Monthly Archives: February 2010

Obama Disingenuous on Health Care Reform Bi-partisanship

Obama has repeated (ad ad nauseum) that he would be willing to meet Republicans in the middle on health care.  The GOP says to do that would mean starting over, which is something that the President will not do.

So who is being more partisan?  The GOP is saying that it cannot support the huge spending and government take-over that the current mammoth health care bill represents.  Liberals say that the current bill, is the starting point and they are not willing to do anything that does not start with that bill.  This doesn’t sound like either side is compromising.. at all.

While Democrats have effectively labelled Republicans the “party of no”, the Republicans have concerns over the liberals being the “party of no-way” when it comes to working through important items on health care.

Democrats want to keep the massive tax gift to the labor unions, the extension of Medicare that will put the expense of their plan on the states, and put price controls on health care (anyone remember how well price controls on oil and gas went when the last all-knowing liberal enacted it in the 70’s?) .  Republicans want to focus on preventing the loss of health care due to illness, enact tort reform, and allow for the free purchase of insurance across state lines.

Liberals have not argued against any of the three proposals from the GOP, so why can’t they all just agree to enact those and build on that success?  Because then Obama doesn’t score the points he needs.  Republicans would look like willing partners, not the party of no.  It is far more important for Obama to embarrass Republicans and give gifts to unions than do anything substantive on health care.

This administration is not being honest with the American people.  The reason they can’t pass their idea of health care reform, is because they aren’t willing to work with anyone else on it.

4th Quarter GDP Number Misleading

The BEA published a revised report  on the U.S. G.D.P. for Q4 2009.  The revision was up .2 points from an already high 5.7%.  Taken at face value, 5.9% growth in the economy in a three month period sounds fantastic, but digging into the numbers and methodology aid in the understanding of why this is not as great as it sounds.

The BEA uses the expenditure method of GDP calculation and real GDP (the 5.9%) number is adjusted for the value of money (inflation/deflation).  It basically counts the money used to purchase goods and services.  GDP is a summation of the money spent in personal consumption (rent, food, clothes, etc), business investment (new machines, inventory, buildings, government spending (government salaries, government investment, finished goods), and exports minus imports (the trade deficit).

Breaking apart the GDP report along those categories reveals that most of the GDP growth was in the government sector, and surprisingly, not on defense.  Federal government spending on the military actually dropped by 3.5%, where the largest portion of GDP growth came was in federal nondefense spending which increased by a whopping 8.4% in the 4th quarter after having increased 7% in the 3rd.  This category does not cover transfer payments like Social Security or unemployment benefits so it it mainly made up of the salaries paid to government employees.

Not all government spending was up, local and state governments, which must balance their budgets, droppedspending by 2% following a drop of .6% in the 3rd quarter.

70% of the American economy is based on consumption.  The real personal consumption expenditures number was only up 1.7% which is lower than the 3rd quarter number of 2.8%.  This illustrates that the U.S. consumer is slowing down spending which will negatively impact the economy.

The true economy, businesses, slowed down the pace at which they were cutting inventories which was 3.88% of the GDP number.  This could mean either of two things, either businesses decided to produce more goods to stay closer to an elevated demand, or consumers bought less which would slow down the rate at which inventories fall if no production change is implemented.  Considering that  the personal consumption number slowed in the 4th quarter, it’s a good bet inventories dropped slower because fewer consumers purchased those products.

To sum it all up, without the misleading slow down in inventory declination and if we disregard the fact that the government grew itself outlandishly while gathering a monstrous deficit, the remaining GDP gain is negligible.  Even the BEA’s report lays it out that way:

The decrease in real GDP in 2009 primarily reflected negative contributions from nonresidential fixed investment, exports, private inventory investment, residential fixed investment, and personal consumption expenditures (PCE), that were partly offset by a positive contribution from federal government spending.

Translation: The economy stank because consumers weren’t buying anything, but this was partially offset because the government had no trouble growing.

Health Care Being Discussed by… Lawyers?

Obama’s health care summit at the Blair house was attended largely by lawyers.  Professional politicians brought up as guardians of the legal system.  I use the term professional loosely as these experts on the legislative process have not been able to deal with the inefficiencies of the government they help to shape.  Why do we believe they could fix a health care system they know even less about?

Why is it such a surprise that all their answers are in more government?  That’s precisely the only thing familiar to them – government.  They know how to spend money, but when was the last time Congress ever cut costs on much of anything?  Senator Byrd spent billions on a four-lane highway to nowhere, we’ve funded a wind tunnel for the military that they never wanted and don’t want to budget for, there is the VTOL transport we’ve spent money on and can’t get above 2 feet in altitude (after 20 years of research).

The Blair house health care summit should have been broadcast on Bravo.  It’s more akin to a reality show than anything effective or useful.  Obama and the Democrats spent 4 hours talking (the opposite of listening).  Only 25% of Americans want the bill that the liberals are pushing.  How much more out-of-touch can you get?  No one wants it, politicians don’t even understand the subject, and it’s taking focus off of something that Congress is actually tasked with overseeing: the economy (well, trade and interstate commerce actually, but close enough).

So much for jobs, jobs, jobs.  It’s big government health care being discussed by lawyers in a reality show setting.  Who woulda’ thunk it?

