![A New Year, A New Congress]()
by DJ Durant | Jan 5, 2011
Out with the old, in with the new, goes the standard cliche every year about this time. No, this is not a reference to Nancy Pelosi’s age, although incoming House Speaker John Boehner is 9 years younger. Speaker Boehner does represent a new attitude and the resulting optimism is being reflected in the markets and the broader economy.
Consider:
- Retail sales, Christmas sales, were up significantly over 2009
- Consumer and business confidence for November and December have inched higher
- Jobless numbers are moving downward, evidenced by today’s ADP employment report that suggested 297,000 new private sector jobs were created in December (this is a big number!)
This is not a coincidence. This is, however a direct result of increased optimism in the country due to the November election and subsequent Republican control of the House. It is a direct result of Congress extending the Bush tax cuts in November. It is a direct result of the repudiation of the Obama/Reid/Pelosi economic agenda. Republicans have a huge opportunity to make the economy and employment the primary issue in 2011. In the words of that great philosopher James Carville, “It’s the economy, stupid”.
In addition to repealing the two collosal and horrid pieces of legislation, (ObamaCare and Financial Institutions Reform), Congress needs to deal with several other hangovers from the Pelosi/Reid years. First, Julian Assange should be tried and convicted of being the cyber-terrorist that he is, and he needs to be treated like any other terrorist. Second, the federal government needs to be starved into submission. Follow the model Chris Christie has set in New Jersey. Get the unions under control (and with it, the unfunded pension liabilities). Finally, any free trade agreements with valued allies and trading partners, such as Colombia and South Korea, should be ratified and signed as soon as possible.
Movement in these directions will reinforce the current optimism prevailing in the country, promote private sector job growth, encourage banks to lend again, and as a result, generate revenues for not only the federal treasury, but state and local governments as well. The last two years nearly ruined us as a nation. We have an opportunity to correct the damage. 2011 is a new year. Let’s hope the new Congress can build on it.
by DJ Durant | Nov 13, 2010
Our grandchildren were over last weekend–two boys ages 5 and 3. At one point the 3-year-old was telling me about being disobedient and how Daddy had to give him a big spanking. Now I know my son and I’m sure that he was providing gentle discipline, but the point wasn’t lost and can be applied to last week’s election.
Much has been made of the Republican’s gains in the House and Senate, and their effective control of Congress. This was clearly a repudiation of the Obama, Reid, and Pelosi policies of economic stagnation. Make no mistake about it, this was about the economy. The Democrats insistence on spending taxpayer’s money ineffectively, squandering it, actually, passing huge and unpopular bills, and their complete lack of caring about the taxpayer and the cumulative effect on the economy led to their downfall.
Part of this is due to their arrogance. Part is due to the Democrats’ lack of understanding of how our economy works. America is and always has been a capitalist society. Government control and planning is an anethema. Our economy works best when businesses and individuals are confident and can make plans to invest, spend, hire and borrow with a degree of certainty. America has not had any level of confidence in over two years, since the collapse of Lehman Brothers in September 2008. The Democrats, and President Obama, Harry Reid and Nancy Pelosi specifically, have done everything they could to ensure a lack of confidence by ramming through legislation designed to further their agenda and in the process, scaring the living crap out of people. Hence the rise of the Tea Party, and the big spanking.
Everything the Democrats have done has suggested higher taxes or significantly additional costs and fees. First, they’ve managed to pass a “stimulus” bill that has to be paid for somehow, and that has failed to stimulate much. Second, they passed Obamacare that will raise the cost of doing business for everyone, and I mean everyone, and must be paid for with additional taxes. Third, they passed a “financial reform” bill that will raise the costs of banking and lending, with the net result of limiting access to credit. Finally, their failure to extend the Bush tax cuts raises everyone’s taxes, regardless of income, by a minimum of $2,000 next year. All of this money has to come from somewhere. And so people are nervous and nervous people do not spend money. Nervous businesses do not hire and invest in infrastructure and equipment. And the cumulative effect of all of this is a lack of revenue flowing into the US Treasury. You cannot have 9.6% unemployment and expect treasury tax revenues to increase. And this is why the Democrats got spanked.
