Barack Hussein Herbert-Hoover Obama

Cut spending in the middle of the worst recession since the Great Depression? The return of Herbert Hoover and the "liquidationists."

By the way, Obama opposed the idea of a spending freeze during the campaign, when it was proposed by McCain and McCain lost the presidency. Now Obama supports it???

Amazing!

Amazingly stupid!!!

Futures beginning to dive on Obama's proposed spending freeze

It's 10:40pm ET and S&P futures are off 5 points. This comes on the heels of an announcement earlier that Obama plans to propose a spending freeze. In my previous post (and in earlier posts from days and weeks ago) I said that this announcement would crush stocks. It's already starting to happen.

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Obama to propose spending freeze!

Obama Spending Freeze: The President Will Propose Discretionary Three-Year Freeze

I told you it was coming. Here it comes!! We will definitely have a double dip recession and the second leg down could be far more severe than the first with unemployment rising to 15%. Watch stocks get crushed now...absolutely crushed.

Obama endorses deficit task force

Obama is endorsing a deficit task force that will be charged with the job of coming up with suggestions on how to reduce the deficit.

Rather than focus on deficit reduction, which will, without question, mean lower output and higher unemployment for years to come, the president could have simply shown the public and his entourage of deficit hawks this simple chart below, which shows that the deficit is still tiny compared to the 1940s.

Then he could ask his deficit hawk friends why that deficit didn't "bankrupt" the United States? And if they're really up to the challenge he could follow that question with, why did we experience an enormous surge of prosperity following that deficit?

Finally, he could show the public--many of whom are without jobs--a very graphic explanation of why it is necessary to increase the deficit to get us back on the road to prosperity. Duh!!

Axelrod refuses to rule out tax increases to deal with deficit

Washington (CNN) - President Barack Obama's senior adviser on Sunday refused to rule out tax increases as part of a solution to the nation's growing deficit. Speaking on CNN's "State of the Union," David Axelrod said Obama supported having Congress set up a bipartisan commission that would come up with a plan to reduce the deficit. "We want to sit down in a constructive way and approach this problem," Axelrod said. He wouldn't speculate about possible solutions, saying, "Let's see what a bipartisan effort to deal with these deficits will produce." "Whatever the appropriate approach is, the president will be straight up with the nation," Axelrod said. Asked about the possibility of tax increases, Axelrod said: "If anybody has a plan to do this without raising any taxes on anybody, upper income or below, they should come forward with it because nobody wants to raise taxes." During the 2008 election campaign, Obama repeatedly promised he would not raise taxes on those making less than $250,000 a year.

If Obama has any chance at all for a second term, Axelrod must go along with Geithner and Summers. That is clear.

And, by the way, I HAVE A PLAN FOR CUTTING THE DEFICIT WITHOUT RAISING TAXES! Yes, me...I have a plan. It's called GROWTH!

If the deficit grows by $1 trillion as the government spent more on consumption, investment and employing people, we'd get at least $2 trillion in additional GDP (conventionally accepted ratio) and that would mean the deficit FELL as a percentage of GDP!

Don't blame Volker, blame Scott Brown

The media has been blaming the "Volker proposals" as the reason behind the market selloff. However, the market began selling off on Wednesday, which was a day before the news broke that Obama intended to go with Volker's restrictions on the banks.

So what happened Wednesday that made it a game changer?

Simple. It was the day after the Massachusetts special election, in which Republican challenger Scott Brown emerged victorious.

Brown's victory changed the balance of power in Congress in an instant. It anointed those who see deficit deficit reduction as being second only in importance to national security, in a position to make it happen.

In his victory speech Tuesday night, Brown even threw in the now-obligatory yet completely idiotic and inapplicable comment, "We can't keep leaving all this debt to our kids and grand kids," line.

The very next day the Dow tumbled 122 points and has been heading south ever since.

And if you don't believe me that the market is worried about deficit reduction, then pay close attention to the direction of stocks following President Obama's State of the Union speech next Wednesday (Jan 27). In that speech he is expected to propose some very austere deficit cutting measures, which will absolutely crush stocks.

If I were you and if you have money in the market, or are disposed to making some, I would aggressively be short stocks at the close of business Wednesday.

We are about to repeat the terrible mistakes of 1937, when FDR was conned into balancing the budget, sending the nation back into a mini depression. It took a world war to finally boost spending sufficiently to get us out.

Obama will follow Clinton's playbook after his '94 defeat

An article in today's Wall Street Journal talked about Clinton's comeback after the Democrats were trounced in the 1994 elections. I believe, without doubt, that this will become Obama's playbook for the rest of his term. That's bad for the economy, here's why:

"...Famously, of course, he [Clinton] left behind efforts to overhaul health care. Then, in 1995, Mr. Clinton went against his party's orthodoxy by embracing a plan to balance the federal budget. And in 1996, he moved against Democratic orthodoxy again, by embracing a plan for wholesale changes to the welfare system."

A technology boom at the time masked the real destructiveness of the budget balancing, which ultimately led to a collapse in private savings. (By definition, if the gov't runs a surplus, the private sector must run a fiscal deficit.) However, Obama has no technology boom. In fact, he has nothing supporting this economy with the EXCEPTION of gov't spending and he's about to cut that!

Bernanke vote shakier as more Democrats defect

If Bernanke fails to win confirmation for a second term it would probably signal the end of the policy of Quantitative Easing, which Bernanke has championed. Mny lawmakers feel he has contributed to the "debasement" of the currency and is sowing the seeds for future hyperinflation. (All nonsense, but they see it through the prism of their beliefs.) Hence, Bernake's departure would almost certainly be very bullish for the dollar.

Wall Street Bonuses exceed the GDP of 13 states!

The $64 billion in Wall Street bonuses that will be paid out this year exceeds the gross state product of 13 states that have a combined population of 13.5 million people!

Source: Bureau of Economic Analysis

Where are our priorities!!

Volcker Steps to the Fore

The Washington Post has an article this evening highlighting the increasing influence of Paul Volcker, former Fed Chairman, on the Obama Administration's economic policy.

Senior administration officials say there is now broad consensus within the
White House and the Treasury for the plan advanced by Volcker, who leads an
outside economic advisory group for the president....Volcker had been arguing
that banks, which are sheltered by the government because lending is important
to the economy, should be prevented from taking advantage of that safety net to
make speculative investments....

Much of today's announcement by The President and Volcker focused on potential new regulations on commercial bank activities. But what is Volcker's view on fiscal policy?
This is from an interview Volcker did in December with a German magazine, that was found referenced at another blog:

SPIEGEL: To get the recovery to the point where it is right now has cost a lot
of money. National debt will probably reach $12 trillion in 2019. Just serving
the debt costs $17 billion a year — at least according to this year’s forecast.
That’s difficult to sustain.
Volcker: You’ve got to deal with the deficit and
you’ve got to deal with it in a timely way. Right now, with the unemployment
rate still very high, excess capacity is still evident, and the economy is
dependent on government money as we said. We are not going to successfully
attack the deficit right now but we have got to prepare for attacking
it.
SPIEGEL: Should Americans prepare themselves for a tax
increase?
Volcker: Not at the moment, but I think we would have to think
about it. The present tax system historically has transferred about 18 to 19
percent of the GNP to the government. And we are going to come out of all this
with an expenditure relationship to GNP very substantially above that. We either
have to cut expenditures and that means reducing entitlements and certainly
defense expenditures by an amount that may not be possible. If you can do it,
fine. If we can’t do it, then we have to think about taxes.

So this looks like Volcker is apparently not in support of a radical departure from the immediate fiscal policy, but as Mike has recently posted here, current fiscal policy is not robust; maybe the best you can say is that Volcker is not advocating making it worse.

How to make the switch to honest (banking)

Check this out. It's hilarious, but true!

Stock market skids lower, as predicted by this blog

Readers of this blog should not be surprised at the stock market's recent about face. I have been saying for weeks now that a renewed focus on deficit reduction by Obama will not only abort the rally and economic recovery, but send the market sharply lower--perhaps even to the March '09 lows--depending on how serious and austere the deficit reduction measures are.

I have been staunchly bullish over the past year and rode this rally up despite widespread cries of gloom and doom. Now I am bearish.

I did what I did and do what I do because I understand that the most important driver of the economy are the fiscal policies of the central government.

When you know that, that's pretty much all you need to know.

Government spending adds to GDP and the net worth (wealth) of the private sector. When the cental gov't runs deficits the private sector runs surpluses and when the central gov't reduces deficits or runs surpluses, the private sector's surpluses diminish or turn to deficits. That's the way it works. It's that simple.

It's not my fault that nearly everything you hear about economics is wrong. I've been doing what I can to try to educate and inform.

