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kcs0001
Joined: 24 Jul 2005
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 Posted: Tue Mar 03, 2009 11:56 am Post subject: The Obama Economy |
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For all you mean faced, clipped haired O'bama Truth squad members: your government meds were disbursed & sent, your general assistance/food stamps are forthcoming.
http://online.wsj.com/article/SB123604419092515347.html
The Obama Economy
As the Dow keeps dropping, the President is running out of people to blame.
As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.
Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.
.The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery.
And those sources have been forming for some time. The price of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year's easing will eventually stir economic activity.
Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend. While still high, credit spreads are far from their peaks during the panic, and corporate borrowers are again able to tap the credit markets. As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year.
So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter.
What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.
His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery.
AIG yesterday received its fourth "rescue," including $70 billion in Troubled Asset Relief Program cash, without any clear business direction. (See here.) Citigroup's restructuring last week added not a dollar of new capital, and also no clear direction. Perhaps the imminent Treasury "stress tests" will clear the decks, but until they do the banks are all living in fear of becoming the next AIG. All of this squanders public money that could better go toward burning down bank debt.
The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier.
Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health.
Listening to Mr. Obama and his chief of staff, Rahm Emanuel, on the weekend, we couldn't help but wonder if they appreciate any of this. They seem preoccupied with going to the barricades against Republicans who wield little power, or picking a fight with Rush Limbaugh, as if this is the kind of economic leadership Americans want.
Perhaps they're reading the polls and figure they have two or three years before voters stop blaming Republicans and Mr. Bush for the economy. Even if that's right in the long run, in the meantime their assault on business and investors is delaying a recovery and ensuring that the expansion will be weaker than it should be when it finally does arrive. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Mar 03, 2009 12:07 pm Post subject: Re: The Obama Economy |
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| Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. |
It will continue to decline to 4500 or so. It was inflated. Look at historical data.
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| As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year. |
Who wrote this hunk of shit? Equities were "signaling"? What the *beep* kind of garbage shit is this? Equities don't "signal". In the short term, the market is a tantruming child. Hedge funds and institutional investors talk up a "rally" on CNBC and this hunk of crap WSJ and when it comes they dump their equities onto the market, further depressing prices.
The value of a stock is a multiple of future earnings, current debt loads and much else.
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| So what has happened in the last two months? The economy has received no great new outside shock. |
What shock would the WSJ like? It is now pissing and moaning that Obama's stimulus was too small?
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| The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. |
Or, the market plunged because earnings data, economic data and trade data was made available that shows, conclusively, that Q4 2008 was the worst in 60 years.
I've long stopped reading the WSJ. It is a hunk of shit propaganda newspaper that typically runs press releases from big banks, but this article was likely the very worst of their generally shitty pile. Crap like this makes me want to take up smoking again. |
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kcs0001
Joined: 24 Jul 2005
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| Posted: Tue Mar 03, 2009 12:17 pm Post subject: |
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| I've long stopped reading the WSJ. It is a hunk of shit propaganda newspaper that typically runs press releases from big banks, but this article was likely the very worst of their generally shitty pile. Crap like this makes me want to take up smoking again. |
Are you that skinny guy with narrow shoulders that used to work at Allianz Capital in Youi-do? You write like that guy. I was at Prudential
and had to endure meetings mit Allianz und KPMG people. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Mar 03, 2009 12:30 pm Post subject: |
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No. Not me.
The WSJ article above is a perfect example of how these so-called "professionals" screwed their clients. "Equities signaling", my ass. They respond to data. If the macroeconomic picture suggests growth, they rise. If it doesn't, they don't (in the medium run, as the short run is noise).
Second time today.
http://www.google.com/finance?q=INDEXDJX:.DJI
Click "max". You see the strong deviation from the historical trend? That's a bubble, and it has burst. The DOW will drop to 4-4.5k, maybe 5, as a bottom. And it will stay there for a long, long, long while. And the WSJ will blame it on Obama.. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Mar 03, 2009 12:45 pm Post subject: |
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Further,
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| And those sources have been forming for some time. The price of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year's easing will eventually stir economic activity. |
The world is not "awash" in liquidity. Who is "the world". Anyways, this new FIAT money is being dumped into black-hole balance sheets where leverage was in excess of 100/1. There is some large institutional money sitting on the side, but they're freaked out by the DATA from Q4, that is, the total and full meltdown of the global economy, and taking negative real returns in the form of public bonds because they know that everything, everywhere is totally broke. This is the only smart play, now.
