The Theft of America by Barack Obama

An era of progressive change is within reach, no longer an idle dream, just look at the new lay of the land, a friend of labor and its allies sits in the White House. Sam Webb, Chair of the Communist Party, USA

Lie of the day: "This Bill does not have a single earmark in it." Barack Obama

We are about to witness one of the greatest tragedies in American History – the fleecing of America. We are witnessing a government out of control, a government that cannot tell the difference between welfare and tax cuts or a government that cannot tell the difference between economic stimulus and government spending. This government is broke yet the government wants to spend almost one trillion dollars on a stimulus plan that will do absolutely nothing. Does anyone really believe this plan will raise 2 to 3 million jobs? Of course, in Obama's press conference that figure went to four million jobs. He keeps changing the goal post. Barack Obama tells us if we do not pass this stimulus plan, we may not be able to reverse this economic slowdown. Watch me pull a number out of my hat? The truth is, if history is our guide, and we pass this stimulus plan, we may prolong this recession possibly making it longer and deeper.

On Fox News, Joe Biden said, "there is a 30% chance we will get it wrong." We are spending almost a trillion dollars $1,000,000,000,000 with only a two-thirds chance of getting it right, hmmm, we are in trouble. Imagine you are a financial analyst, and you tell your boss, "I have the revenue numbers but there is a 30% chance we will not hit them." I think he would tell you to start over. I will say this to Joe Biden - we have a virtual 100% chance of getting it wrong if we pass this theft act. If one trillion dollars is suppose to give 3 million people a job, why doesn't Obama just give 3 million people 300,000 dollars (which equals three trillion dollars for the mathematically challenged) to start their own businesses. How is that for getting the economy started? That would have a better success rate then throwing money at every pet project under the sun.

Obama tells us economists across the nation tell us that we need to pass this stimulus plan or we will end up in another Great Depression. When President Hoover was about to pass the Smoot-Hawley act, (a tariff on foreign imports), one thousand twenty-eight economists wrote a letter to Hoover urging the president to veto the legislation. Countries around the world threatened to retaliate. Hoover proceeded undaunted and signed the legislation, Smoot-Hawley became law, and all the predictions came true. By 1934, world trade had declined 66% at a time when we needed the trade. The United States became an isolationist country, and the effect was to deepen the Depression. As with Hoover, hundreds of economists and here have signed a letter warning against Obama's stimulus plan, but Obama and his co-conspirators Nancy Pelosi and Harry Reid have ignored the warnings because it doesn't match up to their preconceived ideas. As with Hoover, it will prove to be their downfall.

Here are just a few provisions of this bill. The entire bill is similar to the items enumerated below.

1. Tax cuts – 100 billion dollars of these so-called tax cuts are in the form of checks for people who do not pay taxes. If you do not pay taxes, how is this a tax cut? Checks are also not tax cuts no matter how you slice it even if you did pay taxes. President Bush gave tax rebates twice and they did not work. President Bush also required social security numbers to be eligible for the tax rebates. In the stimulus bill, you only need a tax ID number. Tax ID numbers are issued to illegal immigrants so they can pay taxes. Illegal immigrants have been going home because of the economy. This is the reason for the decrease in remittances to Mexico as reported by Western Union. So, now we are going to encourage the illegal immigrants to stay by sending them checks. Most of these checks will be sent to Mexico anyway. How is this supposed to stimulate the economy?
   
2. Buy American – Whether the Buy Provision stays in the bill is yet to be determined. The Buy Provision is similar to the Smoot-Hawley act in that it requires iron, steel and manufactured goods to be purchased in the U.S. The European Union has already promised retaliatory action if the provision stays in. Where have we seen that before?
   
3. E-Verify - Harry Reid has blocked e-verify, the program that ensures that legal Americans obtain jobs from the stimulus package, not illegal immigrants. So, on the one hand, the government tries to keep American jobs in the U.S. by cutting off global trade, and on the other hand, we block a program designed to ensure that Americans are the ones being employed by the so-called stimulus plan, not illegal aliens.
   
