Friday, March 06, 2009

Is The O 'Destroying' the Economy?

Some continue to posit that the DJIA's cliff-dive is 'all Obama, all the time.'

Unnnnhhhh....not exactly.

It is undeniable that there was a "bubble" of cash moving around in the US economy since Greenspan countered the 500-point DowDrop back in the early 1980's. The Fed's injection of cash on that occasion has been bolstered with more and more cash, time and time again, with succeeding crises--the collapse of a major money-market firm in the mid-'90's and the 9/11 event were two more highly visible instances.

Compounding the 'excess cash' problem was an SEC decision to allow investment banks (e.g., Lehmann, BearStearns, etc.) to go to 30x capital leverage rather than the old standard of 12x. Added to THAT was the creation of the 'derivatives' marketplace, SIV's, and Credit Default Swaps--vehicles which ignored risk to insure against risk(!) There was subtle and overt collusion from the ratings agencies--we could go on.

All of this was, more or less, bi-partisan. Congressional Pubbies and Dems contributed, as did Clinton and Bush Administrations. None of this stuff is secret; it's all on the public record.

We should also note that the American consumer was behaving badly. The US savings rate actually went negative in the recent past, but had been barely over zero for several years. The cash bubble, along with the wholly ridiculous theory that housing and land will go up forever, contributed to a psychology of consumption. After all, we could live in our retirement fund! Screw savings, stocks, and bonds!! Perhaps this alternative-universe behavior was the most important cause of all.

Then stuff started to go wrong.

And Obama won.

The DJIA swoon had begun long before The One came into office, and as has been noted, was not entirely unexpected. The index was vastly over-pumped compared to its earnings base. There are a variety of ways to measure Price/Earnings--some have postulated that the P/E was 28 vs. a norm of 14; others have postulated a P/E of 15 vs. a norm of 7. In any case, if the Indices were to behave typically, they HAD to "return to the norm." Pick your 'norm;' but the markets were going to go down, period.

During its dying days, the Bush Administration thrashed about, alternatively 'rescuing' some banks and allowing others to croak. The bailout of the Big 2.0081 was cooked up--but prior to that, a number of highly-visible industrials were allowed to go banko (Delphi was just one example.)

We can say that the Bushies were erratic.

However: since the O-and-Savior (bless his name) has obtained office, he has announced and/or implemented all sorts of programs which are NOT good ideas. A bill of indictment can be found at this PowerLine post; I'll mention a couple here.

• Raised the capital gains tax
• Lied about "tax cuts for 95% of Americans", offering instead $13 a week, achieved not through tax cuts, but by changing the federal withholding tables

• Proposed a carbon cap-and-trading scheme designed to punish oil companies and further tax consumers

And, of course, he has promised to re-make the entire health system. SOME of these will clear Congress; others will not. It is clear that uncertainty reigns for the next few quarters.

Holiday Inn said it: "no surprises" is the environment favored by businessmen (and business capital). An atmosphere of uncertainty is the very best way to chase capital from the room. To the extent that Obama and Pelosi and Reid have created uncertainty, they are responsible for the economic palsy we see.

The PowerLine post's author (Hinderaker) does not see a sinister plot in Obama's activity:

It is, I admit, an intriguing theory, but I don't buy it. Obama can't possibly want to be a one-term failure. That's what happened to Jimmy Carter, and Obama must know that it will happen to him, too, if his policies are perceived as dragging down the economy.

More likely the explanation is that Obama is an economic illiterate

That's reassuring; but not necessarily the whole truth. I think Obama IS an economic illiterate, but I don't trust him for one second.

Not in the least.

Given his track record of appointing high-priests of the Cult of Despair (that is, Moloch) to every imaginable post in Washington, his early formation at the knee of a true-blue Communist, his Extremist allies and associations (Jim Doyle and Bill Ayers among them) I'm much more willing than John Hinderaker to believe that Obama is a revolutionary in the worst sense of the word.

And those "worst sense revolutionaries" do not worry about re-elections, folks.

So: while Obama did not ignite the DowDump, and is not personally responsible for the recession we are in, he IS pouring gasoline on the fire.

And at some point in time, this WILL be "the Obama collapse."

But this is not that time, yet.


Shoebox said...

Not unlike your view on the former SEC chair, you're coming closer to the truth as time goes on. No doubt Obama did not "cause" the downturn. However, his policies and yammering have clearly caused the Dow and other indexes to respond. All you need to do is to look at what the Indexes have done after his or his staff's announcements that have any economic influence.

I'm not as benevolent to say he doesn't understand. He either doesn't care because he is so firmly rooted in his ideology or is intentionally increasing the FUD factor in an attempt to keep people focused on him as the savior.

Dad29 said...

Actually, Dow is getting closer to the "truth." It's a little under 14x (by one measure) earnings, and the analyst who propounds that thinks it will go to 7x before a real rebound starts.

So--FWIW--it ain't over yet.

And your second theory, 'the FUD factor,' fits with mine--which usually ends in "BUY MORE AMMO!!"

Shoebox said...

Yes, I'm in cash. I've heard that a typical recession moves Dow to about 6X trailing which would be around 3,500...we've got another 1/2 shave from here if that's right.

BTW, I think you should copyright your responses as of late to BMA

Deekaman said...

Dad, I think you are pretty close here. I tend to believe the destruction of wealth is intentional in fealty to the "fairness" dogma of the Marxist religion, to which TCO is a true adherent. If it were not, we wouldn't be told that we might have to live a little leaner, our expectations not so high. Cap-and-trade and nationalized healthcare will be a stake through the heart of what TCO believes to be the Capitalistic Vampire. He doesn't care if he's one-term if he can accomplish that.

Joe of St. Thérèse said...

Can we get to 2k before the end of the year? Yes we can!

Disgruntled Car Salesman said...

About the only thing that we can hope will happen is a purge of the current senate and house majorities in 2010 election. Oh, and Walker as governor. This will hopefully start a long stretch of responsible, small government for years to come.