It’s the Economy….Stupid!

Posted by Michael A. Kamperman on September 9, 2009

Gone is any glimmer of hope that President Obama is beginning to understand that creating jobs is the key to claiming victory over the economic crisis.  Tonight President Obama opened his healthcare speech by mentioning the struggling economy.  While acknowledging that it would be several more months before the economy fully regains its footing, the President claimed that the risk of entering a new great depression has been avoided.  He then moved on to talk about healthcare.  The message I received was that he believes his economic team has done all that is necessary and no additional significant help for the economy will be coming from Washington anytime soon.  The President needs a new economic team.  Just yesterday we learned that consumer credit sank by a record $21 billion in July.  Last Friday we learned that the official unemployment rate rose 3 tenths in one month to 9.7%.  The broadest measure of unemployment rose to 16.8%.  Where will the economy be in the fourth quarter when cash for clunkers and the first time home buyers $8,000 tax credit are no longer driving sales of new homes and new cars?  While the tax credit expires on November 30, new homebuyers must close on the transaction by that date to receive the credit.  Since it now takes up to 60 days to close on most mortgages there will therefore be few homes sales benefiting from the tax credit in the fourth quarter.

 

The President and his economic team have not grasped what it means to be in a deflationary depression.  It is not about falling off of a cliff and having every business in America close overnight.  It is about an inability to generate enough cash from income and from asset sales to service debt.  As time goes by savings accounts are drained and foreclosure is the only option left.  In New York City the owners of Stuyvesant Town and Peter Cooper Village, two large apartment complexes, only have enough cash to stay solvent until February.  At that time they face certain default.  The rental income from the apartments has dropped 25% from when the owners purchased them for $4.4 billion two years ago.  This story is being repeated by both businesses and consumers in communities all across the country.  Some one is going to lose a portion of the $4.4 billion loan.  As a result of the losses more people will lose their jobs.  Those people then default meaning other people will lose their jobs.

 

The President is intent on passing a signature health care plan that requires all Americans to obtain health insurance.  But how can the 16.8% of Americans who are unemployed or can only find part-time work going to be able to afford to purchase health insurance?  The President pledged to cut spending in other programs if the cost assumptions he put forth tonight proved to be to optimistic.  The problem is the President and the Congress have not accounted for the fact that the unemployment rate in this country has doubled in the last 18 months and is still rising.  The plans they are working on were put together when the economy was much healthier.  Teachers are being laid off all over America despite the stimulus bill.  The worst thing the President and the Congress could do is withdraw spending from other areas of the budget.  The President is assuring us the healthcare plan will be paid for, but the country cannot afford to pay for it until the economy improves substantially.  I agree with accomplishing many of the President’s goals on healthcare such as no life-time caps on coverage, no dropping coverage when someone gets sick, access to insurance for those who currently have pre-existing conditions, and no more free-loaders on the healthcare system.  But these plans take money.  The money will not exist to pay for a big new healthcare plan unless the President begins to grasp that we are in a global deflationary depression.  Mr. President the number one issue in America is jobs.