The Right Hand Giveth and the Left Hand Taketh Away
Posted by Michael A. Kamperman on December 9, 2009
President Obama has decided to use the $200 billion in unspent TARP funds to fund his jobs initiative and to reduce the deficit. The TARP fund is growing as the Treasury has allowed Bank of America, and will soon allow Citigroup and Wells Fargo, to repay the TARP funds they received. The President wants to focus on capital gains tax cuts, jobs tax credits, home insulation tax credits, increased SBA funding for small businesses, and some further aid to the states for shovel ready infrastructure projects as his main thrust on improving the unemployment picture. The Administration continues to argue the stimulus plan has been successful and has generated 1.6 million jobs, which is true as long as one closes their eyes and ignores the 7 million jobs lost and the failure to create the additional 3 million needed jobs to keep up with population growth. Another major stimulus plan is not in the cards. The President’s jobs plan is focused on politics and not on economics. The President wants to argue the stimulus plan was a success, that he is concerned for the unemployed and willing to provide some additional aid, and that the deficit will be reduced by returning some unspent TARP funds. The problem is the Treasury is allowing the banks to repay TARP by delevering their balance sheets by shrinking their loan portfolios. Hence hundreds of billions of dollars are not being lent to small businesses and consumers so these banks can repay their TARP funds. This is just one more example of coddling Wall Street at the expense of Main Street. It would be much better for the economy to force the banks to keep the TARP funds and lend them rather than to have them returned and to put forth wasteful job creation ideas like an employers tax credit and a cut in the capital gains tax. The vast majority of these tax benefits will go to successful companies that were going to hire people anyway.
Meanwhile, the Administration needs to understand the federal government’s economic actions are not occurring in a vacuum. The states are projected to run budget shortfalls of over $350 billion in 2010 and 2011. The size of the additional inefficient federal spending for jobs is only a fraction of the size of the cuts coming from state and city governments. The loss of bank credit for small businesses combined with job cuts from state and local governments dwarf the size of the additional help President Obama is offering with his minimalist new initiatives.
It is past time for President Obama to fire Summers, Geithner, and the rest of his economic team and to bring in people who understand we are still in the midst of a global economic meltdown. We need the federal government to spend a lot more money and we need the Federal Reserve to print a lot more money or we will see a massive double dip in the global economy similar to the second big dip in late 1931 that eventually drove the unemployment rate to 25% in 1933. The collapse of Dubai is not happening in a vacuum. All of a sudden Greece has been downgraded and Spain has been put on notice by the rating agencies. The credit markets are tightening up again as reality sets in and the bear market bounce ends. We need reality to reach the Whitehouse so they recognize their shrewd TARP moves are taking away more than they are giving.