4. Health Information Technology - 20.2 billion dollars goes to automating medical records. My first question is why is the government involved in this? Automation is a good thing if you are trying to make an office more efficient, but how does it create jobs? Automation actually eliminates jobs. Automation in private enterprise is part of the creative destruction process of capitalism. It displaces workers – it does not create jobs. This is a database for the government to begin its socialized health care - the trojan horse.
   
5. Global Warming – There are all kinds of provisions for unproven technologies for the man-made global warming myth. There is even global warming research. How is that suppose to stimulate the economy? For all Obama's rhetoric, there is nothing about nuclear energy even though he said he was supposed to be pro-nuclear during the campaign, the cleanest form of energy. Of course, anyone with sense should have known he was lying. Sweden is the latest country to lift its ban on nuclear power. And, what about natural gas which we have in abundance?
   
   Dr Bill Wattenburg estimates that all the wind, water and solar energy would only amount to 10% of the U.S. energy needs.
   

Obama says we cannot continue the failed policies of the last eight years. That was part of Obama's campaign rhetoric – did he forget he is now president? President Bush was reelected because the economy and the country were going strong. The economy was going strong because of his tax cuts. The economy continued to grow for six years. Bush's tax cuts worked and the recession that began in the US economy after the dot-com crash and the tragedy of 9-11 was quickly reversed. This economic crisis began with the mortgage crisis from lenders lending to people who couldn't afford to buy a house and had no business in buying a house, and the government encouraging such practices. It was because of fraud and deceit on both the lender and borrower egged on by federal laws such as the community reinvestment act and quasi-government agencies like Fannie Mae and Freddie Mac. Even Barack Obama said during his press conference that it was due to exorbitant and wild risks by the banks. So, does Barack Obama really know what he is talking about?

Recently we have heard a lot about deflation concerns. Deflation is when currency becomes more valuable every day, rarer and scarcer. We see deflation right now in the housing industry. Credit has become tighter, and consumers believe prices will continue to fall so they hold on to their cash. As more and more houses foreclose, housing inventories rise and consumers hold on to their wallets. Hence, currency becomes more valuable relative to houses. This was the problem in the Great Depression but on a much wider scale. Money virtually ran out. Hoover's economic policies at the onset of the Great Depression were devastating. He kept tightening the money supply preventing banks from lending money. He kept wages high at a time when wages wanted to come down. This ate into the profits of companies and the eventual result was more layoffs. He then cut off global trade with the Smoot-Hawley act. All these actions resulted in shutting off the currency valve allowing deflation to take hold and the economic downturn to deepen.

Inflation of course is the converse of deflation where products become more valuable than currency. In a growing economy, inflation of a couple of percentage points is not only acceptable but desirable, because it is indicative of a growing economy. The Fed can control inflation by tightening or loosening the money supply. By keeping a strong dollar and government spending in check, inflation can be controlled. There are three ways a government can raise revenue; taxing its citizens, borrowing money, or printing money. The government should not raise taxes in a faltering economy because that will deepen an economic slowdown. The government lends money by issuing treasury bills. China and India are the two biggest borrowers of U.S. debt but those economies are slowing down rapidly. China currently holds 1 trillion dollars of US debt, and it has shown signs of slowing down its purchasing of U.S. treasuries. That of course doesn't even account for what it costs to service the debt. The other alternative is to print money. If you don't have the money, you print it. When times are tough financial institutions, companies, and individuals hold on to their cash because they feel uneasy about the future. When the economy does right itself, and companies begin to spend, and individuals begin to spend, any excess capital the government has printed will cause rapid inflation. Too few products will be chasing too much capital resulting in hyperinflation and higher interest rates (high interest rates are imposed in vain attempts to curb the inflation). This is no different than what happened in Argentina or in Germany's Weimar Republic. You cannot keep printing money without consequences.

Huge infrastructure spending has been tried to no avail to lift up economies. Both Hoover and Roosevelt poured money into infrastructure and it did little to lift the economy out of the Depression. Herbert Hoover spent more in infrastructure during his four years than in the 20 years prior. In 1931 the unemployment rate was 17.4% and in 1940 the unemployment rate was 14.6% - virtually the same. Obama says the lessons of the Great Depression have been resolved, then why is he repeating the same mistakes? The question of the Great Depression should not be did World War 2 get us out of the Great Depression? The question should be should be why did it last ten years? Japan is the most recent case of infrastructure spending throughout the 1990s, and it's spending did nothing. The 1990s in Japan is referred to as the lost decade. In 1989, the Nikkei 225 index stood at 38,916, by April 2003 it bottomed at 7830, and today it stands at 7969. Barack Obama even mentioned the lost decade of Japan at his press conference. This should have been an argument against spending not for spending. He said Japan never did any bold action to reverse its recession. Huh? Japan quadrupled their debt on infrastructure. The spending and borrowing in Japan did absolutely nothing. The idea that the government throws money at indiscriminate projects in hopes of lifting an economy is a pipe dream. It has never worked. We do not learn from history or the experience of other nations.

We should not be surprised of this outcome however. When Barack Obama was elected president I hoped against hope that he would indeed be a different kind of president than his campaign suggested. But, he is proving to be the socialist he has always been. We knew who Obama was, and he made no qualms about it. He is a populist leftist president with extraordinary oratory skills and that is the danger. This is truly Bush's legacy. By Bush's own actions, we have been left with a neophyte who understands nothing of history or the fundamentals of economics, and he will in the end leave this country in shambles. This so-called stimulus act is not intended to grow the economy. The purpose is to spread the money around to every kind of special interest group to keep the Democrats firmly entrenched in power. If you are receiving money from the government dole, why would you vote that party out of office? What will this generational theft act of 2009 do to your savings? When hyperinflation sets in, and it will certainly be guaranteed to do so. Your 401ks, your savings and anything else you counted on in retirement will devalue at unprecedented rates. Your children will have the burden of paying this off. Our country will no longer be the country it once was. Barack Obama says "doing nothing is not an option." That is where he is wrong. Doing nothing is probably the best option if this stimulus package is an example of government intervention.

The Dow Jones fell 358 points as of this writing. The market does not like this stimulus package

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Throwing pancakes at the wall Bernanke style

"I've abandoned free-market principles to save the free-market system"

President George W. Bush

"Obama's stimulus plan makes as much sense as paying my wife and kids to work for me to increase the cash flow in our household"

A reader from the wall street journal

 

Isn't that an astounding admission from a President of the United States? In other words, we have turned to socialism to save the free-market. Sounds like a bunch of bull crap to me. The reader of the Wall Street Journal also has it right. Bush is the next Hoover trying to fix this economic mess and in the process, he only makes it worse. Obama is going to be the next Roosevelt whose ideas so far are only going to compound the problem. Obama wants to spend more money with his huge so-called stimulus plan. The government cannot spend money to create jobs without first removing the money from the economy. The government doesn't create GDP, it reduces it. What is it these two doofuses don't understand?

Even Europe is beginning to understand socialism is not the answer.

Bernanke has been throwing pancakes at the wall to see which one will stick, but none are sticking, they keep falling to the ground. Each economic policy Bernanke struggles to implement is like the pancake with its farinaceous sticky mass, not quite done, that is hurled in the air. It binds to the wall - the stock market goes up, but then the pancake struggles to cling to the wall. Strands of the sticky substance are formed and stretched. The pancake can no longer hold on to the wall – it struggles but to no avail. The pancake slowly falls to the floor like the stock market dropping when investors realize that the Fed implemented just another stupid economic policy that will not work.

