There is a lot of hot air coming out of Washington and the press about who saved the financial system over the past few months. The White House claims they saved the system, the press agrees, and others say Ben Bernanke saved the system, even though he caused or helped cause the problems. Others in Congress believe that they helped save the system, who knows how they think that. Out of all of these credit seeking entities it does raise the question of who really saved the system, for now.
As far as the White House is concerned, I cannot think of one legislative item they produced in the past year that directly did anything for the banking system, but they demand credit for the save. The fact of the matter is that TARP, for all of its flaws, did save the system and that was a Bush era solution. Obama and Geithner simply imposed a ‘stress’ test for the banking system, just an FYI on the stress test, we surpassed the ‘rigid demands of that test’ as far as unemployment and other economic hardships. It is safe to assume that the stress tests were a joke and meaningless other than a confidence booster. Outside of that particular item the administration simply spent trillions on pet projects through the stimulus bill, which is clearly a failure, and that is it. Obama had nothing to do with saving the system outside of his vote for TARP, period.
To think Obama or any Congress person did anything else to save the system is pure partisan politics. I am fine with people giving the credit to Obama, because it proves my point that people do not follow what is really going on and have the attention span of a nat. However, this is a double edge sward because nothing has changed within the system itself so are they going to take credit when this thing falls apart? I doubt it, but it will be interesting to watch them weasel their way out of it. It is also clear that the latest proposal to separate prop trading from banks proves that the current administration does not and never did understand what caused the problems to begin with. In short, they are empty on intellectual knowledge and packed full of the people who helped create the problem so they are all simply doing a major CYA right now.
Congress has done nothing for the system, sure we got show trials, but they just threw a bond broker in jail for selling AAA rated securities, talk about misplaced blame! The reality is one person saved the system, in my opinion, Ben Bernanke. Now, just because I am giving him credit for the save it does not mean I like him or his policies. Yes, he cleaned up, or started to, his own mess, but make no mistake about it, he caused or helped create the current mess. Ben denies that he had any responsibility in making the mess, but he did as he endorsed, feverishly, low interest rates for a prolonged period of time during the early 2000’s. He actively endorsed QE by other countries and, now, the US and did not realize that housing prices increasing at 10-20% a year were a bad thing, huh?
Ben did save the system, but he also is responsible for its demise at the same time, so how much credit can you really give him? I do not think Ben should be reappointed as he clearly has no forward looking vision as far as potential trouble in the economy. That is one reason why I find it funny that Ben ‘sees no bubbles’ in the US markets or economy now. Yes, I believe equities are in a bubble, I have always believed that, since there was no real fundamental reason for the markets to go from the March lows to 1,150 on the S&P and 10,600 on the Dow. The markets were due for a bounce as stocks were pricing in a financial system collapse, but not all the way back up to current levels. As it turns out we might be at the precipice of the much anticipated correction now, a weak currency and massive pumping up of the monetary system is not a good thing over the long-term and is why we saw such a rally.
Regardless, Ben believes the market’s reaction is normal which can be interpreted many different ways, the conspiracy minded will say that confirms the Fed is buying S&P futures, but I read it as Bernanke is just oblivious to reality as the market grinded its way higher, with no volume or flows from retail investors, away from the economic reality of the times. Green shoots are everywhere according to Ben, but consumer credit is contracting, housing is being propped up, unemployment is grinding higher, the national debt is increasing a scary rate, Greece, Ireland, and other European countries are on the verge of default, Dubai did default, banks will not lend and hiring is minuscule at best. Sure we saw some GDP growth, government induced, and some areas, technology, look promising, but other than that there is no fundamental good economic data to support the current market levels.
It is clear that the pricing in of all the good news has already happened, Intel released good earnings and it sold off, the same with IBM and a host of other firms. Just because the market goes up does not mean everything is fine or that the market is forward looking, it is not. If the market was a good forward indicator we would not have sharp corrections because the market would always know in advance. If the market was forward looking we would not have seen the Dow hit 14,000 in the fall of 2007 when all the warning signs were clear as a bell, the Fed was dumping hundreds of billions of dollars into the overnight markets. What I am saying is I am happy if you are long and made money, but just because you made money and the market is trading at irrational levels it does not mean it is correct. The market is also not a forward looking instrument, so stop saying it is.
At the end of the day it was only Ben who saved the system pushing rates to zero, putting together those funding programs, TALF and such, but he did this at a price. By moving rates to zero he forced savers out of secure investments into higher risk assets so firms can refinance their garbage and give it to safety seeking investors because they have nowhere to turn for yield. Ben has expanded the balance sheet to new weekly records for the past year and it will continue to grow indefinitely, at this rate. Ben has started QE and it looks like he cannot stop those programs without a huge amount of pain to everyone, so it will continue forever. Ben has risked the entire future of the USA by putting the central bank in a position to permanently devalue the dollar, part of the ultimate goal I might add, and by taking excessive credit risk.
Ben just might have put the country at greater risk than the banks did in the previous 10 years. While I know deflation is in the works for the foreseeable future it is only a matter of time before inflation does hit or we are forced to openly devalue the dollar. All because Ben saved the system for a few bankers who we could have lived without as smaller institutions would have stepped up to the plate. To re-nominate this guy is the single worst idea I have ever heard. To give credit to Obama for saving the system is laughable at best, just because we want to have a beer with the guy does not change the fact that his policies are horrible and he has done nothing in his first year in office. We have to stop being influenced by what we want to believe and look at the facts on the ground. Those facts tell us Washington and the Fed have failed, end of story.
We are all a little biased towards ourselves and most people are likely to not judge themselves harshly. Even mass murderers tend to justify or view their actions as moral or for the greater good, well many of them anyhow. My point is that when we are faced with a question about our performance we tend to spin it in the best possible light, another great example is Goldman Sachs spinning their huge bonuses as God’s work. The reason why I bring this up is because our President was asked to grade himself during an interview a few weeks ago and he gave himself a “solid B+” which is absurd.
The reason why he should have avoided the question altogether is because he has not completed one campaign promise to the people, except for higher taxes. Health care was done behind closed doors, Gitmo is open, Iraq is still somewhere, Afghanistan is getting more involved 9a big mistake I might add), and unemployment is sky high (add back in those “marginally attached” people and we are pushing 11%). Let us not forget that the annual deficit is 4 times what it was under the last President, who was certainly no peach, and we are quickly approaching 100% debt to GDP, not good.
All of this while Democrats keep blaming Bush for everything and the Republicans accept that argument, what? Oh, how quickly we forget the recent past. Before I go any further I did not like Bush, at all, and firmly believe he was one of the worst President’s of all time, so save the hate mail. However, Democrats are just as guilty of where we are today as the Republicans as they were ushered into power in 2006 in congress, the real power in politics. They rebuffed any attempt to rein in the GSE’s and they rubber stamped all of bush’s policies for 2 years. So, to say “we inherited this problem” is utter nonsense and has to stop.
When you have the power to say no and stop crazy spending and you do not you are just as guilty as the person who proposed it. That is exactly what the Democrats did for 2 years and to make matters worse, they simply allowed things to continue the way they were without a peep. Don’t believe me, check YouTube.com for the GSE hearing meetings or go check Democrat voting records for raising the debt ceiling, 7 times. They did not inherit anything, they helped create it, end of story.
If you actually believe that they inherited all these messes and did nothing to create them then you have a poor knowledge of politics, history or simply are blinded by partisan politics. I, on the other hand, do not care as I see all politicians for what they are, parasites on the backs of the American people who care about 2 things, reelection and power, not necessarily in that order. To sit here now and say that the stimulus is working is simply crazy, babbling, rabid partisan bickering because it is clear that it did not. If it did work GDP would not be at 2.2% in 3Q09, I know we will get an initial estimate of 4 or 5% for 4Q09, but that to will be adjusted lower and will be all government heroin.
Never before had the US government spent $787B in any stimulus plan and not seen any results. Instead the best argument Democrats can muster is that it stopped us from going over the abyss, oh really? Are these the same Democrats who said that not all the money has come into the system yet so we don’t know how well the stimulus is working? So, how can you say that on one hand it stopped us from falling off a cliff, but on the other hand say we don’t know how well it is going to work? You can’t because that is political double talk for we spent a bunch of money on stuff and we made many mistakes, but will not admit it. Instead, they decide to lie to us and then launch secret stimulus packages, i.e. the jobs bill passed at the dead of night.
