Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Is the White House Up for Grabs?

Politics / US Politics Jun 09, 2011 - 08:40 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleBarack Obama figured his reelection was in the bag. All he had to do was throw the progressive wing of his party a bone by pulling a few thousand troops out of Afghanistan, and then wait for the economy to gradually get stronger. What could be easier? 2012 would be a romp. He never thought that his chief economic advisor, Lawrence Summers, might have misjudged the severity of the downturn or that all those pesky "lefty" economists (Stiglitz, Baker, Reich, Thoma, Krugman etc) were right in pushing for more fiscal stimulus. After all, what did they know? Most of them would have supported another W.P.A. if they were given half a chance. Good luck slipping that by the deficit hawks in congress! Besides Wall Street wants "austerity"; so austerity it is. You don't get reelected by rocking the boat.


But then something unexpected happened, the economy started turning South. Housing, manufacturing and consumer confidence all began to lose altitude at the worst possible time, just when the GOP started hammering away the slowness of the recovery. So, when the BLS released its report last Friday, showing that US payrolls had risen by a paltry 54,000 and the unemployment rate climbed back to 9.1 percent, the Obama team went into full panic-mode. They finally realized that the economy was badly listing and that Obama might not be reelected after all. Horrors. That's all it took to put the wheels in motion.

In a matter of hours, Obama completely reversed his position on fiscal stimulus and began reciting from the Christina Romer songbook. Romer, you may recall, was the president's former economic advisor who Obama threw under the bus because she kept pushing for more fiscal stimulus. In an article in the Washington Post, Romer explained why she was given the boot, er, why she "decided to spend more time with her family". Here's an excerpt:

"There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit. A number of us tried to make the case that more action was desperately needed and would be effective. Normally, meetings with the President were very friendly and free-wheeling. He likes to hear both sides of an issue argued passionately. But, about the fourth time we had the same argument over more stimulus in front of him, he had clearly had enough. As luck would have it, the next day, a reporter asked him if he ever lost his temper. He replied, “Yes, I let my economics team have it just yesterday.”...("Christina Romer looks back — and forward", Washington Post)

Obama had been pushing hard to trim the deficits while shrugging off warnings that the economy was still "too weak". He opined that "At a time when American families are tightening their belts, government should be tightening their belt, too." Here's a clip from the Financial Times that illustrates how committed Obama was to austerity:

"US President Barack Obama warned that the US economy could head into a “double-dip recession” unless urgent steps were taken to rein in mounting public debt.

The US president’s remarks... marked his strongest language yet on the necessity of putting public finances back on a sound footing.

“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession,” said Mr Obama." (Financial Times)

So, why is this worth mentioning?

Well, because Obama has not only done a 180 on austerity, but he's also stolen Romer's basic fiscal plan, which just adds insult to injury. This is from Firedog Lake:

"President Barack Obama gave a small hint today about what, if anything, he plans to do about unacceptably high unemployment and slow economic growth over the next year. In a press event with German Chancellor Angela Merkel, Obama was asked about the economy. His answer is worth repeating....

(Obama) "And as long as there are some folks out there who are unemployed, looking for work, then every morning when I wake up, I’m going to be thinking about how we can get them back to work.

Some of the steps that we took during the lame duck session, the payroll tax, the extension of unemployment insurance, the investment in — or the tax breaks for business investment in plants and equipment — all those things have helped. And one of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure that we get this recovery up and running in a robust way." ("Obama Floats Extending Payroll Tax Cut, Unemployment Benefits", Firedog Lake)

Good grief. The plan has "Romer" written all over it. No doubt Obama will add Romer's Number 1 recommendation to the package in due time-- a cut in the employer side of the payroll tax--just to add a bit of salt to the wound. Romer explains how it works in the same Washington Post op-ed:

"My particular favorite additional short-run stimulus would be a cut in the employer side of the payroll tax. Congress cut the payroll tax for employees in the budget compromise last December. A similar cut in what firms have to contribute for payroll taxes would make hiring workers cheaper and would therefore likely be particularly helpful for employment growth. This is just a broader and simpler version of the new jobs tax credit that I thought would be a very good idea back in 2009. And, it has the virtue of being something that I suspect policymakers on both sides of the aisle could support." ("Christina Romer looks back — and forward", Washington Post)

So how did President Chameleon get into this mess?

Obama simply trusted his Wall Street mentors Summers, Bernanke, and Geithner, the trio that sabotaged the recovery while making sure the banks and speculators got as much liquidity (and bailouts) as they needed. Also, Fed chairman Ben Bernanke misled Obama about the stimulative effects of his experimental bond purchasing program (QE2) which neither lowered interest rates, increased GDP, boosted employment, or sparked another credit expansion. The only thing the policy did was send gas and food prices skyrocketing which further constrained consumer spending. All told, QE2 was a bust. Even so, Bernanke has continued to use his position as Central Bank boss to promote his own political agenda. Here's a clip from yesterday's speech where Bernanke makes the case for even more austerity:

"The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government's finances on a sustainable trajectory....The solution to this dilemma, I believe, lies in recognizing that our nation's fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk."

Bernanke's speech just proves that the Fed is basically a political institution that tries to shape policy through misinformation and demagoguery. If Obama had listened to Romer instead of Bernanke he wouldn't be in the pickle he's in today. Instead, he's going to be blasted as a hypocrite for doing a volte-face on fiscal stimulus and the leaving the austerity bandwagon by the side of the road. None of this will help to restore confidence in the recovery or improve his prospects for reelection.

Obama thought he'd skate to victory in 2012 on the back of a strong economy, but he was wrong. The economy is getting more wobbly by the day and something will have to be done. Obama has one chance to get it right or the White House will be up-for-grabs.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2011 Copyright Mike Whitney - 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.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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