Americanly Yours

President Obama and Treasury Secretary Tim Geithner have asked Congress to grant the Treasury Secretary the power to “unwind” financial companies that pose systematic risks to our economy.

But, the government already has the power to unwind large insolvent companies which pose systematic risks to our economy.  Large financial–or any other type of companies–can be unwound through bankruptcy proceedings.  Bankruptcy courts can order the liquidation of a company and the sale of its assets.  There is no need to grant this power to the Treasury Secretary, or President Obama, or any one man.

Rather than bailing out companies, and then bailing out our bailouts like we have done with AIG and are about to do with GM and Chrysler, we should send these failed companies to bankruptcy courts and sell of their assets.  Rather than pumping TRILLIONS of dollars into failed enterprises, we should have quickly auctioned off these companies, their properties and assets, and anything else related to them.  Yes, these companies and their assets and receivables may have only sold for pennies on the dollar, but it would have been done without taxpayer money and would have allowed for the quick return to profits (as the purchasing price would have been low enough so that the purchaser could anticipate earning a profit).

You may be saying to yourself that I have said this on previous posts countless times.  You are right.  But, our government is not learning from these recent mistakes.  Instead of learning, we are repeating them over and over again, making things worse and worse and then blaming capitalism for the failures of the government.  For a man who repeatedly criticized President Bush for “staying the course,” Mr. Obama has sure picked a terrible course to stay.  So, for as long as Congress and President Obama continue to repeat their mistakes over and over again, I will continue to repeat myself over and over again, hoping that somehow my words reach their eyes and spark a change of direction.

But, back to the new proposal.  Look at it like this:  the government now controls most of the banking system.  Imagine that it creates new “recommended” lending standards to support an administration program–expansion of loans to increase home ownership for example.   If a company that is not owned by the government were to decide that these new government “recommendations” are too risky and are not a good investment and decided not to participate, the government could effectively force the company to comply by threatening to “wind it down.”

This is a dangerous, undemocratic, and authoritarian proposal which gives the Federal Government way too much control over the financial industry.

Americanly Yours,

Phred Barnet

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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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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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The following story isnt true.  It is more of a “political joke” of sorts.

When Nikita Khrushchev was forced out of power in the Soviet Union he left his successor (Leonid Brezhnev) with two letters.  He told his successor to open the first letter when he came to his first major crisis and follow the instructions.   He was told that following the instructions would get him through the crisis.   He was also told that when a second major crisis stuck, he should open the second letter from Khrushchev and follow its instructions.

The inevitable crisis happened and Brezhnev became worried that the crisis could cause him to be removed from power.   He opened Khrushchev’s first letter which said “Blame everything on me.  The only way that you can stay in power is to blame everything on my poor leadership and announce that you have to reverse my policies in order to save the State.”

So, Brezhnev followed the instructions in the letter and things in the Soviet Union got better for a while.   However, after a few more years, the economy began to stagnate and Brezhnev once again became worried that he would lose power.  He realized that the advice from Khrushchev’s first letter had saved him once and that maybe it could do so again.

Brezhnev opened the second letter and it read “Sit down and write two letters.”

As I said above, this is not a true story.  It is however, a useful lesson on political survival.

I would argue that President Obama began reading his first letter during the campaign when he blamed everything wrong in the world on President Bush.  He has continued to beat up on President Bush’s record in a constant attempt to convince the public that the current crisis is not his fault.

He will likely continue to read from this letter for several years.

For example, if the situation in Iraq continues to improve and we can pull our troops out, Mr. Obama will undoubtedly take all of the credit, despite the fact that President Bush’s controversial Surge plan was a complete success and has effectively won us the war.  If on the other hand, the situation in Iraq deteriorates and we either do not leave within Mr. Obama’s promised 16 months or we end up leaving in disgrace, there can be no doubt that President Obama will blame Mr. Bush.

Similarly, if the economy turns around in the next year or two, Mr. Obama will take all of the credit.  If however, the situation worsens, the economy continues to contract, and unemployment approaches or reaches double digits, President Obama will claim that he inherited this mess.  In his speech last night President Obama said “I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.  My administration inherited a deficit of over $1 trillion, but because we also inherited the most profound economic emergency since the Great Depression, doing a little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence.” This was effectively Mr. Obama hedging his bet:  if the economy turns around, he can take credit, but if it doesnt work, he will say that things are still better than they would have been if the bill wasnt passed and besides, it is still President Bush’s fault.

This is why President Obama still sounds like his is running for President, rather than holding the office.  It is safe to say that President Obama was not elected to office based any past accomplishments that he had.   He was also not elected based on any future plans that he had.  Rather, he was elected because the American public was (and still is) fed up with President Bush.  The fact that Mr. Obama was elected President is really only an externality of the perceived failure of the Bush Administration.  Mr. Obama really didnt run against John McCain; he really ran against President Bush. How many times did you hear Mr. Obama refer to “8 years of failed policies?”   Because Mr. Obama was elected as an opposition candidate–a reactive candidate rather than a proactive candidate– he is likely to continue this course of acton.  Expect him to continue to beat up on President Bush’s record.  Furthermore, you can expect him to denounce Republicans who vote against his programs (in a manner that will probably become much more hostile in the near future).

The problem is that Mr. Obama cannot continue on this course for too long.  The American people are fickle and grow tired of things quickly.  Remember that when the War in Iraq started Bush (who was cheered on to war by the American public as well as the media) had an approval rating of near 70%.  At some point, the American public will grow tired of hearing Mr. Obama blame all of the country’s problems on the previous administration–especially if things get worse.  The people want solutions and when President Obama realizes that he cannot deliver them, he may have to reach for that second letter.

Americanly Yours,

Phred Barnet

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By effectively nationalizing the banking industry, our government has made a giant leap away from Capitalism and towards socialism.  Our government now owns large stakes in most of the Nation’s largest banks.  The government has already invested $271 billion of the $700 billion that it budgeted for “stimulating” private banks.  The have committed to funding another $30 billion.  The rest of the $700 billion will follow soon.  Additionally, some members of Congress are already saying that because the first half of the $700 billion isnt being spent “correctly,” more money may be “needed.”

Here is a really cool chart that lists how much each bank has received from the TARP program.  It is updated daily.

I absolutely refuse to put my money in a government owned bank.  I will not allow the government to take the profits it earns off of my deposits to fund any further bailouts.  By banking at a government run bank, you are encouraging these bailouts.  If you are against further (or existing) government bailouts, then it is your duty to remove your money from this bank and place it in an independent bank.  I used to bank at Washington Mutual which is now owned by JPMorgan Chase (which has received $25 billion from the government in exchange for ownership rights).  I removed my money from this bank as soon as I was able to identify a local bank that had not sold part of itself to our government.

I now bank at United America’s Bank in Chamblee.  This is a small bank with only a few locations in Atlanta, Chamblee, and Roswell, but it is a bank that is independent from government ownership.  Plus, it has the added convenience of being the closest bank to my house.  Whether you live in my area or somewhere else, if you oppose government bailouts and government ownership of businesses, you should consider putting your money in a small bank that is not owned by the government.  I would be glad to help you find a non-government owned bank in your area.

Americanly Yours,

Phred Barnet