What no one ever talks about is this, what would have happened if the stimulus was not enacted? I am willing to bet that things would have probably followed about the same track it is following now. Well, I think there would have been an exception to that, employment would have bottomed sooner and we would be seeing real recovery a lot sooner. Considering even Jim Cramer has admitted that the CEO’s he has spoken to have not seen one dime of stimulus I am pretty sure that the stimulus did not work at all. I mean, even the government is not adding tons of jobs, yet, until the census begins. Of course we do have more government employees making over 100K than ever before in history, but who cares, right?
If the original stimulus saved us and is going to get us back to growth then why in the world do we need a second stimulus? Simple, the first one was the greatest fleecing of America next to TARP in the history of the world. However, never fear because it is all Bush’s fault, a year later. I absolutely hated it when Bush blamed Clinton for the recession in 2000 just as much as I hate Obama blaming Bush now for one simple reason, the President has very little to do with the economy. I say that with a caveat, unless they implement policies that impact the economy like ridiculous stimulus packages, unpaid for tax cuts or Medicare advantage plans and things like that. What I mean is that the last 2 administrations, in my opinion, have had a greater impact on the economy than previous administrations mostly because of their lackeys in Congress happen to be in power at the same time.
Because of the absurdity of what is going on, even though I cannot stand the hypocritical Republicans, I am praying the Republicans take all of Congress in November and grid lock this thing for the next couple of years. Why would I want that to happen? Simple, I do not want my currency to be toilet paper around the world and I certainly do not want more spending. I also do not want more unionization of government employees, we need more firings in government, not hiring’s or raises. What I am trying to say is that we need balance restored back in Washington, it worked in 1994 and perhaps it could work again.
In the meantime, our President should not be issuing any grades for himself as he certainly did not earn a “solid B+” as I am pretty sure his math teacher would have flunked based on his estimates on health care costs and budget deficits. I am fairly sure a big “I” is what the President should have given himself for incomplete since he has not even kept the transparency promise he made. When C-SPAN says what is going on, you got an image issue Mr. President. So, keep some promises, fire some government workers, starting with all of you Czars, and let’s really figure out the deficit before the dollar does crash.
We all know that the President has surrounded himself with a vast army of individuals to combat everything from the economic downturn to green jobs. While it is not unusual to have a literal army of people to help with a variety of issues in the Whitehouse it is unusual to have as many Czars as we have and to have so much dependence on an economic team of advisors. However, what if the team of economic advisors is a group of people who are inept, irresponsible and, in general, incompetent?
For many months now we have seen conflicting messages coming from various members of Obama’s economic team, Christine Roemer says that we are not doing that great while Larry Summers says everything is great and a host of other conflicting messages. We have also heard several stories about conflicts between Paul Volcker and many on the team, Volcker, who I am not a huge fan of, seems to be the only voice of reason and the only one who actually solved any real problem in the US while Summers and others created our problems or merely worked on hypothetical illustrations only. However, the most troubling person on this economic team is Paul Krugman who gets the most press I might add.
I realize the Krugman did win the Nobel Peace Prize, but so did a bunch of others who should not have, so who cares. Any person who actively advocates excessive deficits the way this man does must be insane. Not only is he advocating more deficit spending, a doubling of the original stimulus to $1.4T if he had it “his way,” but he also thinks a VAT consumption tax is a dandy idea as well. Most disturbing is this latest interview from Advisor Perspectives I read today were Mr. Krugman said the following:
“There is a pretty good case, at very high incomes, to have something like a tax rate in excess of 50%. We had a 70% tax rate for a good part of the 1960s and 1970s at the top end and survived with that. We had a 50% rate for a good part of the Reagan years, which people forget about. I would be willing to go north of 50% but I don’t know how high.
If you put a super-high rate on income of $5 million, then you are basically hitting only sports stars and Wall Street wheeler-dealers.”
