Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Obama Is Clueless on the Economy

Politics / Government Intervention Sep 12, 2010 - 10:17 AM GMT

By: Dian_L_Chu


Best Financial Markets Analysis ArticleOn Labor Day, President Obama announced a new $50-billion infrastructure plan next year as a way of a second stimulus for job creations as well as for the faltering economic recovery. However, the plan is expected to be met with strong opposition in the midst of a mid-term election, while many economists are skeptical as to any swift effect it could have on America's $14.3 trillion economy, as well as the troubling labor market. 

So, in light of the fact that the Democrats are losing a bunch of congressional seats, and their majority, this new plan would seem more of a last-ditch effort with little substance.   

Clueless on the Economy

So far, the Obama administration has demonstrated very little understanding of the economy, markets, and business. In fact, one could say that the policies the Administration implemented are probably close to the worst medicines to help a sick economy recover from a devastating illness.

Much of the legislation passed by the Administration is essentially anti-business, while painting a negative image of corporations. This is further playing a debilitating role for stalling an economic recovery due to the added uncertainty for businesses--“What is coming at us next, cap and trade, drilling ban?" All this does is further undermining the business confidence that is needed to start hiring again on a large enough scale to really make a dent in the unemployment rate.

Hierarchy of Needs

During the passing of the first $800 billion stimulus plan, many recommended that a larger percentage needed to be allocated to infrastructure projects due to the add-on effect of job creation. But they fell on deaf ears of the Administration and the Democratic Party.
Now all of a sudden, they finally came to realize what’s really important-- having a job and a roof over your head, whereas healthcare and financial reforms are on the next level up the hierarchy of needs. So, here comes a new infrastructure spending plan to create jobs, taking a page from President Roosevelt’s New Deal and China’s infrastructure-focused 2-year, $586 billion stimulus package started in 2008.

No Second Chance

Unfortunately, the Administration basically messed up and squandered away the first stimulus package--the only chance to get it right with a proper infrastructure package and real job creation. Cue to the Greek and European debt crisis, there’s no second chance.

Although President Obama indicated the plan would not add to the budget deficit, senior administration officials suggest it could come from closing tax credits used by oil and gas companies and multi-national corporations. So, it is just robbing Peter to pay Paul—a zero-sum game. And 50 billion dollars?? It is definitely a case of too little and too late.

Debunk the Policy-Induced Recovery

The Administration also has pointed to the fact that when they took office we were losing 750,000 jobs a month, vs. the current loss of 100,000 jobs a month, and things would be much worse without their creative solutions.

Well, the numbers were greatly skewed with companies running scared and cutting costs to the bone in the middle of the financial crisis. However, almost 2 years since the Great Recession, most companies have reached a point where they can no longer cut costs and/or personnel. Moreover, if the economy stabilizes due to an inventory rebuilding cycle, and the world isn`t coming to an end, then there will be a natural reduction in the rate of job loss, which has nothing to do with the Obama Administration`s legislative policies.

So, yes, things are better, attributed partly to the natural business cycle, but also because the worst didn`t come to fruition, the stock market assets needed to be reacquired by fund managers who over liquidated their portfolios. In addition, manufacturing was also boosted by the inventory restocking phase, and even failed stimulus packages would provide some sort of floor for the economy.

Nevertheless, none of this can be taken credit for by the Obama administration. It is a natural law of economics, and relative preparedness. That is, if everyone is prepared for the sky to fall off, and the sun still comes out the next morning, the economy will experience a slight recovery all on its own, relatively speaking. But this is nothing to write home about.

Legislative Wins – Don’t Mean Much

One thing that President Obama and the Democratic Party has accomplished is that they have gotten more legislation through Congress, and passed into law than most administrations ever dream of accomplishing.

However, it is more emblematic of having a complete majority in the legislative branch--Republicans were emasculated due to the economic crash happening during their watch, and a literal blank check of unprecedented nature to just fix things that went wrong.

As we have witnessed in the past two years, achieving a lot of legislative wins has not done a whole lot of good for the nation.

On Health Care & Financial Reform 

I agree that the health care system in the US needs some major overhauling, but was this accomplished with the latest health care legislation? No, I do not believe this to be the case. But one thing I do know is that it is entirely counterproductive to push through a health care reform bill that is going to create more costs for business coming out of a recession. 

Adding more costs is bad for business even in a booming economy (that`s why it has been so hard to get passed all these years,) but it is a complete suicide mission during a tentative recovery phase.

I also agree that to some degree there needs to be some regulatory changes to the banking system, and how Wall Street and the SEC operate. But all this financial regulation, post financial crisis, will only cause major disruptions to the financial industry, and hinder any type of job creation, at a time when the industry is still on shaky ground and worried about building up their capital reserves.

And you see what happened to the financial stocks since the passing of the financial regulation bill after investors realize the implications of this policy change. If financial stock prices are going down, then so are the number of financial jobs, in a sector that is one of the major employers in the economy.

Again, an argument may be made for financial reform, but there is a time and place for this type of sweeping legislation, and it is after the economy has recovered, when unemployment is under 6%, and business confidence has returned enough to sustain this type of exhaustive financial overhaul.

Markets and Business Tend to Self-Correct

I actually think legislation to address problems which already occurred is a little backward looking, and gets you all the extra costs, but little, real bang for your buck. Businesses and markets tend to be self-correcting as nothing hurts business and professionals more and changes behavior faster than losing money.

Nobody, be it bank, insurer, mortgage underwriter, or rating agency is going to continue the same business practices such as sub-prime after losing that type of capital during the financial crisis. 

Changes in business practices are already taking place without the business-disrupting new regulations. After all, companies are in the business of making money first and foremost, and nothing changes behavior faster than losing 15 billion in a quarter.

Political Irony

The funny thing is that President Obama`s policies were better suited for the good times, as they might have actually tempered some of the growth enthusiasm, and help check and balance some of the insane leverage utilized by businesses during the Bush era.

Nevertheless, when a country is trying to works its way out of a recession, policy makers need to be pro business to foster a strong business climate, instills business certainty and confidence, and leads to large scale job creation. In the end, the last two administrations were better suited for each other`s tenure, and if we could just go back and switch the two, we would be so much better off today.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules