Tuesday, August 24, 2010

Is This What Obama Intended?

Is This What Obama Intended?
Austin Hill

"There will be time for them to make profits, and there will be time for them to get bonuses…now is not that time. And that's a message that I intend to send directly to them…"

Those words were uttered by our President on January 29th of 2009. He was reacting to the news that some American corporations, even some that had received government “bailout” funds, had both posted profits, and had paid bonuses to their executives.

And those were extraordinary words. They implied that, so far as President Obama is concerned, there are times when it is appropriate for American companies to not earn a profit, and times when it is appropriate for workers to not be compensated for their labor.

And now, after twenty months of our government’s policies being driven by Barack Obama’s very counterintuitive economic thinking, and with the national unemployment average approaching ten percent, I’m left wondering: is this what our President intended?

These days, Mr. Obama is saying some very different things. Speaking at the University of Texas at Austin earlier this month, the President stated that “we need an economy that puts Americans back to work, an economy that's built around three simple words -- Made in America…because we are not playing for second place. We are the United States of America, and like the Texas Longhorns, you play for first -- we play for first…”

Some twenty months in to his presidency, Barack Obama apparently feels it is necessary to reassure Americans that he still wants a robust U.S. economy, and that he actually wants America to be “first” (we still are “first,” by the way – but that’s beside the point). It’s not surprising that Americans have doubts about our President’s support of America, but again I’m left wondering: is this what President Obama intended?

For as long as Barack Obama has been a household name, he has devoted much of his time and energy to maligning American free enterprise. While campaigning for the presidency, Senator Obama traversed the country preaching, among other things, his economic doctrines. And the recurrent themes from these economic messages were quite clear: A) our nation’s greatest enemies were not terrorists or hostile nations, but American corporations; B) American oil companies, pharmaceutical companies, insurance companies, and businesses that “shipped jobs overseas,” were among the worst fenders; and C) victory over these enemies would not be achieved until he, himself, could control these various sectors of our economy.

Recall that in 2008, global oil prices spiked upward, creating a sharp rise in gasoline prices, and candidate Obama’s “solution” to the problem of four dollar-a-gallon gasoline was to raise taxes on oil companies.

Anyone with the most limited appreciation of free market economics knows that raising taxes on product producers doesn’t lead to a lower price on the product (producers pass along the cost of the tax to their consumers by adding it into the pricing of their product). But lowering the cost of gasoline wasn’t necessarily Senator Obama’s goal, given that the other part of his “plan” was to use the revenue taken from the oil companies in the form of a “tax increase” to give “working Americans” a “voucher” that they could use for oil and gasoline purchases.

Candidate Obama’s plan was perhaps to make gasoline and oil purchases more affordable in some instances, but not universally and not in all instances. What Obama was proposing was a means of increasing governmental control over the private sector economy and over private citizens’ lives – and no doubt Mr. Obama himself would be happy to decide who really qualifies as a real “working American” and who was therefore deserving of a special “voucher.”

Fortunately, global oil prices subsided, and Obama’s chatter about raising taxes on oil companies did too. But since becoming our President, Barack Obama has continued to do things that work against economic growth and expansion, yet help advance his control over the economy.

Bailouts for car companies? Barack Obama is the de facto CEO for General Motors and Chrysler these days, because, essentially, “they owe him,” and he can tell “them” who will be CEO, what products they will make, and so forth.

Bailouts for lending institutions? Our President and his friends in his Administration can dictate to banks who they will and will not lend to, and who deserves and does not deserve “help” with their mortgage.

This control dynamic escapes many presumably smart people in our national media. Some in the financial media have been shocked that Obama’s alleged “economic recovery” appears to have stalled. And New York Times columnist Maureen Dowd, a frequent critic of President Obama, recently lamented that Obama appears to be an “incoherent President,” noting that he’s “with the banks,” then “he’s against the banks….he strains at being a populist, but his head is in the clouds…”

Yet there is nothing “incoherent” about Barack Obama. He is consistent with his quest for control. Our President has demonstrated that, for him, it’s not about being “for” or “against” “the banks,” or “Wall Street,” or “Main Street” – it’s about seizing power over private affairs, and he will achieve that power by what ever means necessary.