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Illinois Careens Towards Bankruptcy; Governmental Collapse Coming

"The crisis will come when you see state institutions shutting down because they can't pay their employees," David Merriman, head of the economics department at the University of Illinois at Chicago told the publication.

A massive domino effect of states going bust is now in the cards as Obama prepares to begin on deficit reduction.

White House Preparing Fiscal Task Force

"The White House is laying the groundwork for a task force that could make it easier for lawmakers to approve tax hikes, spending cuts or other unpleasant measures to bring down budget deficits, lawmakers and aides said Tuesday."

Barack Obama has effectively destroyed his party's chances of retaining control of Congress and now he is setting himself up to be a one-term president and I say this with certainty.

His failures to confront Wall Street and the timidity he showed when it came to restructuring the financial sector, will now be followed by a new policy thrust that will focus on deficit reduction.

At at time when 30 million people in this country are either unemployed or underemployed and when our industry is barely using two-thirds of its productive capacity, the draconian levels of new fiscal drag that will be added will absolutely tank the economy. Say goodbye to the past year's stock market gains and I would not be surprised to see the downtrend get underway in earnest the day after Obama gives his State of the Union speech outlining his deficit reduction plans.

Quite possibly, no president in history has been so confused and ill-informed as Barack Obama.

ECB prepares legal ground for euro rupture as Greek crisis escalates

"Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union." Read full article here.

It's coming!

The cracks in the euro monetary system are starting to break wide open and the euro may be headed for a monumental bust. This collapse will make Britain's exit from the ERM back in 1993 look like kiddie stuff. (Remember, that made George Soros a billionaire!)

Short the euro now!!

'Lending Reserves': NY Fed Report Disputes Remarks by Chairman

A recent paper published by a research division of the NY Fed is titled: Why Are Banks Holding So Many Excess Reserves?

From the Report Summary:

The buildup of reserves in the U.S. banking system during the financial crisis has fueled concerns that the Federal Reserve’s policies may have failed to stimulate the flow of credit in the economy: banks, it appears, are amassing funds rather than lending them out. However, a careful examination of the balance sheet effects of central bank actions shows that the high level of
reserves is simply a by-product of the Fed’s new lending facilities and asset purchase programs. The total quantity of reserves in the banking system reflects the scale of the Fed’s policy initiatives, but conveys no information about the initiatives’ effects on bank lending or on the economy more broadly.

Many in the financial media and policy makers have been lamenting that the banks are "sitting on their reserves" and not lending them out; and others predict that when they finally do lend them out there will be large inflationary effects . But here we have the research arm of the policy implementing Federal Reserve Bank of NY more than just implying that reserve balances are not loaned out, and that reserve balances are just a necessary accounting record of the scale of Fed operations and should not be looked at in judgement of future economic outcomes.

This revelation by the NY Fed should not be a surprise to readers of this blog. But perhaps it is to Chairman Bernanke, who stated in a speech as recently as October 2009:

The idea behind quantitative easing is to provide banks with substantial excess liquidity in the hope that they will choose to use some part of that liquidity to make loans or buy other assets..... banks could find it profitable to be more aggressive in lending out their reserves, which in turn would produce faster growth in broader money and credit measures and,
ultimately, lead to inflation pressures...

So which side is correct? I think it is time for some of the researchers at the NY Fed to "man up" and give a presentation to the Chairman and the FOMC.

Obama tells banks: `We want our money back'

How confused Obama is...how utterly confused. This Administration goes from one bad policy to the next.

First let me go on the record as saying I am not in support of these "too big to fail" banks and I am outraged at the bonuses being handed out while millions of Americans suffer. This has got to stop.

But Obama's statement--"We want our money back"--is so ignorant that it's embarrassing.

Who, exactly, is Obama referring to when he says, "WE" want our money back? It certainly won't be taxpayers. They'll lose, because many taxpayers are shareholders of these banks and imposing some windfall tax on these companies will end up lowering the value of their investments, which means their wealth is reduced.

And customers won't get their money back either, because they'll be paying higher fees. Jamie Dimon pretty much stated that outright. Once again, millions of small depositors who may already be struggling financially will have to pay more in fees, leaving them with less.

What do they teach at Harvard? Obama, Larry Summers, Robert Rubin and the supporting cast of Harvard grads in this Administration all have one thing in common: a long legacy of bankrupting everything they touch as they exert their power and influence over all other Americans as if we were their own private little serfdom.