And I'm not all ga-ga about Obama. Summers is leading him down a bad path and his policy choices thus far re: banks, AIG etc have been terrible. But the DOW and equity markets are tanking because of a trend of deflation, that won't stop until bottom hit.
Now, compare the garbage WSJ above to Martin Wolf:
http://www.ft.com/cms/s/0/774c0920-fd1d-11dd-a103-000077b07658.html?nclick_check=1
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What has Japan�s �lost decade� to teach us? Even a year ago, this seemed an absurd question. The general consensus of informed opinion was that the US, the UK and other heavily indebted western economies could not suffer as Japan had done. Now the question is changing to whether these countries will manage as well as Japan did. Welcome to the world of balance-sheet deflation.
As I have noted before, the best analysis of what happened to Japan is by Richard Koo of the Nomura Research Institute.* His big point, though simple, is ignored by conventional economics: balance sheets matter. Threatened with bankruptcy, the overborrowed will struggle to pay down their debts. A collapse in asset prices purchased through debt will have a far more devastating impact than the same collapse accompanied by little debt.
Most of the decline in Japanese private spending and borrowing in the 1990s was, argues Mr Koo, due not to the state of the banks, but to that of their borrowers. This was a situation in which, in the words of John Maynard Keynes, low interest rates � and Japan�s were, for years, as low as could be � were �pushing on a string�. Debtors kept paying down their loans.
How far, then, does this viewpoint inform us of the plight we are now in? A great deal, is the answer.
First, comparisons between today and the deep recessions of the early 1980s are utterly misguided. In 1981, US private debt was 123 per cent of gross domestic product; by the third quarter of 2008, it was 290 per cent. In 1981, household debt was 48 per cent of GDP; in 2007, it was 100 per cent. In 1980, the Federal Reserve�s intervention rate reached 19�20 per cent. Today, it is nearly zero.
When interest rates fell in the early 1980s, borrowing jumped (see chart below). The chances of igniting a surge in borrowing now are close to zero. A recession caused by the central bank�s determination to squeeze out inflation is quite different from one caused by excessive debt and collapsing net worth. In the former case, the central bank causes the recession. In the latter, it is trying hard to prevent it.
Second, those who argue that the Japanese government�s fiscal expansion failed are, again, mistaken. When the private sector tries to repay debt over many years, a country has three options: let the government do the borrowing; expand net exports; or let the economy collapse in a downward spiral of mass bankruptcy.
Despite a loss in wealth of three times GDP and a shift of 20 per cent of GDP in the financial balance of the corporate sector, from deficits into surpluses, Japan did not suffer a depression. This was a triumph. The explanation was the big fiscal deficits. When, in 1997, the Hashimoto government tried to reduce the fiscal deficits, the economy collapsed and actual fiscal deficits rose.
Third, recognising losses and recapitalising the financial system are vital, even if, as Mr Koo argues, the unwillingness to borrow was even more important. The Japanese lived with zombie banks for nearly a decade. The explanation was a political stand-off: public hostility to bankers rendered it impossible to inject government money on a large scale, and the power of bankers made it impossible to nationalise insolvent institutions. For years, people pretended that the problem was downward overshooting of asset price. In the end, a financial implosion forced the Japanese government�s hand. The same was true in the US last autumn, but the opportunity for a full restructuring and recapitalisation of the system was lost.
In the US, the state of the financial sector may well be far more important than it was in Japan. The big US debt accumulations were not by non-financial corporations but by households and the financial sector. The gross debt of the financial sector rose from 22 per cent of GDP in 1981 to 117 per cent in the third quarter of 2008, while the debt of non-financial corporations rose only from 53 per cent to 76 per cent of GDP. Thus, the desire of financial institutions to shrink balance sheets may be an even bigger cause of recession in the US.
How far, then, is Japan�s overall experience relevant to today?
The good news is that the asset price bubbles themselves were far smaller in the US than in Japan (see charts below). Furthermore, the US central bank has been swifter in recognising reality, cutting interest rates quickly to close to zero and moving towards �unconventional� monetary policy.
The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration�s proposals for a public/private partnership , to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.
Yet what is happening inside the US is far from the worst news. That is the global reach of the crisis. Japan was able to rely on exports to a buoyant world economy. This crisis is global: the bubbles and associated spending booms spread across much of the western world, as did the financial mania and purchases of bad assets. Economies directly affected account for close to half of the world economy. Economies indirectly affected, via falling external demand and collapsing finance, account for the rest. The US, it is clear, remains the core of the world economy.