Now, I am not sure if many people remember the 1970’s or not, but it was not exactly the era of prosperity that America is known for and is the direct result of over taxation and spending from the 1950’s and 60’s. He also does describe “super-high” incomes, but does not describe high incomes so that is open to interpretation and my guess that would be those earning more than $200K a year. However, if you add in his VAT, higher state income taxes, higher property taxes, higher sales taxes, now higher federal income taxes and all the other higher fees we have to pay this is a different ballgame than the 1960’s-70’s.
To frame and claim “we survived” the 1970’s is not exactly what most American’s want to hear, especially if they lived through it. I know that Obama’s base was not alive during that period of time, but it was not pretty and is a time most people would not care to repeat. I know retro is cool, but disco was terrible, bell bottoms are not cool and inflation really does stink. I know we are going to have to face higher taxes, that is inevitable, but how much and who is going to have to pay?
What we do know will happen is this, when taxes go up, on the wealthy, they will earn less money. This has been proven time and again through treasury tax receipts. Why does this happen? Because there is a cross over point where it is more advantageous for a wealthy person to earn less, not work as hard, and bring home the same or more money because they are paying less in taxes, it is a fact. When this happens the government will then be forced to raise taxes on more people causing marginal rates to go up across the board. Now, the poor have nothing to worry about, but the middle class does. The middle class always gets stuck with the bill, it is just the way it is.
Krugman must have lost his mind, which is all I can possibly think has happened. He is just set on mortgaging the future of the US on more stimulus and raising taxes, a system we know does not work long-term. I know we cannot lower taxes, that is impossible given our fiscal issues, we could create employment tax credits that are worthwhile to hire employees, i.e. an ongoing tax credit instead of the onetime credit often proposed or something to that effect. The best way to collect tax revenue is to close loopholes and reduce tax deductions for wealthier Americans, end of story and much better than a tax hike. An even better solution would be to simply stop the senseless spending, but that will never happen.
I guess what I am saying is that most Americans pay enough in taxes already. Just look at what the average American already pays in taxes, it is insane. Between state and federal income taxes you lose a ton of your income, never mind FICA and Social Security taxes. There is also the AMT, hopefully you are not subject to this one, but if you are it is really unforgiving. Sales taxes which you pay on just about everything you buy, think about that one for a minute and how much you pay just for groceries. Utilities tax, including your cell phone. Property taxes, which you do get a income tax deduction for, but you still pay it. If you own a car, registration fees, there is about a $.40 on every gallon of gas you buy. The list just goes on and on, but Krugman, oh, he wants you to pay way more.
So, my suggestion is that Krugman, Matt Damon, the Baldwin’s, Nancy Pelosi, Barney Frank and every other nut job that wants heavy social programs should voluntarily issue a cashier’s check for 70% of their income to the treasury every year. That is until their higher taxes are passed into law, then they do not have to worry about it. Just like you should not have to pay for your neighbor’s home that they bought and could not afford, we should not be forced to pay for these peoples wacky ideas and social programs that they cannot afford. Oh, if they do not want to write the check out to the treasury, they can send it to me, my name is CASH.
There have been several actions taken by both China and the US this year against each other both claiming dumping charges. The irony is that all the accusations are probably true given the fact that China does subsidize its industries rather substantially which allows them to bury overpriced US products. However, China’s accusations about US dumping of auto parts and cars is also true given that GM and Chrysler is also heavily subsidized by the US government as well, that is now undeniable and an embarrassment to all US citizens.
I realize that the US won the ITC, International Trade Commission, ruling today, but do you really believe that ruling was impartial? Considering the US provides a large portion of the funding for such organizations it would be doubtful that we would lose any case brought before them. I would compare this to the arbitration clause in your credit card application which was so blatantly slanted to the creditor that Congress basically was going to strip it of its powers before the industry ‘voluntarily’ got rid of that clause from its agreements. It stands to reason that when one party basically funds an organization to arbitrate disagreements between that party and third parties there is no objectivity, at all.
