Let’s simply take a look at the record:
1. Iraq – continuation of Bush policy
2. Afghanistan – continuation of Bush policy
3. Bank rescue programs- continuation of Bush policy
4. Economic stimulus – mostly entitlement spending that many economists say will not stimulate.
5. Climate control – stealth tax that will further impoverish and eventually destroy the middle class
6. Health care – interesting priority in light of failures in govt. mandated health care.
Obama clearly wants to redefine what America is. Some people agree, some do not. What should be readily apparent to all though, and sadly it isn’t, is at this particular point in time we cannot afford a climate bill, health care for all and everything else his administration wants. What should be apparent to all, but sadly isn’t, is that at some point in time the benevolence of our Chinese masters (OK, lenders, but it is the same thing) will run out.
Economic problems have largely been vanquished on the back of an accounting change, suspension of mark-to-market, which suddenly healed the banks. Does this disturb anyone besides me? Can we take the greatest financial crisis of modern times and fix it with a money pump and rule changes? I think not.
It seems very clear to me that the “improvement” in economic conditions is similar to being in the eye of a hurricane. On the other side of the eyewall are 3 issues that nobody wants to talk about. They are;
1. Option ARM and Alt-A rests – We have been told by our leaders that the banking problem has been solved. Unfortunately, it has been solved by an accounting change (suspension of mark to market rules) that compels banks to keep bad loans on the books at unrealistic balances. It doesn’t change the fact that the loans are bad. It just chooses to ignore it. When a new wave of foreclosures comes, as early as this fall and next spring, it will be impossible to ignore. These banks are insolvent, and yet we hear nothing about a plan to “save” them. Instead we are told that they are already saved.
2. Declining tax revenues - It should come as no surprise that as economic activity contracts by over 25% (as measured by factory utilization) that many states as well as the Federal government are experiencing double digit declines in tax revenues at the very moment they most need those revenues. Sadly, this is not temporary either, as much of the consumption of the last 10 years was “bought forward” and paid through the use of debt. That model, it is obvious now, is unsustainable.
3. Jobs - Wall Street is hoping that job losses fall from the 600,000 per week level they’ve been running at to “only” 300,000 per week. Sadly, 300,000 jobs per week lost is a disaster. It only looks good compared to 600,000. There is no talk of job growth. None whatsoever.
I hear very little from the Fed, the administration or the financial press on any of these three issues but they keep me up at night. I see signs of recovery amid the wreckage, but instead of green shoots, I see a false dawn. There are only 2 ways to get rid of a debt. You either pay it or you default on it. You cannot ignore it, but that is precisely what our administration and many of the people of this once great nation are choosing to do.
It won’t last, and when it falls apart it will clearly take whoever is in power with it.
Early