In order for America to move on we must break the vice-grip of power that the Harvard/Goldman Sachs coterie exerts over the rest of us! Until that happens we are their slaves.

New futures regulations = pablum

Another lost opportunity for real financial reform.

CFTC's trading proposals might not be too tough

Futures market speculation has grown exponentially in the last few years, especially with the emergence of massive, "long-only" funds that have contributed to price increases in everything from gasoline to basic food staples like bread, cereal and sugar.

Congress had a chance to pass real reform and clamp down on this sort of destructive speculation, but what's about to come out of this looks to be nothing more than watered down pablum.

"Limits" on the size of futures positions will be imposed, but according to some market participants those limits will be set so high that they'll likely have little effect on actual current positions.

Large speculators and investment banks will continue to have free rein to drive up the price of food and fuel, making it harder for ordinary folks who are already suffering because of job loss.

Another example of Obama's timid leadership and how this is causing a massive flow of wealth to the top. Working people and families are getting destroyed while speculators are rewarded.

Deficit in first three months of fiscal year up $50 bln over last year

The Treasury just released the budget statement for December and it shows that for the first three months of the current fiscal year (2010) the deficit was $388.5 bln compared to $332.5 bln for FY 2009. Increased deficit spending has been supporting output and that's why the economic data and the stock market have been moving higher.

It's doubtful that this will continue, however, as Obama has promised to cut the deficit this year and the deficit has become a major political issue.

Analyst who said to "short all banks" last April is asked to give "expert" testimony before Congress

Maybe the reason why the government does so many things wrong is because it often relies on the advice of people who don't have a clue.

Top-rated Wall Street banking analyst Mike Mayo of Calyon Securities testified before the Financial Crisis Inquiry Commission today. Mayo's observations to the Commission were the following: Banks were "on steroids." (Read here.)

Perhaps that's how he rationalizes his disastrous call to "short all the banks" that he issued back on April 6, 2009. I wrote about that call in one of my blog posts.

He's like these people who say the recovery is "phony" because government spending has been providing the demand. In their minds since it's not the private sector doing that, then somehow the output of goods and services are not real? What are they, then? Are they an illusion? Will they disappear? Is the car that somebody bought with cash from the government not really a car?

Ridiculous.

Anyway, you get much better advice here. In my post last April I told you to buy the banks when Mayo and Whitney and Whalen were all saying go short. The S&P Banking Index (BIX) has nearly doubled since then.

Fed survey fails to state the obvious

"A new Federal Reserve survey, released Wednesday, underscores the duality of the economic turnaround: even as the economy grows and the recovery extends its reach geographically, more than 15 million people remain unemployed."

The obvious being, that the economy is growing yet fewer people are participating in the wealth. Call it Obama's "wealth flow to the top." This is a recipe for social disaster if left unchecked.

The Fed also noted:

"...although "economic activity remains at a low level, conditions have improved modestly further." However, the Fed also noted that "labor market conditions remained soft" in most of the Fed's 12 regions as the new year started."

Could it be that Bernanke doesn't understand that there is no direct link between monetary policy and aggregate demand? Only fiscal policy can address this, yet Bernanke has publicly spoken out against deficit spending, so neither he nor any other Fed members be should surprised that economic activity remains at a low level.

Suspension of mark-to-market would have saved taxpayers billions $$

It's official...we can put an absolute concrete value on the minimum that would have been saved by taxpayers last year had the SEC suspended "mark-to-market" accounting rules during the crisis.

That number is $45 billion.

Where do I come up with that?

Simple...it's the profit that the Fed earned in 2009. That profit came mostly from owning the supposed "toxic" assets of financial institutions. It's money that could have went to taxpayers (shareholders) had the government allowed a suspension of mark-to-market asset pricing.

Instead, the profit goes to the black hole of the government. Sad, because it's a sum that the private sector could have used in this awful economy.

This is an example of why the whole concept of "taxpayer on the hook" is backward. The taxpayer is on the hook or worse--loses--when the government is instructed to make money on the absurd notion that that somehow helps the taxpayer. When the government makes money, the taxpayer loses by definition.

The government has a monopoly on the creation of money under the current monetary system. If it is allowed to do this to the degree that the nation's output is maximized, without interference, we become rich and prosperous.

However, when the government is instructed to "make money" by transacting in a commercial fashion with a private sector enterprise, then the government's money profit ALWAYS equates to the private sector's money loss.

