Americanly Yours

The Dow Jones Industrial Average has climbed by over 1,000 points in the past two weeks.  Durable goods orders are up.  Housing starts as well as houses sold are up.

Typically, when the market hits a bottom and then starts to rebound, the recession will end in six months.  Of course, this is not a “typical” recession and past historical trends are never a guarantee of future results.

Yet, combine the recent rise in the stock market with the other factors that I mentioned above, and I think we have good reason to be optimistic that recovery is now under way.

This doesnt mean that we are out of the woods yet, or that things are going to magically get better over night.  In fact, the economy will probably shed another 1-2 million jobs or more before it begins adding them.  Still, the economy is fixing itself.

This is what recessions and recoveries have looked like since World War II (notice how our current one is not nearly happening as quickly, no as bad as most other recessions):

This is occurring despite government intervention, not because of it.  Markets are very powerful and they will always find a way to bounce back.

The massive “stimulus” bill passed by Congress last month was $787,000,000,000 [$787 billion] in size.  Very little of this money has been spent so far, and in fact the vast majority of this money is to be spent in 2010 and beyond (23% of the money will be spent in 2009 and 51% in 2010).  This bill is very costly and is being financed completely with debt that Americans will have to pay back in the future–with interest.

Members of Congress had only 10 hours to read the final bill before they were required to vote on the bill which was over 1,000 pages in length.This bill was passed by Congress urgently under the assumption that it was necessary that the bill be passed quickly.  I still dont understand why such urgency was required for a spending bill that wasnt going to spend most of its money for until the following year.

Well, now the economy is beginning to recover–before the “stimulus” has been spent.  As I have written several times before, both the CBO and the Federal Reserve are now saying that the recession will be over in late 2009 or early 2010 at the latest.  Even if their “latest” estimate is correct, the recession will have ended before the vast majority of the “stimulus” money is spent.  Because this bill is so costly, and because there is no need for an economic stimulus in a growing economy (which the experts say we will have by this time next year), I urge Congress to repeal the “stimulus” bill.

If the bill is not repealed, then Congress is in effect forcing the American people to borrow money to buy something costly that we dont need.  The economy will recover with or without the “stimulus” bill.  The difference is that if we allow it to recover without the costly bill, our future will not be [as] burdened by debt.

Americanly Yours,

Phred Barnet

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There has been a lot of public outrage against AIG for paying some of its executives retention bonuses.  The logic here is that AIG is a struggling company that has accepted well over $150,000,000,000 [$150 billion] in federal government aid, and therefore should not be giving its employees bonuses.  Before we all grab out pitchforks and torches, we must remember that it is not legal for the federal government to create a new tax targeted towards AIG’s executives.

Retroactively taxing AIG employees’ bonuses is an unconstitutional act.  Article I, Section 9, Clause 3 of The Constitution reads as follows:  “No Bill of Attainder or ex post facto Law shall be passed.”

The prohibition on passing bills of attainder means that it is illegal for Congress to pass a law that punishes AIG employees (or any other specific group of people) without granting due process.  The prohibition on passing ex post facto laws means that Congress cant pass a law declaring something to be illegal and then punish people for committing the act before it was illegal.

Congress is currently debating passing a bill that would tax AIG executives’ bonuses at 90%.  The House of Representatives overwhelmingly passed a bill that would do preciously this last week.  This bill is unconstitutional and should not be passed by the Senate.  If it does pass the Senate, then President Obama should stand up for the Constitution and veto it.

Americanly Yours,

Phred Barnet

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The nonpartisan CBO made a disturbing announcement in regards to our future budget deficits yesterday.

“President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush’s presidency.” Remember that Mr. Obama criticized President Bush for sharply increasing the deficit which Mr. Obama inherited.  Well, Mr. Obama’s ambitious plans will leave his successor with a much much larger debt to inherit.

President Obama inherited a deficit of about $1,000,000,000,000 [$1 trillion] from President Bush’s administration–and the Democratic Congress.  He then added another $800,000,000,000 [$800 billion] to the budget by passing his gargantuan “stimulus” plan.

