years. So, what is uncertain?

If you want a good business environment, move your business to Asia or parts of Eastern Europe.

The problem that the US has is one of certainty, not uncertainty. Obama is a certain, calamitous, reality for American business and for American workers.

Sunday, July 10, 2011

Italy and Spain are Now Coming on Stage

Poor Greece was getting lonely. Now come the big boys -- Italy and Spain. These guys have between them nearly nine times as much sovereign debt as our pals in Greece. Wonder how deep the French and German banks are willing to go to bail these guys out. Poor little old Portugal and Ireland -- they must feel neglected -- they've been forced off the front page by Greece and now along comes Italy and Spain.

I wonder if Italy will consider selling off the Colosseum in Rome. That should fetch a pretty price. Spain could let go of a few bullfighting rings and maybe some El Greco paintings (he wasn't Spanish anyway, he was Greek). I should have gone into the sovereign debt bailout consulting business. It looks like it has legs.

So, the ECB continues to believe that if we simply increase the amount of debt in the Eurozone by about 10 percent per year, we can solve the Eurozone debt problems. An interesting view.

Markets aren't as dumb as the ECB (and as the ECB wishes the markets to be). Yields on everything with a Euro attached to it have been heading straight up and will continue their upward ascent until every government in the Eurozone has fallen and virtually every state in Europe has, in one way or another, defaulted on their sovereign debt and crushed their domestic banking system.

Haven't we seen this movie before?

So, Where's The Mystery?

Persistent high levels of unemployment unlike any economic recovery since the 1930s. Why?

If you knew that there was a large supply of apples at the stores that no one was buying, what would you suppose to be the reason? Your first thought might be the price. Maybe the price of apples is so high that no one wants to buy any. If they were free, someone would buy them. So, somewhere between free and the current price, there is a price that will get the apples off the store shelves.

The same is true with unemployment. At the right price, any business would hire. So, what's wrong with the price? Well, for one thing, imagine you hired someone and then told them a joke that they found offensive. They could then sue you for a few hundred thousand dollars. You could probably settle the suit out of court for $ 100,000 and that's that. So, what was the price of that employee again? Notice, I didn't even have to tell you the employee's pay rate. It is clear that the employee simply costs too much.

One could always say: well, don't tell offensive jokes. But, what if one of your employees told another of your employees an offensive joke. The same deal applies. (They might even conspire and tell each other offensive jokes and then they could both sue you!). You settle out of court for $ 100,000 and move on. But, you will think twice about hiring any more employees.

The cost of employees today is so laden down with litigation liability, various taxes (social security, workmen's comp, soon-to-be health care), family leave acts, etc., that if the employee agreed to work for free, the cost of that employee to a business is still very, very high.

So, businesses find another way. They outsource; they substitute capital for labor. Nothing will really change this. When the economy picks up, it will pick up slowly and haltingly because employment is never really going to go anywhere. Employees are simply too expensive.

Obama thinks that if only you could force them all to join a union, then things would be great. Just look at the recent decisions at the Labor Department and the NLRB for a whiff of the Obama medicine. Turning your work force over to a bunch of labor goons is not likely to boost employment -- witness the US steel industry, coal industry, any industry where unions have ever made any headway. In recent years, unions have made most of their progress among state and local employees and how is that going now? More jobs are being lost in state and local government than anywhere else in the economy.

If you want to boost employment, then lower the cost of employment to businesses by eliminating all of the litigation liability -- all of it -- and stop burdening employees with things that simply eliminate their free choice to decide how to finance their retirement and their health care. Let the employees decide for themselves. If someone is discriminating and it is illegal, then lets get on with a criminal prosecution. Let the person who makes the offensive remark pay the offended person, not the company where they both work.

"Human Resource" departments are really the front line of defense for larger firms to contain their potential litigation liability from the enormous burden of all politically correct legislation that has passed the Congress in the past two decades. Everything is now a "right" including, I guess, the right not to have a job.

If you want people to find jobs, then employer mandates must be reduced. Nothing short of eliminating virtually all of the politically correct legislation and court interpretations of the last two decades will do. Either you want people to have a chance to work for a living or you don't. Passing laws that shower politically correct mandates on workers means there will be fewer of them.

Saturday, July 9, 2011

Certain Disaster is not "The Certainty We Need"

The President is still singing the same old tune that has sunk the US into the worst economic recovery in our nation's history. According to Obama what the country needs is the announcement of a deal (no matter what it is) to raise the debt ceiling. That would certainly remove uncertainty ... no question. Simply increasing the debt ceiling with a minimal effort to deal with reducing spending virtually guarantees US insolvency within a generation.

You don't really need a trained economist to see why the Obama Administration has created the worst economic recovery in US history. Just imagine what you would do if your goal was to prevent the US from recovering the dynamic engine of the 1980s and 1990s. What you would do is precisely what Obama has done.

Begin by demonizing business and business people. Make it clear that anyone who makes money is really the enemy of the country. Find ways to make labor so expensive and non-competitive that outsourcing and massive domestic unemployment will be the result. Try to expand the clout of union bosses so that small business will think twice about adding to their employee base. Expand the rights and abilities of employees to sue their employer for any reason they choose. Punish companies that plan to hire unless those folks hire union workers (think Boeing and South Carolina). Have the bureaucracy push new regulations that force business to close and layoff additional workers. Get Congress to pass laws that are vague but threatening and require decades to figure out precisely what the new laws do (Obamacare and Dodd-Frank). Bring to halt any new free trade agreements so that other countries can gain jobs that America will lose (Columbia free trade agreement, for example).

