Posted by Michael A. Kamperman on March 1, 2010
This man is now my hero. He is the first highly respected financial commentator to recognize the seriousness of the current debt-induced deflationary depression. At risk to his reputation he has manned-up and called on Ben Bernanke to resume quantitative easing. When it comes to quantitative easing ignorance reigns. Many people have left comments on his column that the way to get out of debt is not to take on more debt. They are confusing borrowing and spending with printing. In the U.S. quantitative easing involves the Federal Reserve creating money out of thin air (printing) and purchasing assets. When the Fed purchases U.S. Treasury bonds with printed money the U.S. debt is reduced, not increased. This gives the federal government the leeway to maintain or increase spending without raising taxes or increasing the national debt. The economy desperately needs support. Increasing federal spending is the only way to stabilize the economy. As Evans-Pritchard points out the state of Illinois is running a $13 billion budget deficit on a total budget of $28 billion. Basically, Illinois needs to double state tax revenues or cut state spending in half. Many other states are in similar dire predicaments. The states cannot print, the Fed can. It must fulfill its duel mandate of price stability and full employment. Likewise, the federal government must fulfill its moral obligation to support the states.
Evans-Pritchard points out “the Fed’s Monetary Multiplier dropped to an all-time low of 0.809 last week.” Money is not circulating as it should. He also points out that “the M3 money supply has fallen at a 5.6pc rate since September.” Additionally, he highlights that ”the contraction of eurozone bank credit to firms accelerated to 2.7pc in January, while eurozone M3 fell by a further €55bn. Japan’s GDP deflator has dropped to a record low of -3pc. He claims “these are epic warning signals, with echoes of 1931. Yet the Fed has just raised the Discount Rate. It is winding up liquidity operations, and preparing to reverse QE, even though the housing market has tipped over again. New home sales fell 11pc in January to 309,000 units, the lowest since data began, and 24pc of mortgages are in negative equity.” He is so right!
Evans-Pritchard quotes the Bank of England’s Head Governor Mervyn King as saying “”I was struck by the mood at the G7, where several of the major economies around the world said quite openly that they were relying on external demand growth to generate growth. That can’t be true of everybody,” he said. We already know Larry Summers is advising President Obama to pursue just such a strategy. He believes we can spend less in America and save more, all the while growing our economy by selling more to others just like China does. As King states we can’t all run an import/export surplus. Meanwhile the British Pound is getting pounded by currency markets limiting the ability of the Bank of England to aggressively print money and revive its economy. It is up to Ben Bernanke and the Federal Reserve to aggressively print more money thereby providing cover to Britain, Japan, and the European Central Bank to pursue their own quantitative easing programs. Fed Vice Chair Donald Kohn retired today. This means President Obama now has three openings on the Fed. His appointments will decide the course the Fed ultimately takes. Hopefully someone in the Whitehouse is pointing out Evans-Pritchard’s comments to him.
Posted by Michael A. Kamperman on February 22, 2010
The Core CPI index was reported as minus .1%. This is the first time since 1982 the core rate has been negative. It won’t be the last. We are in store for many more negative Core CPI readings over the next couple of years. Housing costs in the form of rent and owner’s equivalent rent make up over 40% of the Core CPI rate. While the government should be using an estimate of actual home prices to calculate the cost of home ownership, it remains wedded to the concept of using owner’s equivalent rent which was introduced in 1983. While housing prices were falling dramatically for over 2 years, the CPI calculated the cost of home ownership as rising because rents were rising. Now the lag effect of the deep contraction in the housing market has spilled over to rents and rents are declining. Vacancy rates for apartments are now over 8%, and these units are having to compete with recent foreclosures and short sales purchased by investors and turned into rental units. Hence, the pressure on rents will remain relentless over the next couple of years unless there is a dramatic uptick in employment. Too many young men and women are graduating from college without the prospect of a full-time job that can cover their living expenses and they are being forced to move back home with Mom and Dad. Additionally, many pe0ple who are financially strapped are moving in with friends or relatives. The glut in housing will take a lot longer to work off than most experts expect.
