...that this wouldn't "fix" anything?
Saturday, July 7, 2012
Like the homeowners in Fairfax County, Va., picking up felled tree branches and putting in insurance claims, Americans across the country are still recovering from the Obama derecho that struck the nation from 2009 to 2010. The damage from that whirlwind has been ugly. The cost has been enormous. And another one may form at any moment.
A spectacular confluence of events swept Obama into office. Seven years of war, almost a year of recession, and seven weeks of financial crisis pulled down the incumbent president’s approval rating on Election Day 2008 to an atrocious 25 percent. Obama’s opponent was a war hero and a courageous statesman who nevertheless seemed rather anachronistic, not to mention confused at the bewildering and frightening economic situation.
Obama, on the other hand, had a smooth and graceful and likeable character that appealed to America’s best hopes and dreams of racial and partisan conciliation. His running mate was a dolt, but a familiar one. They promised a new tone in Washington, sound economic management, lower health care premiums, cutting the federal deficit in half, and an end to the war in Iraq. This was the winning ticket, 53 percent to 46 percent.
The economy worsened after Obama’s election. Unemployment spiked. The government took over the financial system, nationalized mortgage giants Fannie Mae and Freddie Mac, consumed AIG, drew closer to buying GM and Chrysler, and drastically expanded the monetary base to prevent credit from dissolving further.
The economic and legal and political arrangements that had led to two decades of expansion were being re-written hastily and unthinkingly. A deluge of taxes and spending and regulations was let loose, with the stated aim of transforming the base of a system that had produced the most prosperous civilization in history. It turned out that when Obama spoke of putting America on “a new foundation,” he meant it.
Unemployment was at 7.8 percent when Obama became president. It would rise to 10 percent in October 2009 and would not fall below 8 percent in over 30 months. Long-term unemployment became endemic. Participation in the work force fell to lows not seen in decades. Foreclosures mounted. Mortgages sank underwater. Obama’s response was to maintain the policies of the Paulson-Geithner-Bernanke troika: bail out financials and autos while engaging in massive fiscal and monetary stimulus, and hope for the best. Publicize every “green shoot.” Say, “Welcome to the recovery.”
The change in governing style that the president had promised never seemed to materialize. Relations with the domestic opposition was an area in which the administration seemed eager to adopt a “with us or against us” mentality. The White House targeted dissenting individuals and organizations for public rebuke and media-enforced shame: Rush Limbaugh, Dick Cheney, Fox News Channel, the Chamber of Commerce, Charles and David Koch, Paul Ryan, Sheldon Adelson. The list grows with each day.
Even as Obama said he would listen to the Republicans, he let archliberals Nancy Pelosi, Henry Waxman, and David Obey write the stimulus bill, ironically called “the Recovery Act.” They larded this legislation with handouts to public sector unions, the social services lobby, and green energy companies managed by Democratic contributors. They included tax rebates that history had shown to be ineffective at stimulating demand, and emergency aid to states that would delay but not resolve the governors’ budget issues. The cost: $862 billion. Read the papers, and then try to say the stimulus “worked” while keeping a straight face.
It was with glassy-eyed seriousness that the president and his allies in Congress turned from the economic crisis to the ambitious spending and regulatory agenda that they had waited years to enact. Having passed the stimulus, Pelosi, Waxman, and Ed Markey brought to the floor of the House a monstrosity of an energy bill that would have imposed a cap-and-trade system of carbon regulation on the nation in the middle of the worst economy since the Great Depression. It cleared the House by seven votes before coal-state Democrats and Republicans in the Senate spared us, in this instance, from the greens.
Then in July 2009 Congress authorized Obama’s first budget of $3.4 trillion, hilariously titled “A New Era of Responsibility.” Like all of the president’s budgets, this one was easy to summarize: Taxes and spending and debt went up.