The Fed is now giving out free money - how is that for liquidity? The Fed has been adding reserves to the banking system beyond what is necessary to keep the rate at its target as explained by Liz Ann Sonders of Charles Schwab. Interest rates are now virtually -0- - Free money. So, if you have a money market fund invested in treasuries, you could essentially have a negative yield since there is still an expense the company charges you for the privilege of having the money market fund. But that is not all; The Fed is now implementing a strategy it calls "quantitative easing." Since interest rates are now at 0, the Fed can't do anything with interest rates, therefore it is now flooding the banking system with money by purchasing securities supplying the banks with more liquidity and printing more money "quantitative easing." This is unprecedented and it has never been done before. This world has gone completely insane.

So what will this do to your savings? It is nothing more than the government robbing you blind. Injecting so much liquidity will only lead to inflation possibly hyperinflation which in essence is a hidden tax - so much for the mantra, "No new taxes!"

The Fed however is missing the point altogether. This crisis is not due to a lack of liquidity, it is due to a lack of confidence. No one wants to spend. Everyone is saving their money because no one trusts the government or where they will be six months from now. Consumers are deleveraging (paying credit down) instead of spending on other things. As the Wall Street Journal points out, a major tax cut is what needs to happen to spur the economy, but Obama is focused on spending, so he will only increase the deficit, and devalue the dollar. Democrats always think we can spend our way out of an economic crisis, and lately Bush thinks that way too. Obama's spending proposals will not solve this economic crisis.

If Obama were serious about reviving the economy, he would create jobs by drilling offshore and building nuclear power plants, but I am not holding my breath.

I wish Obama the best, but it simply does not look hopeful.

Kudos to Obama for allowing Rick Warren to say the invocation at the inauguration and not bowing to pressure groups.

And why is everyone so worried about Caroline Kennedy's lack of experience? We have a president-elect with no experience. So, what's the beef?

Fixing the financial mess in four steps

The current crisis in which we currently find ourselves was 100% preventable.

During the Clinton years, it was the Internet bubble. Bill Clinton was widely credited for the economic growth and expansion that took place during his eight years in office. However, anyone who studied what was really going on also understands that this expansion was due in large part by the dot-coms that were making no money. The economy was run by venture capital. There were no products, just hope. At one point there were six Internet companies of dog food. The growth in sales was what counted, profits didn't matter. Stock market valuations reached the stratosphere. All of this occurred as a result of the infusion of massive amounts of venture capital. The adage, "Stock market valuation doesn't matter, we have reached a new paradigm" was the mantra heard. Anytime you hear this, it is time to head for the hills, because stock market valuations always matter, and bubbles will always pop. What goes up must come down. At the end of Clinton's term, the Internet bubble did burst, and in its wake, it left collateral damage of companies from every industry. These companies were affected since they no longer could do business with these failed Internet companies. This is what I call Clinton's "Fake Economy."

When Bush was elected president in 2000, he inherited a fledgling economy, and in 2001, there was another shock to the system, September 11^th. This could have portended disaster to the economy. The tragedy of September 11th caused the Dow Jones to fall 681 points 7.1% to 8920, its biggest ever one day point decline. The stock market lost 1.2 trillion dollars in one week. Every industry declined especially the airline industry. Can you imagine if Bush raised taxes in this scenario? President George W Bush campaigned on lower taxes, and in 2001 he followed through on his promise. These tax cuts spurred the economy on, and avoided a recession that everyone thought was going to happen.

As the economy grew, a new bubble was forming, this was the housing bubble spurred on by low interest rates and easy credit. This was Bush's bubble. People who could not afford houses were buying houses with loans lower than the cost of money on the assumption they would make up the difference later when they sold their houses later at a higher price. Why? - Because houses would always go up. Where had we heard that before? Banks would package these loans and offload the risk to other financial institutions and investment houses making a quick buck. Investment institutions would package these loans into fancy financial instruments known as derivatives that few people could understand. Earnings on these derivatives were estimated and wildly optimistic, and their ultimate value depended on the creditworthiness of the counterparties involved, and we now know the creditworthiness of these counterparties. Warren Buffet called these derivatives in his annual letter to shareholders 2002, "Weapons of financial destruction."