As a result, we confront a balance-sheet deflation that, albeit far shallower than that in Japan in the 1990s, has a far wider reach. It is, for this reason, fanciful to imagine a swift and strong return to global growth. Where is the demand to come from? From over-indebted western consumers? Hardly. From emerging country consumers? Unlikely. From fiscal expansion? Up to a point. But this still looks too weak and too unbalanced, with much coming from the US. China is helping, but the eurozone and Japan seem paralysed, while most emerging economies cannot now risk aggressive action.
Last year marked the end of a hopeful era. Today, it is impossible to rule out a lost decade for the world economy. This has to be prevented. Posterity will not forgive leaders who fail to rise to this great challenge. |
You see the sobriety, the clarity, the concern for macroeconomic issues, the search of historical situations of similar concern, the absence of meaningless platitudes about "equities signaling"? This is financial journalism. The WSJ above is partisan, press-release, hackery of the first order. |
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kcs0001
Joined: 24 Jul 2005
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| Posted: Tue Mar 03, 2009 1:04 pm Post subject: |
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I accept your well thought out opinion with caveats. I stand by what I consider the "Wild Cards." The big Wild Card is commercial real estate-from what I understand from the U.S. mainland this is in freefall. (read Wells REIT) domestic Reit indexes are already destroyed.
In addition, domestic credit card delinqeuncy rates are increasing exponentially-this is being hidden by not describing them as such-being explained as "Bank Liquidity" problems. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Mar 03, 2009 1:11 pm Post subject: |
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CRE will be an absolute nightmare. Credit cards too. We've sadly only begun the rape of the financial sector, and the the permanently decreased demand from a tapped-out population.
In my opinion, CRE will determine just how bad this will be. But as I travel around the United States and Canada, and I see all the suburban wastelands, with big box stores, strip malls, fast food outlets, all built to serve customers who 1) never arrived or 2) are flat broke I fear CRE will be worse, in terms of bottom from peak, than residential RE.
http://globaleconomicanalysis.blogspot.com/2009/03/commercial-real-estate-mutiny-in.html
As with most else, California leads the way.
I really don't know what Obama can do. We're so fucked. |
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kcs0001
Joined: 24 Jul 2005
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| Posted: Tue Mar 03, 2009 1:21 pm Post subject: |
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| I really don't know what Obama can do. We're so fucked. |
Agreed |
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kcs0001
Joined: 24 Jul 2005
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| Posted: Tue Mar 03, 2009 3:15 pm Post subject: |
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| As much as I hate to say it folks, we are in an economic depression. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Mar 04, 2009 7:37 am Post subject: |
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| kcs0001 wrote: |
| As much as I hate to say it folks, we are in an economic depression. |
We really are.
The depression in the 30's lasted about 14 years. If this one is half as bad.. I don't really want to lose 7 years of normal professional advancement and development.
And we have a tsunami of entitlements around the corner, and public pensions are already short (in the near term) 1 trillion.
I figure I'll start a general economic depression thread. There are about 3-4 going at any time. Why not one big one?
Disagree or agree?? |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Wed Mar 04, 2009 7:53 am Post subject: |
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| mises wrote: |
Disagree or agree?? |
Go for it. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Wed Mar 04, 2009 10:16 am Post subject: |
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Martin Wolf has some good points, but he's wrong about why Japan was and remains stangnant and about the usefulness of fiscal stimulus. This part the WSJ got correct, partially.
The stock market is a leading indicator for a reason, it looks forward. It, like all markets, contains all the known information of all the participants and is "smarter" than any individual or computer.
The market was predicting an upturn earlier. The Obama spending plans have now caused the market to predict a further downturn.
We saw many smart individuals, such as Warren Buffett lose billions of dollars in the last 6 months because they believed in stimulus. Buffett bet on Obama winning and spending the economy up. His recent buys are all down miserably and he has had to apologize to shareholders.
The market was rising earlier because of the predominance of three large groups: 1) Those who thought the recovery was underway and that Obama's stimulus would be small and therefore not slow the recovery significantly, 2) Those who knew the Ponzi stimulus would hurt, but thought the effects could still be overcome quickly by the Productive elements of the economy, and 3) Followers of Ponzi economics who expected the huge Obama plan but expected that the Obama stimulus would work.