The Core CPI is actually reflecting where we have been. But troubling to my mind is the more the government reports the country is experiencing deflation, then the more it will become a reinforcing self fulfilling prophecy. First of all many wage negotiations are tied to the CPI rate, as is Social Security. This will lower incomes. Additionally, as people see and perceive that prices are actually falling they will do the rational economic thing which is to delay purchases. Fewer purchases will lead to fewer jobs and fewer people capable of buying or renting a house. It is ironic that the Fed wanted to signal to the markets a return to normalcy by raising the discount rate last week only to have a negative print in the Core CPI rate bring in to question any attempt to tighten. It is only a matter of time before the Fed reverses and resumes its program of quantitative easing, just as it has been only a matter of time before the housing price declines would turn the Core CPI rate negative. Our country has too much debt, and now it has falling incomes to service that debt.
We are not alone. In fact we are legion. Most of Europe shares our fate. We now share Japan’s deflationary fate of the last 20 years. Japan sent a clear signal that when economic calamity hits the worst thing to do is to be too timid and then compound the error by propping up too-big-to-fail-too-broke-to-lend Zombie Banks. The history book on the shelf is always repeating itself….Waterloo. The Greek led euro crisis indicates deflation is inevitable in Europe as well. It also has sparked a significant rally in the dollar which is killing any hopes of an export led recovery. Message to Lawrence Summers, the whole world cannot adopt the Chinese model of selling four times as much as it buys from everyone else. There is an upside to the negative Core CPI rate. It will highlight the dramatic decline in the velocity of money and focus attention on the need for the Fed to print more money.
Posted by Michael A. Kamperman on February 18, 2010
It’s chic to be against increases in the federal deficit these days. People on the right are clamoring for spending cuts without tax increases. People on the left are clamoring for raising taxes on the rich to support more social spending. These positions come from natural responses to either the impulse that Washington is taking too much of my money and I don’t want to send them anymore, or the impulse that people in our community are suffering and the federal government needs to step up and help them. I find myself drawn to both positions. I certainly don’t want my taxes raised one more damn dime, and I don’t care what reason they’re wasting way too much of my hard earned money right now. Also, I think it is unconscionable that the federal government is not doing more to help those that are down and out through no fault of their own. For example, the average adult on foods stamps qualifies for $144 per month, which means they have to eat on less than $5 per day. It costs more than $5 to get a Big Mac value pack for lunch at McDonalds. So many who are either sympathetic to both positions, or who want to play chic anti-deficit politics, are talking about the importance of pay as you go rules. Put simply, pay as you go means Congress is not supposed to pass additional spending for a new program unless they either cut spending for some other program, or raise revenue by closing some tax loop-hole. All three of these positions represent a false paradigm. If we were still on the gold standard and couldn’t print money, or if we had a growing mild inflationary economy like the one that existed up until recently in the post World War II era, then yes these simple rules would represent good guidelines. But we are in the midst of a deflationary depression and the federal government can print money. The phrase “you can’t spend your way to prosperity” may apply to micro-economics, but it doesn’t apply to macro-economics. Economic growth by definition is spending. Someone somewhere spends money and those transactions make the world go round. Spending is good. Spending gives people jobs, businesses profits, and governments tax revenues. Being against spending not only places one as opposed to big governemnt, it also places one in oppposition to consumers having jobs and to small businesses having profits. The consumer is tapped out and it is imperative the federal government become the spender of last resort. Otherwise, get used to seeing anemic weekly jobless claims numbers that continue to leave the so called experts scratching their heads.
Don’t just take my word that the consumer is tapped out and home budgets are under pressure. “Customers remain cautious, especially in discretionary spending,” Vice-Chairman of Walmart Mr. Castro-Wright said, adding that sales of discretionary merchandise were softer compared to the period a year ago. “Personal finances remain the top concern facing consumers in our latest monthly research report. Concern about unemployment remains much higher compared to last year, followed by concerns about the cost of living and the economy.” Unfortunately it is about to get a lot worse. Congress cannot get its act together on a job creation bill and unemployment benefits for millions will expire over the next few months. What will spending patterns at Walmart look like then?