If you want to understand the idiocy of bubbles, and how we will continue to follow them like a pack of rabid dogs, and how the same pattern will repeat over and over again, check out the Tulip Bubble. The tulip was introduced in Europe in the mid 17^th Century from the Ottoman Empire. The tulip became so popular that buyers bid up the price to astronomical levels. In Feb 1637, Tulip bulb prices collapsed abruptly, and the trade of tulip bulbs grew to a halt. Click on Tulip Bubble to read the rest of the story. You may think that people were really gullible falling for tulips, but there is no difference in what is happening today.

Greed pure and simple drove the borrowers to take out loans they could not afford, and greed pure and simple drove the financial institutions to lend to any dead man walking.

Who is to blame? The Democrats will say it happened on Bush's watch so he is to blame, so they will point the finger and say, "This is Bush's legacy." But this started long before Bush was president. Even Bill Clinton had to concede that the Democrats were partly at fault. You can reach no other conclusion that Fannie Mae and Freddie Mac are a Democratic mess unless you are blind. The Democrats pushed for easier loans so everyone could buy a home. They don't understand that not everyone should own a home. Bush, however, is not blameless. He was responsible for many grants to left-wing organizations for the purpose of sub-prime mortgages.

So what do we do now going forward?

1. Reinstitute the Glass-Stegall act – The Glass-Stegall act was enacted in 1933 as a result of the Great Depression. It was repealed by Bill Clinton in 1991. The intermingling of commercial banking and investing activity were thought to be the reasons for the financial crash. It was believed commercial banks took on too much risk. Banks became too greedy risking depositor's money as they tried to reap big payoffs. Many thought that the Glass-Stegall act was too harsh and adversely affected the banking industry. But with the repeal, what feared might happen after the Great Depression, happened. The Glass-Stegall act should be looked at. There needs to be a barrier between the normal financial activities of a bank and investing activities (ie: the speculation that was occurring in the subprime market between banks and the major brokerage houses.)
   
2. Severely curtail the securitization of loans. Securitizing loans is the packaging of loans and selling them to a willing buyer for a profit. This allows a bank to take on more risk than they should because they offload the risk to other institutions. When did banks forget how to assess risk? That is their job. If loans are not securitized, the risk remains at the bank. The banks would not take undue risk if they knew they had to hold on to the loans.
   
3. Golden parachutes and bonuses should be forfeited if companies fail.
   
4. Banks and investment institutions should be transparent in the risk they are taking. I have invested in many bank stocks, and when I read the annual reports, it is almost impossible to assess the risk these institutions are taking. Loans on and off the books, performing and non-performing assets should be transparent, and the risk these financial institutions are taking should be in the annual reports. Had this been known, investors would not have been buying these companies. On April 2^nd , 2008 I predicted this financial crisis in my entry The Coming Economic Tsunami. In my blog entry I quoted Whitney Tilson of Tilson Funds in which he stated,
   

   We've been very bearish on housing for a number of years, but after all of the recent terrible news, we had thought that we might be in the 6^th or 7^th inning of this unfolding debacle and perhaps it might be time to start buying some of the stocks that have been obliterated, in anticipation of a bottom and then recovery. But then we were introduced recently to the CEO of Amherst Securities Group L.P. Sean Dobson, who has collected extensive data on every mortgage that was securitized in the United States this decade. He was kind enough to share some of his data with us, which shows that we are still in the early innings of the bursting of the housing bubble. Believe it or not, as bad as things have been to date, we have only seen the tip of the iceberg: an enormous wave of defaults, foreclosures and auctions is about the hit the United States. We believe it will get so bad that large-scale federal government intervention is likely.
   

Why does it take a financial analyst talking to the CEO of a Securities firm to find out the gravity of this problem?  Why is this information not disclosed in the financials so investors can make informed decisions?

One final thought – The ire of voters is palpable and understandable. But, if Obama should be the next president of the United States, who thinks that Obama will not go ahead with his inane idea to raise taxes, and what do you think that will do the economy already teetering on the brink? He already suffers from abulia. One shudders to think of the possibilities.