So, those predicting a rise were able to push the market up. Had Obama introduced a traditional small stimulus plan focused on encouraging business, investment, savings and production, they would have been correct, and the economy would be entering a recovery.
But Obama's plans have been to attack the productive side of the economy, spend and tax even more, increase wasteful spending and multiply the deficits, debt and fiat money machine that caused the problem.
And the Bush/Obama bailout and stimulus plans have proven NOT to work. The Bush bailouts have failed, and the Obama bailouts and stimulus are bigger and more detrimental to the economy.
So, the groups that were heretofore not participating in the market runnup, proved to be correct in their view of the future: 4) Those who were just afraid, and 5) those who understand that deficit spending is not stimulus, but just Ponzi economics and doomed to fail.
These two groups, 4) and 5) have been joined now by members of groups 1) and 2) in seeing that the Ponzi economic plans of Obama & Co. were bigger and worse than they had anticipated.
Result, the market is now predicting further economic setbacks.
Hour to hour, and minute to minute, daytraders and speculators may cause what appear to be irratic gyrations in the market. In reality, it is the shuffling, sharing and combining of new information in the marketplace, as events in the world change and the market must adapt. All markets move over time and the reactions are never instantaneous, but no one is smarter than the market. An individual may have moments of insight that allows him or her to make a few smart moves ahead of the market, but these take hard work and great genius to be found by only a few and only on rare occasions. |
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Robot_Teacher
Joined: 18 Feb 2009
Location: Robotting Around the World
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| Posted: Wed Mar 04, 2009 7:05 pm Post subject: |
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The reason for the economy continuing it's downward spiral is Obama is just continuing Bush's policy of frivolously using debt on attempts of a recovery that is impossible with current CEO and executive leadership in the business world. It's OK to use debt if it's being used effectively such as for investing in rebuilding America; not rewarding CEO's, companies, banks, and many C-level employees for the terrible job they've done in failing us. They didn't live up to acceptable standards. Why is the Obama administration continueing down the path of rewarding them by contineuing to support them instead of firing them and starting over from scratch?
I'm asking why the economy has to be so bad as there's plenty of money and resources in the world to go around. If only it was managed effectively by those big fat cats pulling the strings tight as they push the buttons of speculation or attempts to artificially control market dynamics in their favor. Capitalism is not intended to be controlled by the rich corrupting it in their favor, but rather a fairly stable and predictable system of free market dynamics. It is apparant the current crisis is artificially induced by the rich getting richer through markets speculation in their investing practices instead of investing in developing professional career employees, products innovation, adding long term value, and delivering true value to customers. They need to reconsider their approach to investing by focusing on building profitable companies that employ people who produce physical goods that solve every day problems; not stagnant pay, downsize, layoff, and allow mass business failures. Gainfully employing people allows them to purchase said physical goods. Now that so many people are less than gainfully employed, they're not buying at levels they are capable of and want to support which could result in a perpetual decline lasting a very long time. Longer than we want to think or speculate about.
Thumbs up to the Koreans and Chinese who built profitable manufacturing based companies that gainfully employed millions willing to work. Of course, that is an export driven model where they depend on American consumers to buy who are now too underemployed to financiall support it unless using credit. America needs to gainfully employ like it did years ago; not issue credit for people to support the economy and their living. Credit based economies collapse, because only raw physical wealth or money in the bank works properly in supporting a healthy economy and job market. Even if using credit such as for education and real estate, you need a job to service credit and this is why the banks about also about to fail following mass Western country retailers and Asian factory shut downs. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Wed Mar 04, 2009 7:34 pm Post subject: |
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America was at its greatest when the system was run for the benefit of the greatest number--the middle class. The implementation of trickle down economics after 1980 did not favor the middle class. The balance shifted to favoring the already successful at the expense of the middle class.
There's no need to 'soak the rich' but the anti-tax movement must come to an end. Paying a fair share (a negotiable concept) in taxes must be seen as patriotic. Even Adam Smith warned against unrestricted greed.
It took 30 years to get into this mess. It will take time and a change of attitudes to correct the problems we have created. |
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bacasper
Joined: 26 Mar 2007
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| Posted: Wed Mar 04, 2009 8:26 pm Post subject: |
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| mises wrote: |
| I really don't know what Obama can do. We're so fucked. |
Abolishing the Federal Reserve Board and printing our own money to save billions in interest paid to those private bankers, and going back on a gold standard would be a couple of good places to start. |
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