A recession has been defined as when your neighbor loses their job and a depression has been defined as when you lose your job. But what do you call it when the one losing their job is your brother, or your mother, or your significant other? The reason Pay as You Go rules represent a false paradigm is because they are based on the concept that the federal government is like you and me. We make so much, we can borrow so much, and therefore we can only spend so much. But the only entity in the world with the capacity to spend more money without impunity is the federal government. Yet the entity entrusted with this magical power acts as though it doesn’t know it is a Genie in the Bottle and can grant us three wishes. The federal government can end the depression by lowering our taxes, by spending more money, and by eliminating the need for Pay as You Go by monetizing the debt. Sadly, that is not the trajectory we are on. Today, President Obama announced a bipartisan commission tasked with the responsibility of finding ways to cut spending, raise taxes, and cut entitlements like Social Security and Medicare. Has anyone in Washington asked themselves why we want people working longer in life when we don’t have enough available jobs now? President Obama’s get tough on the deficit rhetoric will only lead to more than one in eight Americans on food stamps, more than one in seven mortgages delinquent, more than one is six working adults unable to find a full time job, and more than one in five men aged 25 to 55 out of the workforce. Where there is no vision, the people perish.
Posted by Michael A. Kamperman on February 12, 2010
The time has passed to think in terms of temporary and targeted stimulus bills to create jobs. While gimmicks like cash for clunkers or the first time home buyers tax credit create a temporary boost in demand, they are simply too small to employ the 8.4 million Americans who have lost their jobs since the recession started. This doesn’t even count the additional 3 million Americans who have graduated from High School and College and entered the labor force. The country is down over 10 million jobs. To create jobs we need to start thinking big, not small. Employers in for-profit, not for-profit, and in government need a sense of permanency to be able make plans to expand. Aid that is here today and gone tomorrow will not encourage serious job creation efforts that involve spending money on buildings and new equipment. No one knows when the temporary stimulus will end. No one knows what the rules will be a year or two from now. Planning requires confidence, and confidence requires a sense of permanency. The New York Times pointed out that 15% of the nations workforce work for state and local governments, which includes schools. Another 15% are employed in the healthcare sector. In one fell swoop the federal government could stabilize one third of the workforce by taking over all Medicaid funding from the states and raising the bar on the quality of medical care provided to participants in most states.
According to the New York Times “Without more aid, states will have to cut spending and raise taxes to close an estimated $142 billion budget gap for fiscal year 2011, which starts on July 1 for most states. Last year’s gap was $125 billion. Next year’s is anticipated to be $118 billion.” The state budget gaps will not magically end in 2011. In fact, the more the states cut the worse the economy becomes. States are set to spend over $150 billion for Medicaid in 2010. By having the federal government assume all Medicaid spending the states would be able to divert those funds to close budget gaps, cut taxes, and fund local economic stimulus programs. The federal government could lower the eligibility requirements for Medicaid providing medical care and insurance to more low income Americans. While they are at it, Congress could pass a bill allowing anyone with a pre-existing condition who is denied insurance an option to buy in to Medicare. And, they could pass a law with criminal penalties for any health insurance company that attempts to skip out on paying from someone they collected health insurance premiums on. Every state would benefit.
The federal government can run budget deficits and most states are required to balance their budgets. The federal government can print money and the states cannot. The states are simply not able to provide economic stability in a depression as severe as the one we are in. State governments are being dragged down with the rest of us. The federal government can fulfill this function. The absurdity of the situation is Washington is not thinking big, it is thinking small, smaller, and smallest. The House wanted a $154 billion jobs bill, the Senate negotiated an $85 billion bipartisan jobs bill, but for some reason (re-election) majority leader Reid decided a $15 billion jobs bill that is targeted and paid for with tax and spending savings elsewhere is the right way to go. This is no way to instill confidence in employers to run out and hire more workers. We cannot cut our way to prosperity. We cannot cut our way to a balanced federal budget. Medicaid is an existing program and the state workers in the program can be transferred to the federal government. All that would happen is the Medicaid partner with the deep pockets that can handle the liability would handle it.
