Obama and Bernanke-- U.S. Economy’s Yin and Yang

There is a tug of war of negative (yin) and positive (yang) energy in our economy evidenced by a stock market that cannot seem to break free from a very tight trading range. Over the past year the Federal Reserve, led by Ben Bernanke, pumped an unprecedented amount of capital into our economy to keep a fragile financial system from falling apart. At the risk of completely trashing the dollar and potentially igniting a high (even hyper) inflation rarely witnessed in the northern hemisphere, the Fed lowered and has kept interest rates near zero since late last year. It also exploded its balance sheet by trillions of dollars by buying a variety of government and mortgage-related bonds. The Fed's plan was to reinforce the financial system by flooding the market with liquidity in the hope that all that cash would encourage banks to lend and individuals and businesses to spend, invest and ultimately spur economic recovery.

Despite all that capital and the bailout of our financial system by TARP, bank lending has continued to languish. Banks have cited poor borrower demand as the cause, but the fact is that banks are terrified to lend. They have been to the brink of extinction and have been forced to submit to government control in order to avail themselves of the capital needed to survive. They fear that even the strictest of lending criteria may not keep them from falling further into the financial abyss as asset values (loan collateral) continue to fall; they also dread the prospect of ever having to seek additional capital from the government. In addition, the Obama administration’s willingness to change the rules of the game and to abrogate the rule of law in order to further its political agenda has compounded those fears and has contributed to an environment too uncertain and risky to justify new investments.

As experts extend their expected time frames for economic recovery, the banks know that conditions are unlikely to improve in the short-to-medium term, and could indeed be exacerbated by the president’s continued priority to implement the most liberal agenda in our nation's history. The stimulus plan executed last February has thus far proved to be a bust and a growing consensus believes his current “cap and trade” and “healthcare reform” initiatives could have catastrophic effects on the economy and our exploding government deficit. Furthermore, the president’s stated intention to raise taxes on investment capital and small businesses is providing a backdrop of negative energy that could hold both the economy and the stock market hostage for many years to come.

Aggravating an already bad situation is the possibility of replacing Mr. Bernanke when his term expires early next year. The real concern would be if the president replaces him with an individual more sympathetic to his own thinking. That would not only taint the historically arms-length relationship that has existed between the executive branch and the Fed chief, but it could also suck out all the positive energy currently being provided by the Fed. The prospect of replacing Mr. Bernanke is especially ironic because it would appear that replacing Obamanomics with more traditional policies might be just what our economy needs now. Have you noticed that the market seems to rally lately at the slightest hint that the president’s policy initiatives may not pass muster with Congress?

I am hopeful that Congress, especially blue dog democrats, will press the Obama administration to abandon its politics for the sake of our economy and that it will do so before our nation’s yin and yang becomes Cheech and Chong, and sends our economy and our future irretrievably up in smoke!

Ascent of Money: Must See TV Documentary

This interesting and relevant TV documentary is currently viewable in South Florida at 9pm Wednesday evenings on PBS. The documentary is presented in hourly installments that roughly track the chapters of Niall Ferguson’s 2008 book titled The Ascent of Money. Each segment, narrated by its author, examines milestone events from world history from the perspective of their financial and economic roots. In a few short episodes, it has already answered questions that had never even occurred to me, for example: Did you know that the French Revolution had its roots in a government-created speculative investment scheme that occurred in France decades earlier? Did you know that the U.S. Civil War’s turning point might be traced to the role of cotton in financing the war and the Confederacy’s loss of control of the City of New Orleans? Did you know that world bond markets were borne out of the need for capital by Europe’s sovereign powers to finance wars?

Particularly noteworthy for its relevance today is episode six, titled “the return of risk,” which directly relates to our nation’s current debate about the role of government in our financial crisis and for bringing about an economic recovery. That episode discusses the historical tendencies of societies to “nationalize risk” by making governments responsible for the risks its citizens face; it introduces the welfare state and identifies the apparent successes and failures of a few examples from history, including the United Kingdom, Japan, and Chile.