Obama and Congress carefully designed their “crown jewel,” a health care overhaul that mandates insurance coverage for every American while turning health insurers into quasi-public utilities, raising taxes, and establishing manifold regulatory boards and bodies that will encroach ever more on institutional and personal liberties. The months spent debating Obamacare revealed the character of this president in an unforgettable way. He pushed for the legislation despite its unpopularity, despite his party losing elections in Virginia and New Jersey and Massachusetts, despite public protests and marches and threats to challenge the law’s constitutionality. What could be seen in these glimpses of the real Obama was a single-mindedness of intent. Obamacare became law in March 2010.
The final surge was the Dodd-Frank “Wall Street Reform and Consumer Protection Act,” which required more than 2,300 pages to delegate authority to new or established regulatory bodies that will issue more than 400 rulings on every sort of financial transaction. The president signed it into law in July 2010. The most obscure and arcane piece of legislation passed during the Obama derecho, Dodd-Frank may also come to be seen as the most harmful. It enshrines the Too Big To Fail bailout model that led to excessive leverage and risk-taking, and incentivizes consolidation in a banking sector already beset by cronyism and insider relationships between Wall Street and Washington.
This is the legislative horror-show that birthed the Xenomorph-like Consumer Financial Protection Bureau, an already politicized agency that is shielded from democratic accountability even as it runs amok in credit markets. The regulatory capture and other perverse consequences of Dodd-Frank will become clear only in hindsight. However, we already do know that it did nothing to reform Fannie and Freddie or housing in general, and that it won’t prevent the next financial crisis, which may soon be on us.
The clouds finally broke in November 2010 when Republicans had their best electoral performance in decades, and took the House of Representatives while gaining seats in the Senate and in governors’ mansions and in statehouses. The worst seemed to be over. Obama was forced to maintain the tax rates that have been operative since 2001. The congressional Republicans have checked his additional plans.
The economy still suffers, however. The legacy of the derecho years remains. We will be picking up after Obama’s debt and regulations and taxes for a long time to come. Even the current respite may turn out to be brief, for there are dark clouds on the horizon. Massive tax hikes on all levels of income, combined with crippling defense cuts, are set to take place on January 1, 2013. The health care mandate goes into effect the next year. The wind is picking up, and one can feel the first drops of rain. My advice: Take shelter.
Friday, July 6, 2012
Thursday, July 5, 2012
"A slew of weak U.S. economic data is casting doubts over expectations of a pick-up in growth in the second half of the year.
From manufacturing to job growth to consumer spending, the numbers have been grim, and economists are wondering whether they need to dial down forecasts for the remainder of the year.
Fired by fresh worries about drought, corn powered up 34 cents per
bushel on the Chicago Board of Trade to $7.08, above $7 per bushel for
the first time in a year.
Soybeans climbed 53 cents per bushel to an all-time high of $15.27.
The gains in Iowa’s mainstay crops have been breathtaking as farmers and traders factor in their fears that the heat and drought in Iowa and elsewhere in the corn belt will take yields down far below expectations.
As recently as June 1, corn traded for $5.20 per bushel and soybean at $12.50 per bushel on expectations of big crops that would increase U.S. domestic stocks and also moderate what has been a two-year record run of corn and soybean prices.
The U.S. Department of Agriculture has forecast a national corn yield of 166 bushels per acre and a soybean yield of 44 bushels per acre. Iowa’s yields historically are about ten percent above the national averages.
But private forecasters have cut their yield predictions for corn to as low as 148 bushels per acre and soybeans below the USDA projections.
Monday, July 2, 2012
But the S&P 500 closed up today!
from Zero Hedge:
Three weeks ago we noted that Goldman Sach's Global Leading Indicator (GLI) and its Swirlogram had entered a rather worrying contraction phase. Today's update to the June GLI data suggests things got worse and not better as momentum is now also dropping as well as the absolute level.
This continued deterioration in momentum suggests further softening in the global cyclical picture. Of particular concern is the broad-based deterioration in the GLI’s constituent components in June.
Nine of ten components weakened last month, only the second time this has occurred since the depths of the recession in 2008Q4. The June Final GLI confirms the pronounced weakening in global activity in recent months. Goldman has found elsewhere (as we noted here) that this stage of the cycle, when momentum is negative and decelerating, is typically accompanied by deteriorating data and market weakness.