Obama Said to Consider Fee on Banks to Trim Deficit

On the heels of an horrendous jobs report that showed that the economy is still cratering, this is what Obama comes up with: fees imposed on firms to reduce the deficit!

More fiscal drag when the economy is barely moving! It's insane!!

The focus on deficit reduction will almost surely put us back into recession.

Fire Geithner now!

Excellent piece by Professor Randy Wray. Read all of it here.

Excerpt...

"...we need an economic team that understands government finance. The current team is hopelessly confused, led and misguided by Robert Rubin. He thinks government is nothing but a big household, which must balance its budget. He continues to believe that the Clinton boom was due to federal budget surpluses, not recognizing that it was actually due to an unsustainable boom of household borrowing. Indeed, as Clinton’s Treasury Secretary, he oversaw the creation of the conditions that led to this current crisis. The new team must have no connection to Rubin (or Pete Peterson) and his anti-deficit hysteria. The Great Depression of the 1930s only ended with the massive spending of WWII, when the budget deficit reached 25% of GDP. Our current situation is not yet that severe, and it is likely that a sustained recovery can be obtained long before the budget deficit reaches such a level. However, the longer that Geithner, Summers, Bernanke, and Rubin remain in charge, the greater the probability that this could still turn into another Great Depression."

FDR's Speech at Madison Square Garden (October 31, 1936)

"We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred."

We need a modern day FDR.

Read full speech here.

More wealth flowing to the top than ever before!

Rising GDP and rising unemployment means that fewer people are sharing in the wealth. This is a disaster in the making for the country and unless it is addressed--aggressively--it will lead to social disorder and some really scary times.

Obama had a chance to create real change; change that would have laid the foundation for long-term, sustained, growth and prosperity for all Americans to enjoy. Instead he chose to "muddle through" and keep the status quo. He is now presiding over the greatest wealth transfer to the top of any president.

We're looking at a terrible outcome to all of this.

How the Russians deal with Muslim extremists

"...Russia's "policy of state terror," a shadow war against violent Muslim separatists in the North Caucasus, a strategic crossroads of Europe and Asia.


A central tactic in the war, activists say, is forced disappearances — the brazen snatching of young people from their homes or off the street, often by gangs of masked men who move freely, even in areas heavily patrolled by Russian military and police. The pace of forced disappearances has doubled in the past year, following a spike in militant attacks on police and authorities, including suicide bombings, ambushes and assassinations."

Something to think about as we give terrorists full legal protections under the Constitution here in America.

Read full article here.

Kan jolts yen on first day as Japan finance chief

Japan still doesn't get it!

TOKYO (AP) -- Japan's new finance minister is wasting little time making waves, jolting the foreign exchange market Thursday by calling for a weaker yen as doubts surface about his ability to guide a recovery in the world's No. 2 economy. In unusually explicit remarks for a Japanese finance minister, Naoto Kan vowed to work closely with the central bank to steer the currency toward an "appropriate" level around 95 yen to the dollar. He welcomed the yen's recent retreat from the 14-year high of 84.83 to the dollar hit in November but indicated it hadn't fallen far enough. "I hope currency markets correct themselves further, weakening the yen," he said.

Trying to export your way to prosperity in a world that is no longer on a gold standard is dumb! All you do is lower the standard of living of your citizens.

Weakening the yen involves deficit spending. That spending would be used in a far better way, with greater results, if the Japanese government spent on goods and services and on policies that would increase domestic wages.

This is a dumb strategy, but you know what? I am a forex trader, so I don't care. I am short the yen. I advise you do the same!

Iceland May be Frozen Out of Eurozone

This is a fascinating article on the current economic situation in Iceland.

It seems the Icelandic President has in effect vetoed legislation that would hold the citizens of Iceland responsible to pay back billions of Euros to former Icelandic bank depositors in the U.K. and The Netherlands.

The Icesave deal is deeply unpopular with the Icelandic population and there is widespread feeling that taxpayers are being left to foot the bill for mistakes made by financial firms operating under the watch of other national regulators. Critics say the bill would lumber Icelanders with an extra debt burden equivalent to 40 percent of gross domestic product or $18,000 per citizen, including interest payments.

Britain and the Netherlands have veto power over Iceland's EU membership bid and could block the entry negotiations.

Since the Icelandic bank's deposit liabilities were priced in Euros, it looks like the Icelandic Government has committed the country to collectively pay almost 5 months worth of their annual output back to former foreign depositors, pending legislation. I'll bet the 250,000 voters in Iceland vote against the referendum.