Republican leadership now has to lead or they’ll get spanked. They need to undo the uncertainty and instill confidence in the electorate and business. This means revising all of the poor legislation that was passed the last two years, if not repealing it altogether. This is what they were elected to do. If they pass legislation and President Obama vetoes it, then in two years, the voters will have another chance to spank. And despite all of his rhetoric, I don’t believe that the President truly gets it. There is still an incredible lack of humility emanating from the White House. Even this week in Seoul, the President got spanked by the Europeans and Chinese, and he refuses to acknowledge his policies aren’t working; rather, his policies are ”misunderstood”.
On a separate but related topic, The Federal Reserve and Chairman Ben Bernanke has decided to print another $600 billion and buy back US Treasury securities in a process known as Quantitative Easing (QE). Flooding another $600 billion into the economy over the next six months is like pushing on a string. Until the government gets its fiscal act together, it won’t do anything other than increase the money supply with no increase in aggregate demand for goods and services. This money has to go somewhere, and investors will search for a place where they can get a reasonable rate of return. So, after the election, there was a rally in the stock and bond markets, but this week, stocks and bonds sold off, but commodities rallied–specifically oil, cotton, soybeans and gold. On Friday, even commodities weakened. The stock markets have generally rallied since September 1 because corporate earnings have been solid. But earnings are a result of sales, and in order for sales to increase, people have to want to risk spending the money, which brings us back to fiscal policies.
So the next month will determine whether or not the resurgent Republicans and spanked Democrats can and will work together. The amazing thing about our economy is that it hasn’t collapsed despite collosal mismanagement in our nation’s capitol. Stay tuned. Things are about to get very interesting.
by DJ Durant | Aug 6, 2010
The Labor Department reported this morning that nonfarm payrolls fell by 131,000 in the month of July. Even more discouraging was that June’s revised payroll number was revised downward to a negative 221,000. This is huge. Initial jobless claims estimates released Thursday was 479,000, and was an increase from the previous week’s 460,000. The two statistics, nonfarm payrolls and initial jobless claims, are suggesting the same thing–employers are not hiring, and are, in fact, laying off workers, and we may very well be headed into a “double dip” recession.
That’s the report. Here’s the analysis. As suggested some months ago, the past predicts the future. As Solomon wrote in Ecclesiastes, there is nothing new under the sun. There will be no new net growth in employment until new jobless claims fall below 400,000. Hiring cannot and will not happen until employers are confident that they have sustainable business prospects, that their expenses will be stable (like health insurance premiums) and that their taxes will be stable. Again, we’ve seen this scenario before. It was called the Carter Administration.
Right now, President Obama and his staff are crafting a spin that would suggest this is all the Bush Administration’s fault. That somehow, the last 18 months didn’t happen and they are not responsible for any of the anemic economic growth evident currently. The reality is, they could blame the Bush Administration for anything that happened in the first six months of the current administration. All economic activity since August 2009 is due to Obama Administration policies.
It’s time for the President to put his big boy pants on. No one wants to hear his whining anymore. Nor do we want to see solutions that will expand the national debt and budget deficit. And while I feel for all of the 6.6 million people that have been out of work for six months or more, it’s laughable to watch the arrogance of liberal Democrats defend their failed policies. The Democrats are imploding, again, something I predicted in November 2008. They violated economic principles. They thought they were smarter than that, and that, somehow, because the sun rose and set on Barack Obama, it would be different for them. This is a hard lesson to learn. The longer this lasts, the more seats the Republicans will gain in the November elections. By all means, they should continue their rhetoric. It’s fun to watch.
by DJ Durant | Aug 2, 2010
Yesterday on CBS Sunday Morning, President Barack Obama was being interviewed by Harry Smith. This seems to be this President’s primary function. I can just see his job description now–Item 1, must interview with the media incessantly. Never mind running the country. We’ll leave that to Pelosi and Reid. And, who can blame him? It’s more attractive to meet with adherents to your policies, glowing supporters and people who will fawn over you than with the other 80%, the rabble, the people who just don’t get it. Bring on The View! They love me! Everyone must love me too!
Anyway, Mr. Smith asked the President if he thought the criticism leveled at him and his administration was “undeserved”. “Yes”, the President replied, “it is undeserved”. He went on to suggest that the future will be kinder to him and his administration once people begin to understand all that he has had to endure and reform in the first 18 months of his administration–that is, the recession, bailouts, health care reform, financial reform, etc.