The episode also makes the point that while some welfare states are considered successful in their ability to satisfy basic societal needs, none has been particularly prosperous economically. For example, the author suggests that Japan’s welfare state may be at the root of this otherwise industrious nation’s inability to recover from its economic collapse more than a decade ago. And, in stark contrast to Japan, Chile’s ability to climb out of its economic doldrums might be attributed to its overhaul of government in the mid 1970s and its institution of a new capitalism.

Those are important comparisons and relevant situations to consider as we witness the rapid expansion of our own government according to the apparent liberal agenda of the Obama administration. You may find, as I did, that episode six provides an insightful perspective from around the world about the historical successes and failures of these ideas, and some useful context as the debate over government intervention in our economy and our lives rages on. Episode six is must see TV, especially for the most civic minded among us.

After viewing half of the episodes, I am confident that business and non-business types alike will find viewing this entire series worthwhile for its sheer novelty, entertainment value as well as its eye-opening perspective on much of the history you “thought” you learned years ago in school.

Congress Must Veto Cap and Trade and Healthcare Reform Legislation

In this uncertain and fragile economy, it should be apparent that the decisions to approve or reject proposed Cap and Trade and Healthcare Reform legislation may be among the most critical our lawmakers have made in decades. The good news is that with each passing day the costs and benefits of each proposal are becoming clearer and a growing consensus is building that each proposal should be emphatically rejected by both Houses of Congress. Each piece of legislation represents the worst of the liberal agenda of this administration, is likely to cost our economy dearly and will not accomplish its stated goal.

Cap and Trade is intended to mitigate global warming. That was tried and failed in Europe and without participation by China, India and other emerging industrial economies, it will fail this time too. However, the charade will cause electricity costs to skyrocket and inflate the cost of virtually everything we consume. It will also encourage U.S. industrial companies to move abroad, where they can avoid its onerous limitations, and take our jobs with them. At the moment, Healthcare Reform proposals favor some form of government-controlled or sponsored program. Those proposals will likely bankrupt the nation. We need healthcare reform that will expand insurance coverage to everyone and improve the quality and availability of healthcare for all of our citizens. That reform will also need to pay for itself and keep costs from skyrocketing over the long term.

Some believe that the pending bankruptcy of California, New York and New Jersey, bastions of liberalism and free government spending for decades, offer a glimpse of the future of America, if either piece of legislation, as proposed, becomes law. Those states are attempting to hold their state legislatures accountable for their respective predicaments, and some are contemplating rewriting their state constitutions in order to prevent irresponsible government action in the future. We should hold the U.S. Congress similarly accountable for its actions before it’s too late for our entire nation.

It is a pathetic fact of life that Congress cannot always be trusted to act in our best interest and even more pathetic that our only recourse as a nation is to vote its members out of office years after the damage has been done. After more than two hundred years of weeding out the bad through elections, the best we have been able to do is to seat a Congress that has difficulty abiding our own laws and upholding the public’s trust. The sad truth is that, with far too few exceptions, many of these men and women might be serving time in prison if they had not been elected to serve time in Congress.

However, as trustees of our government, Congress does have an obligation to act in the nation’s best interest. I fail to see how hastily ramming through either piece of thousand-page-plus significant legislation, especially without reading it (as they did the stimulus plan earlier this year), is in our nation’s best interest. The effective dates for most requirements imposed by either—Cap and Trade or Healthcare Reform—is many years in the future, so what’s the rush?

Absent any real recourse, Congress should be required to “eat its own cooking” and feel firsthand the impact of its actions. It should be forced to consider the impact on global warming of its members jetting off to attend frivolous engagements. If Congress’ actions fail our economy, its own ranks and million-dollar office budgets, paid for with tax dollars, should be streamlined accordingly. Furthermore, congressional pensions should shrink as social security and Medicare benefits shrink and Congress should be prevented from raising their salaries until the economy substantially recovers. President Obama campaigned for healthcare reform by proposing healthcare insurance for everyone similar to that enjoyed by members of Congress and I hope he keeps his promise. If some version of the current healthcare proposals passes into law, I look forward to chatting with my local congressman as we wait in line for hours to see our doctors.