Friday's sell-off made for the worst market month since 1933, a stunning no-confidence verdict rendered by investors on President Obama's first full month in office. The Conference Board's Consumer Confidence Index fell to an all-time low (since its 1967 inception) of 25 percent; just prior to the September 2008 financial meltdown the Index was nearly 65 percent. The Congressional Budget Office's January 8, 2009 Baseline Budget Projections stand in stark contrast to the robust growth numbers Team 44 is advertising. Check out the charts, which show sharply lower growth rates than Team 44 seeks. Then factor in: (1) a stimulus bill that hardly stimulates at all; (2) massive pork spending; (3) massive tax increases on the people who pay most of the income taxes; (4) massive health care place-holder that sets aside over $600B without specifying how it will be spent; (5) trillions for massive bailouts.
Housing policy is in tatters. Robert Samuelson warns that preventing foreclosures and encouraging young & poor to buy homes will not work without a policy to encourage people who actually can afford to buy to do so; deflationary psychology impedes such investment, so a tax credit may alter incentives. Obama fails to grasp that the "Ownership Society" conservative idea rests upon encouraging people to behave like owners because they have investment funds they can lose; allowing the indigent to buy at a pittance and protecting them from foreclosure undermines the value of home ownership by subsidizing free-riding. A WSJ op-ed explodes 44's myth that he will not bail out those who do not deserve help (even if, that is, his bureaucrats could identify them). "Cramdown" provisions will shaft creditors in favor of indigent buyers:
President Obama continues to insist that only "responsible families" will benefit from his foreclosure prevention program. Addressing Congress last week, Mr. Obama said his plan "won't help speculators or that neighbor down the street who bought a house he could never hope to afford." Sorry, Mr. President. It's becoming increasingly obvious that your plan is going to help tens of thousands of borrowers who put the "liar" into liar loans.
Just listen to Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair. In Congressional testimony last week, Mr. Bernanke compared many troubled borrowers to people who accidentally start fires by smoking in bed. For her part, Ms. Bair told public radio that it would be "simply impractical" to review old mortgage applications and try to distinguish between honest and dishonest borrowers. All of this moved the Associated Press to report that the President's "assurance Tuesday night that only the deserving will get help rang hollow."
Mortgage fraud exploded in recent years. The WSJ editors suggest a "plasma TV to kidney transplant" ratio as a measure of how much money will go to those who borrowed to pursue their wish list, without regard to ability to pay.
The WSJ's L. Gordon Crovitz informs us that venture capitalists are running AWAY from federal help lest they get government control as the price of assistance:
This no-bailout-please episode is a wider reminder about the downside of Washington picking winners and losers. Government spending almost always distorts markets. John Maynard Keynes included among his prescriptions a do-no-harm fiscal stimulus of simply paying people to dig and then fill in ditches. Venture capitalists have now reminded us that throwing taxpayer money at an industry is more likely to be a kiss of death than to transform frogs into princes.
Innovations supported by venture capital in technology, health care, education and other promising but risky industries are at the heart of our economy, too important to be dictated by nonmarket forces. Other industries now lobbying for their own bailouts should weigh more carefully the risks that come with taxpayer involvement. The lesson of accepting government involvement often is something ventured, nothing gained.
They want lower taxes--capital gains are not taxed in Hong Kong & Singapore--not subsidies.
And there are "Rosy Scenario" assumptions noted by economist Irwin Stelzer that include such winners as ending farm subsidies in 2011, and that China will buy Treasury IUOs indefinitely, no matter how large the deficits. How rosy? According to "world's greatest investor" Warren Buffett, the 2009 economy will be "in a shambles"--it having nearly totally melted down. Wrote Buffett in his annual letter to Bershire Hathaway shareholders:
"Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.....
(By 4Q08) the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.”
Oh, and as American Enterprise Institute scholar Tom Donnelly explains in detail the defense budget will take a hit in order to keep the deficit down--just like the Party Decade 1990s, except no one thinks we are having a party at home or abroad these days. Writes Donnelly:
But the government itself looks more like the government of France than what American governments have looked like in the past. We'll be spending $4.5 trillion on social entitlements--Social Security, Medicare, and Medicaid--debt servicing, and other mandatory programs. That's about 22 percent of GDP. Discretionary domestic programs--the prime source of congressional pork--have grown to nearly $700 billion, another 3.5 percent of GDP. Defense spending will be smaller. The baseline defense budget will be $594 billion, less than 3 percent of GDP. That's half the 50-year Cold War average....
...Based on the numbers, by 2011 Obama plans to be fighting the "Long War" at less than one-third the cost of the effort of 2008. He's fulfilling his end-the-war campaign pledges, but almost certainly at the sacrifice of any lasting victory.
How much is $3.6 TR dollars, the amount of 44's FY09 federal budget? Fox News's Brian Wilson put it together nicely. Stone tools were mankind's implement of choice a mere 3.6 TR seconds ago. Take one-dollar bills and stretch them lengthwise, and you would make nearly 4 round-trips between Earth and the Sun. It is one of 4 dollars produced in the US every year. At $1 million per hour you would run out after only 411 years. Now add $1.1 TR, to factor in funds spent out of budget, just in 2009, and you get one million tons of coin-bag dollar money, which is equal to the tonnage of 103 Nimitz-class super-carriers.
Compared to what Barack's budget is buying, I think I'll take the 103 super-carriers....
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