Posted by Michael A. Kamperman on February 8, 2010
The Dow Jones closed below 10,000 as investors are becoming increasingly nervous about the ability of governments to step forward and solve the economic crisis. Global economies cannot revive unless significant amounts of additional government spending continue to take the place of private sector spending. However, governments cannot cut deficits and support the global economy with higher spending at the same time. The crisis surrounding the debts and deficits of Greece, Spain, and Portugal expose Europe as leaderless and rudderless. Now is not the time to ask Greece, Spain, and Portugal to accept fiscal austerity and more economic pain. Yet that is exactly what Europe’s leaders are doing. The U.S. remains equally leaderless and rudderless as the states are asked to swallow the same type of bitter fiscal austerity pill by the Whitehouse and the Congress. Global governments appear frozen and incapable of stepping up and meeting the challenges that face us. Confidence is always fragile. No one in a leadership position is capable of putting Humpty Dumpty back together again. Money is heading back under the mattress. Let’s be clear, nothing has been fixed. The credit markets remain broken. Sleight of hand statistics like those used in the unemployment report are not working any more. People are waking up and realizing that the unemployment rate went down to 9.7% because we have thrown more workers out of the want to work bad enough category, not because we actually created jobs. The Labor Department reported we have the same number of Jobs in January as we did in November, yet the unemployment rate dropped from 10% to 9.7% despite population growth. Weekly unemployment claims started rising again before the loss of confidence even swept the markets. Now there is a very good chance the momentum to fire more workers will gather steam.
Our country has over 6 million people that have been out of work for over 6 months. Where is the plan to put all of them, that’s right all of them, back to work? Cutting taxes isn’t going to do it. A feeble $100 billion jobs bill isn’t going to do it. Faith in the markets isn’t going to do it. We need to see a real plan. So far no leader in Washington has put forward a comprehensive plan to put America back to work.
In 1931 there was false optimism the economy stabilized and the worst was over, then the next big leg down in the economy hit and eventually drove the unemployment rate to 25% in 1933. It appears the next leg down in our economy has begun. The global economy cannot be sustained without significant increases in global government spending. Spending cannot continue without large deficits. The solution is to print money to reduce government debts and increase government spending at the same time. No leader is currently advocating this. Both the Bank of England and the Federal Reserve have naively backed away from quantitative easing. What our leaders fail to see is first they came for the Gypsies, then they came for the Jews, then they came for us. First the deficit hawks are coming for Southern Europe, then…
Posted by Michael A. Kamperman on February 4, 2010
Today the Bank of England announced they are ending their quantitative easing program for the time being. They will no longer print money and buy their own government bonds. The Federal Reserve has already announced they will stop printing money and purchasing mortgages. The Japanese Central Bank remains lost in translation. The ECB remains clueless. This week the Australian Central Bank back-pedaled and backed off raising interest rates, which shocked the markets since all 20 analysts predicted they would continue raising interest rates. The Australians came to their senses and stopped the madness. It is only a matter of time before the Federal Reserve, the Bank of England, the Japanese Central Bank, and yes even the European Central Bank begin to aggressively print money to stop the debt-induced deflationary depression in its tracks. How long it takes and how much more global unemployment pain will be endured before they come to their senses is anybody’s guess. There is no doubt this will happen, for there is no other way out. The unemployment crisis, which will be highlighted by the U.S. unemployment report tomorrow, is a global crisis. Unemployment rates in Spain are officially 19%, which are Great Depression levels. Yet the ECB and the bond vigilantes are demanding that Spain join Greece and initiate significant cutbacks in government spending including firing more government workers and cutting wages. Even Herbert Hoover increased federal government spending in the 1930’s, though not by much. Cutting government spending will lead to a decline in aggregate demand which will further depress the global economy leading to more firings of private sector workers. The time for euphemisms like “layoffs” is over. Workers are being told to hit the streets. The global economy is suffering from a lack of demand due to ridiculously tight credit conditions for consumers and small businesses. Tight credit conditions have once again spread to corporate borrowers and now they are being inflicted on sovereign nations. The world is still in the midst of global deleveraging because there is simply not enough money in the world to support all of the debts.