Regardless, how many actions is this now between the US and China? It started with tires, moved on to chicken, cars, seamless pipes and now steel grates. All of this while the US is trying to force China to strengthen its currency, which China would be nuts to do I might add. All of these actions smell of protectionism which will not be good for the average American in 2010. While the Fed wants to create inflation I think Obama misunderstood what type of inflation they were talking about, wage inflation not just price inflation. At this rate, and for the first time ever, the US consumer could be facing the same or lower wages with rising prices because this administration is picking fights with our largest supplier of goods.
The irony is that the media actually says that foreign nations actually love us now because of Obama. That may be true in Europe, but I could care less about Europe because the last time I checked we did not get the vast majority of our cheap everyday goods from Europe, we get them from China. Frankly, we are ticking China off by demanding that they do things they do not want to do and we are in no position to demand anything at this stage of the game. Especially since China is almost, if not already, the number 2 economy in the world with the largest population in the world. Did I mention they also hold a lot of US dollars as well?
Telling China, not asking them, to strengthen their currency is also protectionism whether you want to believe it or not. By asking them to make their currency stronger you are telling them to raise their prices on their goods which, in turn, makes products at Walmart more expensive. The goal, of course, is fruitless, but Obama figures that if Chinese goods are more expensive then you and I will opt to by a US made good instead. This is not a new idea and has been tried many times before, it never works, and it may trigger some pretty bad things to happen, but hey who cares about history and facts when we have perpetual bailouts going.
I have no idea how China will react to this politically, I am not a politician, here is what I do know. If we buy less Chinese goods that means our trade deficit legitimately gets smaller, a good thing right? Wrong. With some $5T in treasury debt to roll and issue this year we need countries like China to run trade surpluses so they are forced to buy our paper. If they are not running those trade surpluses then they will not have to buy our paper, they could if they wanted to, but they would not have to. That is the biggest reason in the world to not play games with them right now since our ‘recovery’ is shaky at best. If they do not buy our debt that means QE will continue and then we are in really big trouble because technically monetization of a countries debt is the final straw before it defaults, that is a historical fact not an opinion.
I am not sure if the current administration understands that or not, but somehow I doubt it. I believe they think that this forced ‘buy American products’ policy will work, but protectionism was what really kicked started the Depression, combined with bank failures, which we already have a ton of I might add. Maybe this is some type of payback to organized labor or something, who knows, but I see other troubling signs of protectionism as well. Japan is doing a cash for clunkers program that American car makers do not qualify for.
Now, US lawmakers made the rules and most c4c sales went to Japanese car makers and why not they make one heck of a car and the companies are solvent. The Japanese program is slanted towards only Japanese automakers, again, why not they make great cars and the companies are solvent, but now some representatives are upset about this. What are they going to do about it, I do not know, but they could do something dumb like put a tariff on Japanese cars or something, which I hear is being discussed, that is protectionism.
Protectionism and trade wars are bad, bad, news for everyone, but especially for the US consumer. Our government knows not what they do and they continue to do ridiculous things which make life increasingly more difficult for the everyday American, but let the people who messed up the economy off the hook, completely. If they do more to increase this blossoming trade war or initiate more protectionism legislation you have to act and tell them to stop. I want America to succeed, but on its own merits, not through legislation that punishes free trade.
It is always fun to make forward looking statements or predictions even though no one knows what is really going to happen. I decided to write this piece because Dennis Kneale was bragging about his wonderfully generic and completely mindless 2009 predictions he wrote last year which he claims was 90% accurate, even though it was the equivalent of a John Edwards show accurate list of junk.
Sorry, but predicting ‘corporate smashup,’ which I am not even sure if that is an actual technical term or not, but regardless, is as pretty generic as you can get as the government was passing out bailout money like mad. My other favorite prediction was that the Big 3 would get bailout funds as they were begging Congress for, drum roll please, a bailout, I mean seriously. The mindlessness went on of course, but that is Dennis for you, so I figured I would actually go out on a limb and make real predictions, and not use general ‘corporate smashup’ terminology.
I am not picking on Dennis, ok I am, but its fun! In all fairness to Dennis 2009 was a tough year for him as CNBC teased him with his own show only to take it away from him. He clearly is putting all that weight back on again, hey we all face the battle of the bulge at one point or another though. He got smacked by multiple guests for being an idiot because, well, he’s an idiot. The real irony is his 2010 prediction of Twitter going under is already in the can as they just inked 2 deals worth millions, wrong again Dennis and it is not even 2010 I guess VC money is a lot smarter than you, go figure.