In short, wage war on the private sector with every weapon that you can muster. This is the Obama dream, but the American nightmare.

Friday, July 8, 2011

9.2% and Rising

The race is on. Will unemployment reach a new high before the national debt does? The bankruptcy of Obama's economic policies is there for all to see. The media might try to deny it, but the truth is the economy is not really recovering. Why? Obama economic policies!

Until there is a better environment for the private economy, we will continue to get more of the same. Obama policies are turning the United States into a banana republic.

Republicans Preparing to Fold

Watch out. Here it comes again. John Boehner and Eric Cantor are planning another Republican collapse on the nation's fiscal nightmare. Obama and his allies seem to have scared the Republican leadership into accepting an essentially worthless "compromise" to get to a debt extension deal.

All the talk about how both sides have to give is silly. The nation's problems boil down to social security, medicare and medicaid. Nothing else matters. Cutting military spending, raising tax rates, and so forth are irrelevant and amount to mere political theater. If you don't tackle the entitlements in a serious way, then the next stop will be, within a few years, the beginning of a US default. The numbers make this outcome obvious.

We are four to five years behind Greece. If Republicans fold and accept another sham deal, then the country really has no hope of dealing with this situation and within a decade the US will begin to lower payments to those over 65 then relying on social security and medicare. The country will have no choice.

Meanwhile, the new higher tax rates will issue in a generation of no-growth and permanently elevated unemployment rates. Tax revenues will actually fall since the higher rates will discourage rich folks from showing taxable income (they do have a choice, you know) and will stifle economic growth.

It looks like the same old story. The Republican leadership is not really serious about dealing with federal spending. They are worried that voters won't stick with them if they hang tough, so they are bailing.

What Republicans should do is agree to a tough two month deal to extend the debt. Obama has said he will veto a two month deal. Let him. Then he becomes 100% responsible for the government shutdown. That is the only route available for Republicans if they lack the courage to push for serious entitlement reform in a longer term deal.

Thursday, July 7, 2011

Buffett is Disingenuous

Warren Buffett was interviewed this morning by Becky Quick on CNBC and, once again, reiterated his pro - big government stance. He cited the national debt that existed at the end of World War II in the US which was 120% of GDP at the time. The fact that he cites that episode shows the extreme cynicism of Buffett and other Obama apologists. Everyone knows, as Buffett knows, that slowing spending after World War II amounted to producing fewer tanks, airplanes and war materials -- no tough political decisions there!

Today, the issue is cutting social security, medicare, and medicaid. Buffett considers cutting social security benefits as the equivalent of ordering fewer tanks for a war that has come to an end. Either Buffett is an idiot, which is doubtful, or he is a man with an agenda, which is more likely.

Buffett is the guy who constantly urges higher tax rates knowing full well that he won't have to pay them, since he is free to shift his income in ways that minimize taxes, something he has, by his own admission, always done. Buffett and other rich folks who advocate higher taxes for the rich know full well that the truly rich have nothing to fear from higher tax rates. Indeed, the truly rich will simply shift their assets and around and control their taxable income so that they are not impacted by higher tax rates. They are masters at that.

What Buffett wants is for the great middle class to shoulder the burden of his big government spending plans. He has his. He could care less what happens to the opportunities for the average American. The environment that permitted Buffett to amass his fortune would be trashed by Buffett, so that he can maintain his power in a society where future Warren Buffetts would have little or no hope to create wealth.

Buffett is an arrogant rich guy with nothing but contempt for capitalism and its defenders.

Friday, July 1, 2011

Right on Floyd Norris

It is not often that I praise a New York Times article, but here goes. Floyd Norris's piece this morning on the European Central Bank's handling of Greek debt is right on. As Norris notes, all the ECB is doing is forcing private banks to roll over Greek debt and hold that debt at fictitious prices on their balance sheet. In effect, the ECB is forcing private banks to lie about the value of the assets on their balance sheets.

As Norris notes, lying about the values of your balance sheet assets was considered the great crime of 2008 that lead to the collapse of the US financial system. Now, regulators in Europe and the US are encouraging (forcing) private banks to lie about the value of their assets.

This is why regulation is such a joke and why the real crime is the enactment of Sarbanes-Oxley and Dodd-Frank. Regulators have never, ever uncovered anything of substance about our financial system. Where were they in the Madoff episode? Where were they in the Bear Stearns and Lehman Brothers collapses? It is a sick joke that Sarbanes-Oxley and Dodd-Frank will do anything at all useful for the American financial system.

Yesterday, Sheila Bair, FDIC Chairman, whose agency did nothing to curb the excesses of 2005-2007, weighed in, urging Congress to fund Dodd-Frank. She should be embarassed. Her agency is a poster child for regulatory failure and her picture should be at the top of the poster.

Regulatory agencies are mainly a depository to place people who likely can't find a job in the private sector. To justify their existence, they insist upon making companies devote ridiculous amounts of time complying with absurd regulations. Do such agencies avert catastrophic financial failures? No.

Never in world history have regulatory agencies averted a financial collapse. Watch what is going on in Europe today to see why. Far from helping avert a collapse, the ECB is taking a relatively small problem and turning it into a major catastrophe. Along the way it is forcing the private banks of Europe to lie to their shareholders about the value of the assets on their balance sheets.

The regulators are creating the next great financial collapse -- the collapse of Europe sovereign debt. Europe would be better off if there were no regulators at all.