The nations in the euro will either share their debts or they will be forced to break the euro up and return to their own currencies. My advice to the Europeans is to have all 15 nations in the euro guarantee the debts of all other 15 nations, true monetary integration. While this was not part of their original treaty it either gets added now or they can kiss the euro goodbye. Then, the ECB should embark on an aggressive quantitative easing program to make sure the debts do not require cutbacks in government services and do not fall on the backs of the taxpayers. The only risk would be the euro might depreciate against other currencies. If this happened it would only make European exports much more competitive improving their balance of trade.
What is needed now is global leadership, sadly it is lacking. A money printing solution to the economic crisis exists and yet politicians are cowered by false prophets preaching the limits of money creation and the anachronistic worship of gold. Those concerned about high unemployment rates need to understand those rates will trend higher and higher unless and until the world central banks come to their senses and re-inflate the money supply. Helicopter Ben needs to rev up the engines or forever sacrifice his reputation as having avoided another Great Depression. In order to solve a crisis you have to understand it first.
Posted by Michael A. Kamperman on January 11, 2010
The consumer is getting the shaft in the Fed’s zero percent interest environment. Consumer credit fell by over $17 billion in November, which is part of the all-important Christmas shopping season. But what’s even more disturbing is the federal government is allowing the tax payer bailed out too-big-to-fail banks to get away with highway robbery. Big banks have raised the interest rates on credit card customers who are current on their bills up to 30% in some cases. We already have a huge problem in that many consumers cannot access credit. But many who can access credit are getting gouged. There is simply no acceptable reason for banks to be allowed to charge usurious interest rates when the Fed is letting them have money almost for free. The Fed’s policy of low interest rates is working to give the banks a chance to earn some income to cover their swept under the rug losses. However, the Fed’s low interest rate policy is failing to jump start the economy because the consumer is not seeing the low interest rates passed on to them, except for home mortgages. But most people cannot buy a new house because they can’t sell the house they live in and they cannot refinance because their current mortgage is underwater. Hence, this is having a limited impact on reviving the economy. The consumer’s inability to access affordable credit is paramount to a contraction in the money supply. Since the money supply is already contracting without factoring in the interest rate differential, the risk of persistent deflation rises daily.
The Federal Reserve needs to quit talking nonsense about an exit strategy and needs to get serious about printing a lot more money. There is no way the housing market will survive if mortgage interest rates rise further. That is all but certain to happen if the Fed ends its purchases of mortgages under its current quantitative easing program at the end of March. Nero fiddled while Rome burned. Right now the Obama Administration is fiddling while the consumer is being burned alive. It is up to Ben Bernanke to stand up and be counted. History calls.
It is also up to Congress to stand up and be counted. The recent “consumer protection” bill left a multi-month window for banks to abuse the little guy. And boys have they. Do they not realize that 70% of the U.S. economy is based on consumer spending? Do they not realize the consumer votes? Senator Dodd pushed this legislation through and now he has been pushed out. President Obama needs to call for change. He needs to call for change we can believe in. This economy is going no where if the consumer is not given a life-line, pronto.
Posted by Michael A. Kamperman on December 16, 2009
The Bernanke led Fed is divided. Some want to render more aid to the economy now. Others wish to withdraw support and head off future inflation. Both sides have agreed in a grand bargain to wait for more data and to wait until they have to make a real decision. The deadline is March 2010 when the current round of quantitative easing is scheduled to end. That is when the Fed is scheduled to end its purchases of Agency debt and of Agency issued mortgages. Until then they neither have to end or extend quantitative easing. The Fed is watching unemployment and capacity utilization. Between now and the end of March the private sector and the state governments will shed more jobs. The predictions by the leading economists are for the real economy to begin to add private sector jobs in the first quarter of 2010. It’s not going to happen. What is going to happen is the federal government will add almost one million temporary jobs to work on the 2010 census. But all of these jobs will end at the end of 2010. The Fed needs to back these jobs out of the next few unemployment reports to get a clear picture of where the economy is heading. Otherwise they may make a decision based on a false reading of economic vitality.