What? Is the President delusional? Politics, particularly modern politics, has always been about the mastery of spin, and this administration is clearly good at it. But the American people are tired of it, and for the last six to nine months, have begun to see it for what it is–nonsense.
First, President Obama needs to understand–deeply understand–that the stimulus, bailouts, deficit spending, health care reform, and now financial reform, have run counter to the will of the majority of Americans. Not the people in the la-la land of Obama and cronies, but the folks who do the tax-paying, hiring, spending and bill-paying. The President’s agenda of wealth redistribution is not what they signed up for.
Second, President Obama needs to understand that there are deep concerns about the economy that transcend stimulus and the expiration of the “Bush tax cuts”. Last week’s release of economic statistics are a perfect example. The housing industry is in severe recession still, and no amount of home-buyer incentives will work any longer. Consumer confidence is low and durable goods orders are soft. New claims for unemployment benefits were 457,000 in the previous week, suggesting that companies continue to lay off workers. Finally, preliminary GDP estimates say the economy grew at a 2.4% rate in the second quarter, a mediocre reading at best.
The President is clearly out of touch with his constituents. Nervous companies are not hiring. Nervous consumers aren’t spending money (at least, the ones who are working). And until they are confident that the government is going to stop spending money and that their taxes are going to remain stable, they will not spend or invest, or do anything but sit on their cash. At least, until the government takes it…
Is the criticism deserved? You bet! But we’ve seen this movie before. We know how it ends. It was called the Carter Administration and it ended with the resurgence of conservatism and Ronald Reagan. As long as the current Administration continues to ignore the people and continue down the road they’ve set before them, they can continue to expect criticism. They are self-destructing. How I love a happy ending!
by DJ Durant | Jun 28, 2010
The news events of the last few months have certainly put the Obama Administration in a peculiar position. The Gulf crisis notwithstanding, most of these events have been created by this president and his staff.
Team Obama went the the G20 Summit in Toronto this weekend to chide the other 19 nations to continue to stimulate their economy through Keynsian economic principles. “Not so fast”, said the other countries. “We have to make choices, and right now, we choose fiscal solvency and prudence”. What a concept!
Passage of the Financial Institutions Reform package was always tenuous, at best, but the death of Senator Robert Byrd over the weekend makes passage more difficult. One less Democratic vote means that it’s more likely that Republicans can filibuster this package, and this is a good thing. Here’s why: Any bill that increases regulation, drives up costs to the consumer, and squeezes financial services companies’ margins will negatively affect the economy. The costs of increased regulation always get passed along to the consumer in some way, shape or form. Limiting profits also limit tax revenues to the US Treasury in the form of corporate taxes, as well as limiting the taxes paid on dividends. Finally, no company will hire if they have to choose between new employees and profitability. Profits first, then job growth.
Of course, this Administration believes that more government, and more regulation is better than the alternative. Which brings us back to the oil slick in the Gulf of Mexico. Government could not solve this problem. President Obama’s unwillingnes to recognize this fact, rather, to pin it on the previous Administration, has convinced me that less Washington is the answer, not more. Incidentally, government could not solve the Katrina problem either. It was private philanthropy, including church-based organizations, that had the greatest impact during the Katrina aftermath.
It would seem that if anything, this Administration, and especially the President, is deliberately trying to keep people from focusing their attention on the economy, jobs and the fact that companies continue to shed them. This is preferable to actually implementing policies that will create jobs, stimulate the economy, and generate revenues back to federal, state and local treasuries.
On Friday, the Labor Department will release the non-farm employment numbers for June. Consensus estimates suggest that the economy shed 145,000 jobs this month, and if so, that the unemployment rate will rise to 9.8% from 9.7%. Look for President Obama to do some if not all of the following:
- Create a diversion
- Blame it on the financial crisis and the previous administration
- Express a need for additional stimulus
Do not expect him to take responsibility, or offer any potential solutions other than those expressed above. This will prove to solidify Republican gains in both houses of Congress in November. The country wants solutions and for a responsible President. It will have to wait another two and a half years.
Out with the old, in with the new, goes the standard cliche every year about this time. No, this is not a reference to Nancy Pelosi’s age, although incoming House Speaker John Boehner is 9 years younger. Speaker Boehner does represent a new attitude and the resulting optimism is being reflected in the markets and the broader economy.