Slumping economy or not, the truth is abundantly clear: our President is achieving precisely what he intended.

Terra Infirma
Eric Dickson

The Fed’s goal on Tuesday was not to rattle the markets, but I can’t help but get the feeling of Terra Infirma.

Here’s what’s shaping our markets:

Exports are declining – widening our trade gap to $49.9 billion in June. Exports dropped 1.3%, while imports rose 3%. The $7.9 billion gap is the highest since record keeping began in 1992. It was 18.5% more than median forecasts of $42.1 billion.

Economists are now downgrading their forecasts for GDP… they are now expecting that in the second half of the year that Gross Domestic Product will expand at an annual rate of 2.55%, down for previous estimates of 2.8%. Household Purchase also got downgraded to a 2.25% growth rate, compared with the prior 2.6% estimate.

A month ago analysts had predicted that consumer spending would grow by 2.4% - today, they’re forecasting it will only grow by 1.5%. This data is bolstered by consumer purchases, which, for the first time since the beginning of WWII, dropped 1.2% last year after rising 3% on average over the past 30 years, according to Bloomberg.

Payrolls, which drive consumer spending, have done a u-turn to an average of 51,000 over the past 3 months, after a couple hundred thousands of jobs were added on average in March and April. Unemployment is expected to remain above 9% through next year.

So what does all this mean?

Well for starters the global economy is cooling and this is bad news for domestic companies relying on export revenues. Foreign consumers aren’t demanding U.S goods at a pace that was anticipated – and this means that inventories will grow, creating a shift in supply/demand. This could lead to further jobs losses as companies will be forced to deal with lower revenues and might have to offset losses by trimming their workforces.

It will then have a ripple effect on consumer markets, as hard-working Americans will be forced to cut back on spending, as their salaries will remain below average and those looking for work will continue to find it hard to get back on payrolls.

“Unemployment is high, income growth has been pretty slow,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co told Bloomberg. “Household wealth is a lot lower than it was three years ago.”

From here things can get scary given the penchant for government intervention in our recovery, as seen by the Fed’s most recent language.

Unlike private businesses, local and state governments, the federal government has an artificial weapon they use in times like these – and that’s the funny money printing press. They’ll fire it up, inflate the markets with investments (think treasury purchases) and from there the dollar will continue to lose value against its major competitors – the Euro and Yuan.

So what do we do? Well there is nothing we can do about international demand for American goods without addressing domestic issues first. America companies competing domestically and internationally need to have an edge – and this is severely battered when they’re being federally and locally taxed out the wazoo. How are these companies supposed to raise payrolls and hire more people when health care costs and taxes are eating away at their bottom lines?

The American consumer drives the market. And this originates with private business working efficiently in an open market. Businesses are thriving when people are spending… and people are spending when they’re making more money, keeping more of the money they earn and not worried about their job security.

The government can’t step in and artificially keep our economy afloat by taking more of the money every day Americans earn. It’s the social fabrication that the government will take care of its citizens that will hinder our recovery – meaning the more people rely on the government for health care and unemployment benefits the more taxpayers suffer. We should promote self worth – working, spending, investing… not sit back and wait for Obama checks in the mail.

America is the greatest country in the world because of our hard-working citizens – not our government. Incentives work, let us keep more of the money we earn and from the ground up our economy will improve because American we’ll spend and invest more.

Call me old fashion but I want less government and lower taxes and I think that’s just what the doctor ordered.

We can get back on Terra Firma – but only if everyday Americans lead the charge – not the federal government.

I, for one, am tired of people sticking their hands out. It’s time to put that hand on a shovel and dig ourselves out of this mess with hard work.

Editor’s note: Eric writes commentary for Trinity Investment Research’s daily e-letter, The Daily Market Beat – an investment newsletter that focuses on financial analysis, contrarian insights and emerging equity ideas.

To learn more, visit: www.trinityinvestmentresearch.com

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