The CPI report showed the core rate of inflation is currently zero. This in spite of the dollar declining gold led rise in November oil prices. That trend has already reversed and the dollar has bottomed in the near term. It’s not because the U.S. is doing so much better. It’s because the veil has been lifted on the euro and the reality of the economic calamity facing countries like Greece, Spain, and Ireland has been laid bare. The CPI reports will soon trend negative. It is only the cold winter that is holding keeping the price of oil from collapsing. It is certainly not economic activity.
The Fed is definitely behind the curve. But it is not the inflation curve they are behind, it is the deflation curve. Prices will keep falling in housing and real goods in search of demand. The banks continue to tighten credit. The Obama Administration has chosen politics over economic substance in allowing Bank of America, Citi Group, and Wells Fargo to exit the Tarp. Despite raising money the capital ratios of all three of these firms fell when the Treasury redeemed its preferred stock. The deleveraging continues and even fewer loans will be lent to consumers and small businesses in 2010, despite the pleas from the President. The Fed needs to look at the big picture and needs to quit waiting and start printing more money ASAP. Manufacturing activity is already slowing down in the U.S., Germany, and Japan. And Christmas sales at the retail level are looking to be weaker than expected. Come January the false dawn of economic revitalization will become self evident and the Fed’s hesitancy will cost it valuable points in confidence. If the Fed had moved today to up their quantitative easing program businesses may have had the confidence to keep workers on and perhaps even to attempt to expand. But because the Fed is blinking employers will blink too. Unfortunately the Obama Administration is not only blinking on job creation, they are blind.
Posted by Michael A. Kamperman on December 11, 2009
In this morning’s New York Times Paul Krugman called on Ben Bernanke to ratchet up the Federal Reserve’s efforts to create jobs by printing $2 trillion. Krugman says the economy needs to create 300,000 jobs per month for the next five years in order to create the 18 million jobs necessary to return to full employment. The Keynesian econonomist ruefully acknowledges the appetite for a full scale fiscal assault on the economic crisis doesn’t exist in Washington and he is turning to Bernanke and monetary policy as the nation’s best option to create jobs. Krugman states “the most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.” While Joseph Gagnon is on the right track he underestimates the size and scale of quantitative easing necessary to end the credit crisis. Consider that Goldman Sach’s estimates that every $1.4 trillion worth of government securities the Fed purchases is equivalent to lowering the Fed Funds rate by 1%. Goldman further estimated the Fed Funds rate needs to be lowered another 6% in order for monetary policy to have enough teeth to get the economy moving again. The Goldman study estimates the Fed needs to print $8.4 trillion.
While I think Mr. Gagnon’s estimate is way too low and that Goldman’s estimates are also too low I am thrilled that Professor Krugman has kick-started the debate about why isn’t the Fed printing more money and just how much money does the Fed need to print. My own estimate is we should start with $10 trillion, though it will probably take $20 trillion, and virtually eliminate all of the outstanding U.S. Treasuries. This shock and awe strategy would restore confidence because the federal government would be almost debt free. It would also mean our President wouldn’t have to go to Asia and bow down before his bankers. And, it would free the Congress from concerns about the deficit allowing them to send the states the estimated $350 billion they will need over the next two years to close their budget deficits.
Imagine a world where the too-big-to-fail-too-yet-too-broke-to-lend-banks have no risk free Treasuries to invest in and are forced out on the risk curve with no option but to lend again? It is up to the Fed to take the “hide the money under the mattress” Treasury bonds away from the institutions. We have seen several Treasury auctions this month where the winning bidders accepted zero interest just to know their money was safe. One auction had demand for over five times the amount of Treasuries auctioned even though there was no interest to be earned. If I ran an institution I wouldn’t want my money in a maybe too big to fail bank, or in Dubai or Greece either. For those worried about the dollar if the Fed takes the plunge you can bet the Japanese and the Brits will be quick to follow. We are in a global debt-induced deflationary depression and it is up to the U.S. to lead the way out. Mr. Bernanke, to whom much is given, much is required.
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.
