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A U T H O R
"A Play for Power"
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The second sinking of the fleet
On January 2, 2009, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034, the highest level since November's mortgage meltdown. The day after his inauguration, stocks suffered their biggest drop since December. The Dow Jones dropped almost 300 points and the Standard & Poor's 500-stock index fell 5.3% to 805.22. It was the worst post Inauguration Day performance in the post-World War II era.
Pundits on Wall Street blamed it on the fact that bleak business conditions under the democrats would cause the economy to take longer to improve. Yesterday, March 2, 2009 - 1.6 trillion dollars later - the Dow fell to 6763. That's an overall decline of 25% in two months and takes the market to its lowest level since 1997.
Instead of raising all the boats as he promised in his campaign for change, through a combination of ignorance, negligence and socialist ideology, the policies of Barack Obama and the Democrat party have sunk the fleet.
The Wall Street Journal has this to say, "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 sub par growth."
While the democrats revel in their victory and are reaping a boatload of political benefits by blaming former president Bush, it's clear that these dimwits are turning a national crisis into an opportunity to manipulate and redistribute wealth from taxpayers, equity owners and their pension funds. The cost of the bailout - which thus far hasn't bailed out anything - now totals in excess of 1.6 trillion dollars, every one of which will have to be borrowed from Lord knows where. We face devaluation of the dollar and loss of its important role as the world's primary reserve currency.
That prompts economist Dr. Paul Craig Roberts to ask the question, "How long will Americans permit ‘their' government to rip them off for the sake of the financial interests that caused the problem?" According to Roberts, these three simple acts could have nipped the problem in the bud:
1) Suspend the mark to market rule and allow financial institutions to keep their assets at book value until they can ascertain their true value and write them down over time.
2) Make the Federal Reserve the lender of last resort to all depository institutions, including money market funds.
3) Reinstate the uptick rule, a rule that was foolishly repealed a couple of years ago. It prevented short-selling a stock that did not move up in price during the previous business day. It kept hedge funds and shysters from ripping off American equity owners and prevented speculators from making money at the expense of others by ganging up on a stock and short-selling it day in and day out. Especially in the financial sector, the present administration continues to allow the price of the very assets they've propped-up to be driven down by short-selling.
Roberts says these three simple acts would have rescued the economy without costing the taxpayers one single dime. 1.6 trillion dollars ago, these views were shared by a number of leading economists as well as Newt Gingrich, former Speaker of the House.
Instead of fixing the economy, the Obama administration is seizing on the opportunity provided by this crisis to expand the size of government, redistribute income and push through their socialist agenda.
While it's true that Mr. Obama inherited an unusual recession, it was deepened by credit problems. The incompetence we're seeing in Washington now is the same incompetence that through the actions and inactions of Barney Frank and other Washington democrats, protected and covered-up the malfeasance at Fannie Mae and Freddy Mac. It has exacerbated the depth of the current crisis and pushed the economy over the brink. If in combination with the current spending spree, their actions succeed in destroying the dollar as a reserve currency as some predict, the good old, U.S. of A may well become a Third World country, unable to pay or sustain its standard of living.
Today, the Wall Street Journal summed it up this way:
"... 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.
"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."
I have a friend that says, "Give the man a chance, he's only been in office a month." I say, "Sorry my friend, the stakes are just too high." Given the present level of incompetence, unless somehow we can bring about a change in direction, our best hope is that the rest of the world either isn't looking or is even less competent. That may be the only way the U.S. dollar, our way of life and our position in the world will survive.
So for all you folks that wanted "change", that's the change that's coming and you'd best believe it.