The Economic 800lb. Gorilla in the Room

Everyone is talking about tight credit, greedy capitalists, overpaid CEO’s and a real-estate market that’s starting to crash yet again as the reasons that the recovery may falter.  While four months ago I fully believed that a double-dip recession was guaranteed, the risk is still there and has as much to do with something no one is talking about: Americans are getting frugal.

In October “Going Galt Without Realizing It“, we discussed some of the drivers for Americans putting more into savings, using cash instead of credit, and reducing their debt loads.  Now, First Command Financial published its financial behaviors index that gives statistical reality to our analysis.  What no one is talking about is why this is so important to understanding a stagnation or retrenchment in the U.S. economy.

America operates on a fractional reserve basis.  In over-simplified terms, the central bank loans 3 banks $10 each.  The rules allow each of those three banks to loan $100 against that original $10.  That’s $270 of money out of thin air.  Just figure that those banks loan money to other banks and how that could exponentially create dollars from nothing – money is getting created out of thin air at each step.  This creates inflationary pressure – as more money gets created each dollar increasingly loses value and purchasing power.  That’s the part everyone has been talking about.  The more money the Fed pushes out the door, the more inflationary pressure should result.

What no one is considering is what happens if no one bothers to borrow the money?  That original ten bucks.. stays $10.  The additional $270 never shows up.  That’s $270 that never makes it into the economy.  This counteracts the Fed’s inflationary money-printing by not allowing the fractional part of the reserve system to have as much of an effect.

To be fair, frugal Americans aren’t the only cause.  Credit card companies are becoming more strict with applications and lowering credit limits, banks aren’t lending as freely, home equity has become non-existing for up to 25% of home owners who are now under water on their mortgages.  Credit is becoming less used both due to supply and demand.  The result: deflationary pressure.

So why aren’t we seeing massive deflation?   We are, it’s just masked by a dollar being weakened by poor monetary policy (inflationary pressure) and rising food and energy prices (actual inflation due partly to the weak dollar).

Eventually one of these two monetary influences will win out.  One of the two will give in first, the question is which.  Will the Federal Reserve Board roll back it’s loose monetary policy first or will Americans give up on being debt-free.  If the Fed tightens and Americans continue to take on less debt, deflation is a real possibility.  If Americans give up the whole Galt thing and go back to deficit spending on cars, TVs and the like and the Fed remains loose, we could see serious inflation.

Which way it goes depends on the tug-of-war between monetary policy governance and the character of the American consumer.  When the Fed talks about carefully unwinding stimulus efforts, they are talking about this interesting relationship between the American borrower and the reserve’s monetary policy.

Real World Unexpectedly Not Obama's Utopia

Obama looking downOur current President promised us “hope”, “change”,  and prosperity.  These are the usual promises of politicians, but these, most Americans believed.  The wars would  end, the Iranians would listen, the EU is a model to be replicated, global warming would cause heat and drought, foreclosures would cease, being tough on terror, and middle-class Americans would not see increasing taxes.

There are also the promises we were hoping would not come true: carbon trading markets (cap and trade), government-run healthcare (health care reform), socialistic ownership of American production (government ownership of GM), etc.

So this story is a good news, bad news item.  The bad news is that Obama isn’t finished pushing health care while Americans are worried about the jobs they do have and the ones they used to have.  The President is now treating American war foes as common criminals, aspiring to track the locations of our cell phones, and ignoring the wishes of the voting population by pushing health care when citizens really desire a business-friendly approach to fixing the economy and jobs situation.  Oddly-enough, if business has a tough time, they don’t hire.  The Administration can direct the anger and hatred of American voters against corporation, corporate leaders and businesses, but in the end, that’s where jobs come from.

The real estate bubble was created by Washington, it has been exacerbated by Obama, and now his administration is actually missing the next mess that they helped create: the commercial real-estate bust.

All of the housing stimulus put in-place by Obama, two housing programs (MHA and HARP) and the ARRA stimulus fiasco.  Then  we can look ant the antithesis: absolute contempt for free-market small business, hatred of capitalism, and admonishment of success.

So how is that working?  Well, foreclosures in January were up 15% over last year (the height of the mess), a government watchdog (the true responsibility of journalism) report says that commercial real-estate is the next shoe to drop and it’s coming real soon, the administration and democrat congress are still protecting the largest financial institutions involved in the financial collapse (Fannie-Mae and Freddie-Mac).  It’s OK to go after the small manufacturer, take over GM and AIG, and destroy the American energy industry… those are only jobs – We must save the government-run, root cause of the crisis – the Congressionally-regulated U.S. mortgage industry.

From an international perspective, Utopia is thriving… I think.  The German PM, Angela Merkel, has gone against the administration and thumbed it’s nose at the righteous European Union that Obama wishes America would become a copy of.  The Iranians are ignoring his hiatus on sanctions, open  hand, free discussions and continuing their nuclear program despite Obama’s unrealistic view of the real world.

While Obama is busy promoting the mess he has created, his administration is pushing policies that are truly disturbing.  The Obama White House has made statements that support the tracking of non-criminal American citizens via their cell phones without so much as a warrant:

“..the Obama administration has argued that warrantless tracking is permitted because Americans enjoy no “reasonable expectation of privacy” in their–or at least their cell phones’–whereabouts. U.S. Department of Justice lawyers say that “a customer’s Fourth Amendment rights are not violated when the phone company reveals to the government its own records”

The world is not Utopia Mr. President, it is not what your book or imagination or father dreamed it would be.  It’s the real world, and unlike you… we live in it – a jobless, over-taxed, heavily-government-debted life.