Mr. Obama did inherit a large annual deficit from the Bush administration, however, trillion dollar deficits were by no means emblematic of the Bush administration’s record.  President Bush’s deficits peaked at $412,700,000,000 [$417 billion] in 2004, but dropped down to $162,000,000,000 [$162 billion] by 2007– a drop of over 60% from its peak.  In 2008, the deficit did soar to record heights, however this was mainly due to the massive stimulus bill that sent every working American a check and was championed by President Bush and the Democratic Congress.  However 2008’s record deficit is still 1/4 of the size of this year’s deficit and less than half of the projected average annual deficit for the next decade!

And, the $9,300,000,000,000 [$9.3 trillion] in deficits projected by the CBO is $2,300,000,000,000 [$2.3 trillion] higher than the total deficits projected by President Obama back in February.  As you may recall, I previously wrote about Mr. Obama’s plans to “cut the deficit in half” by 2013 and criticized that statement as a distortion of the facts.  However, the CBO is now projecting that Mr. Obama’s deficit for that year will be $139,000,000,000 [$139 billion] higher than the numbers that he announced in February!  “Obama’s budget promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.” And, following that year, the deficits will begin to climb again, ageraging just under $1,000,000,000,000 [$1 trillion] each year for the next ten years!!!

The avergae deficit for the next ten years will be as large or larger than the one that President Obama criticized President Bush for leaving behind.

The large increases in spending in 2008 and 2009 have been justified by Presidents Bush and Obama and Congress as temporary measures that are “necessary to end the recession and stabilize the economy.”  But economists, the Foderal Reserve, and the CBO are all saying that the recession will end in late 2009 or early 2010.  Why then is the President proposing budgets that continue to promote reckless deficit spending after the crisis has ended?

Americanly Yours,

Phred Barnet

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I wanted to post this article.  It is a wonderful analysis of what is going on now and where we are going.  It is a very long analysis, complete with charts and graphs.  It was written Wednesday, and warned that the Federal Reserve was going to end up deciding to print money to solve this crisis.  This was somewhat prophetic, because the FED made that exact move later in the day.  However, I suggest that you read it in its entirety–there are great pieces of information and analysis throughout the piece, and especially near the end.

Well, that very day, the federal reserve did this.  The British call this type of action “quantitative easing.”  In plain English, this translates to “expanding the money supply,” or “printing money.”  This move was effectively the FED printing $300 billion.  The article above correctly predicted what would happen–the Fed’s move caused the yield on a 10 year government bond to drop by over .5% (the largest single day drop since 1962) and the value of the US dollar to sink by 3.3% against the Euro.  Of course stocks rose, but they only rose by 2.1%–much less than the drop in the value of the dollar, meaning that investors actually lost purchasing power–even though the markets rallied.

Americanly Yours,

Phred Barnet

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Yesterday, Wal-Mart announced a massive $2 billion employee bonus plan which “include[s] $933.6 million in bonuses that the retailer is handing out Thursday.  There is another $788.8 million in profit sharing and 401(k) contributions, and hundreds of millions of dollars in merchandise discounts and contributions to the employees’ stock purchase plan.”

This is quite an amazing plan, especially for a retailer that is derided by critics for under compensating its employees.  Despite the recession, this bonus is over 10% higher than last year’s employee bonus.

This is not an executive bonus plan; these bonuses will benefit Wal-Mart’s (literally) blue collar employees–the cashiers, customer service representatives, and stockers.  Wal-Mart’s generous bonus will hand these employees an average of $933.60 per person, with over half of that paid out to employees yesterday!

Now, lets contrast this bonus with Mr. Obama’s “stimulus” plan:

Mr. Obama’s “stimulus” plan pays each worker $400 through a “tax cut.”

Wal-Mart is paying each worker an average of $933.60.

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Mr. Obama’s tax cut comes in the form of a payroll tax deduction, averaging $13 per week for the rest of the year.

Wal-Mart’s bonus includes more money per worker up front than the total paid out by Mr. Obama’s plan.  It also includes various other benefits to be paid out in the future, including discounts, contributions to retirement funds, and increased ownership for workers in the company.

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Mr. Obama’s “tax cut”/”stimulus” is being financed with debt, and workers will have to pay back their “tax cuts” in the future.

Wal-Mart’s bonuses are being paid for with cash, coming from the company’s profits.  The workers get to keep their bonuses, and will not have to pay back the money in the future.

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Which do you think is more generous benefit?  Mr. Obama’s “tax cut” that will have to be paid back in the future, or Wal-Mart’s cash payment and investment in their workers future livelihoods.  I know which I would prefer.

Americanly Yours,

Phred Barnet

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