Here we go, 2010 predictions:
Sovereign debt issues will escalate in Eastern Europe, meaning defaults because no one cares about that area. Dubai will not receive more exceptional help because they will be “made an example of” by its neighbors. Greece will be bailed out by the EU, go figure. However, emerging market debt will be OK.
Unemployment does not improve and will reach 11.2%, unfortunately. U-6 unemployment/underemployment will reach 20%+.
A third party will be formed in the US, but not in time for the midterm elections.
Democrats will lose the majority in the Senate and the super majority in the House, but not the majority.
Obama’s approval ratings will mirror Bush’s as he pushes cap and trade which is unnecessary and punitive to the American people. He will learn that there is a price for over exposure, seriously, we do not need to see him every day and he is no FDR. Unfortunately, if we give anyone any credit for the BS growth we are witnessing it is the, I can’t believe I am going to say this, the Fed.
Bank failures will reach over 300 for the full year.
We will see a spectacularly large bank failure next year, obviously not a too big to fail, but a large institution. I actually would place the FHA in this category, but it could also be a large regional about the size of a Key Bank, I refuse to give my prediction because of legal reasons and Key Bank is for comparative purposes only, but they are not in great shape.
We will see inflation and the Fed will be unable to raise interest rates due to the unemployment picture. For the first time we will have a recession, or whatever we are calling it by then, with rising prices.
Health care premiums will go sky high because the biggest sham of “reform” just got past by our elected officials who do not understand how the system actually works.
Some nut job attempts to shoot investment bankers because of high bonuses they will receive. I am not advocating it, I think it is stupid and it will be senseless, but there is a high probability that some nut job will do it.
High frequency trading, dark pools and other questionable practices will be regulated or severely restricted by Congress through legislation. Whether or not this is a good thing remains to be seen, but I would suspect it is.
The market suffers a sharp and severe correction as people realize that stocks do not go straight up and the markets actions have deviated from the realities of the economic conditions. When this happens is anyone’s guess, but it will happen.
We may see a 5% GDP print, but those numbers will be severely revised down and we will see the weakest ‘recovery’ ever in the history of recoveries from recessions. After we had spent some $2T+ fighting this economic downturn which will astound the public. The average recovery in terms of GDP growth is well above 6%, but the latest revision for 3Q09 GDP is 2.2% which is appalling. Remove government spending, just forget it because you don’t want to know.
The dollar will have some strength before the Fed realizes that it must double its balance sheet again and we will then see new lows in the DXY by year end.
Gold will reach new nominal highs.
The debt ceiling will be raised again to $16T before they eliminate the debt ceiling completely. I am kind of kidding here, but seriously why have a ceiling when as soon as they hit it they just raise it?
Emergency tax hikes will be enacted by summer bringing top marginal rates to 40%. Capital gains tax rates will increase to 25% and dividends will revert to ordinary income. I would not be surprised to see a VAT enacted as well, just because.
Google takes over the world because Android is really a secret mind control device that when Eric Schmidt gives the secret command, I hear the word is ‘snicker doodle,’ everyone with an android phone will do Google’s bidding.
Obama will finally fess up and admit that he was born in Kenya followed up with the following statement; “what are you going to do about it?”
Mark Haines finally snaps on the air and starts babbling incoherently to himself while swatting at invisible bugs… wait he already does that.
There you have, Ray’s long list of predications for 2010. Some will happen, most won’t, but they are fun to guess at. I also have a wish list that involves people joining that 11.2% projected unemployment rate because they deserve it, but since its Christmas I will refrain from printing such a negative list. However, I am sure you have guessed that one of those wishes, projections, is that Dennis’s contract will expire at CNBC and we never see him again, I can dream. However, as we have seen from other failures like Ron Insana no matter how bad you screw up that network will always take you back. Man, how do I get a job there? Merry Christmas, yeah I am not politically correct.
Be the First to Comment 
Subscribe to Annuity IQ's Feed
