It’s fairly obvious, by now, to anyone reading Obama’s speech to the Indian Parliament that he dislikes the United States. So much so that Obama takes great pride in telling the Indians not to rely on the United States.
Indeed, it seems Obama is putting in place policies that will surely hurt America. Under Obama’s direction, the FED is printing money that we don’t have. They are calling it QE2, Quantitative Easing, which means increasing the money supply in the hopes that it will stimulate the economy. So why are they calling it QE2?
Because QE1 failed. That was the first stimulus. The American Recover and Reinvestment Act, or ARRP, was meant to stimulate the economy by creating tax incentives for individuals and companies, Education, Transportation, Healthcare, Infrastructure, Government buildings, Renewable Energies, Housing, and a bunch of other projects. There was no oversight and accountability where the money was going.
So at first you don’t succeed, try again. Now, the FED will implement QE2 and like QE1, the stimulus, is a New Keynesian economic model in which the theory favors Monitory over Fiscal Policy. Meaning, the Government Budget Deficits should use the money in the U.S. Treasury to cover a drop in consumer spending.
There are argument for and against this approach to spur growth in the economy. Probably the simplest way to look at it is how consumers spend. There are savers, and there are spenders. There are those that live within their budgetary means, and those that live paycheck to paycheck. If you have wondered why the Stock Market has been going up, you can attribute that to the first stimulus. The creation of an artificial economic bubble.
It is difficult to interpret Bernanke’s defense of QE2 as anything else but an attempt to replace the recent bubble with yet another – to drive already overvalued risky assets to further overvaluation in hopes that consumers will view the “wealth” as permanent. The problem here is that unlike housing, which consumers had viewed as immune from major price declines, investors have observed two separate stock market plunges of over 50% each, within the past decade alone. While investors have obviously demonstrated an aptitude for ignoring risk over short periods of time, it is a simple fact that raising the price of a risky asset comes at the sacrifice of lower long-term returns, except when there is a proportional increase in the long-term stream cash flows that can be expected from the security.
It was announced that the recession ended in June of 2009. That was when economist tracking the numbers determined the economy stopped falling and started rising. The question now is, why do we need another stimulus? If the economy is being artificially inflated with money we don’t have, then wouldn’t a more responsible position for the FED to take, would be to reduce risk and regulation?
If consumers and small businesses are to begin spending and investing again, then the FED needs to lower the risk. The government needs to reform its spending. The government needs to reduce regulations. For example, in the Obama Healthcare bill, there is a provision that requires a 1099 form to be filed on any vendor, supplies, and business you pay $600.00 to in a calendar year. That’s just one of many hidden taxes and regulations buried into the Healthcare bill. This causes uncertainty in the business environment. Consumers and Business stop spending.
Additionally, there’s the Bush Tax Cuts that Obama and the Democrats are going to allow to expire. This uncertainty will prevent employers from hiring, investing, and expanding. Instead, small businesses are taking a wait and see before they spend capitol. Ask yourself if you could spend your way out of debt. After you deplete your savings, your 401K or pension, max out your credit cards, what’s next?
While the news might be good for large companies like Intel, small businesses are still struggling, says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.
“Ultimately, we need the small firms for expansion,” Mr. Brown says.
What has been driving the market higher, Brown believes, is anticipation of the Federal Reserve’s next step in monetary easing: The nation’s central bank may begin to buy long-term Treasury notes. By buying these notes, the Fed hopes to lower longer-term interest rates. It has already dropped short-term rates to almost zero.
What are the consequences should the FED’s gamble fails? Inflation and the dollars devaluation. Higher unemployment and lower wages. Consumer spending slows and confidence wanes. The key to economic productivity is to remove the crushing regulations imposed on employers by the Obama Healthcare Law. Reducing taxes on corporate and personal incomes will generate the spending needed to increase the tax revenues the FED’s. The Bush Tax Cuts need to become permanent. Until the government removes the uncertainty, any gains seen now, could evaporate into another recession, or even a depression.
What’s For Dinner?
Filet Mignon in a Cabernet Mushroom Sauce with Potato Crisps and Candied Butter Baby Carrots