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Obama Dreaming of Deficits

Politics / Credit Crisis Bailouts Jan 06, 2009 - 04:29 PM GMT

By: Oxbury_Research

Politics Jan. 5 (Bloomberg) -- President-elect Barack Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides. Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say.

I’ve been watching CNBC today with nothing but spite for a Larry Kudlow who can barely keep his pants on he’s so excited. I think if they’d let him, he’d be singing songs praising supply side this and Keynesian that.

As for the other jackals who call themselves financial reporters, there is general praise being said about this move that subtly reaches out for the non-partisan synergy that our country so greatly needs. CNBC has even had a couple of analysts on that have the cojones to praise this as the first major step towards the great change promised to us by BHO, nobody is holier than though. ARE YOU JOKING?!?!?!?

Deficits 101

Human beings are very fickle. It never ceases to amaze me how easily we see what we want to. I guess the mind has a hard time distinguishing between what is vividly imagined and what is actually happening, and rarely has it been more prevalent.

Let’s look at this while keeping in mind basic economic practicality. First, we’ll put some numbers to this. We’ll say this next stimulus is $1 trillion, because it’s been a commonly predicted number and it’s easy to work with.

If Obama gets his 40% tax cut, we’re looking in a $400 billion tax cut. Obviously that equates to a $600 billion increase in government spending. To be blatantly clear, we are talking about decreasing revenue by $400 billion and increasing expenditures by $600 billion. WHERE’S THE MONEY GOING TO COME FROM? We don’t have $1 trillion; we don’t even have $10.

Did he say Change?

Does this sort of policy sound familiar? It should, because that’s been the equation for the last 8 years economically for this country. What change is this? This sort of fiscal and monetary irresponsibility is what got us here in the first place.

Last week Peter Schiff was on CNBC in a panel discussion on Kudlow’s show. The discussion was generally about where our nation is economically, and what should be done to turn it around.

Right on cue, Kudlow brought up the notion of non-specific tax cut. He asked some of the analysts what there thoughts were, and like well-trained puppies, they answer promptly in favor of the tax cuts. Schiff was one of the last to answer the question.

Schiff responded went something like, “Yes I’m in favor of cutting taxes, BUT THEN YOU HAVE TO CUT GOVERNMENT SPENDING ACCORDINGLY.” He did emphasize the latter half.

Deficit spending has been so burned into our brains that the public has been trained to forget the negative economic consequences. Deficit spending, especially of this size, creates a global imbalance in forex markets. It’s the government’s form of a credit card, but they don’t have a limit. But eventually mommy and daddy are going to cut you off.

Wise, yet simple words that make economic sense. If you’re going to spend the money, you better have it. Now THAT is radical change. Obama is following right in the foot steps of both Bush and Clinton. Obama wants to change HOW the money is spent. That’s his philosophy. He could shake up Washington if he changed the HOW MUCH is being spent?

That’s the end of today’s article, but I have one thing I want to say on a personal note. It’s funny how deep the reach of this credit crisis really is. I predicted the municipal debt market squeeze. I discussed the factors that would cause it. The notion is simple, but I want to revisit it briefly.

The state predicts its revenues from taxes and otherwise when it draws up and eventually passes its budget. A large part of those revenues are based property taxes. Property taxes are based proportionally to the value of the home. When home values decline, so does property tax revenue.

State level regulators are idiots just like everyone else, and they absolutely didn’t see this mess coming; therefore, their perceived revenues weren’t even close to what they’re now getting. The housing recession has squeezed the state’s budget and now the wrong programs are being forced to cut.

As is usually the case, the government tends to cut the important programs with the least Washington or state influence first. Minnesota where I live, like the rest of the United States, is currently falling victim to that.

The cuts that really tick me off are those to the public school system. Don’t get me wrong, I have my issues with how public schools are run just like I have my issues with every other government run of funded program, but this is not going to work.

The thing that pisses me off the most is that in the last stimulus package, there was $150 billion of absolute pork. That pork could have been used to balance all the nation’s public schools’ budgets several times over. Then we wouldn’t need these cuts. Instead it was used for politics.

Here’s the deal. If the quality of our public school system continues to deteriorate, we are going to see an explosion of private schools. It will then become a system of how much money you have dictates the education you receive. Ladies and gentlemen, even though our public schools are far from perfect, that simply doesn’t work.

So all I ask is that you keep an eye open for educational budgeting that receives a public vote. You can write your senators and representatives, especially the ones that are supporting the bailouts. Just ask them where your money is going and why. That’s all and thank.

By Nicholas Jones
Analyst, Oxbury Research

Nick has spent several years researching and preparing for the ripsaws in today's commodities markets.  Through independent research on commodities markets and free-market macroeconomics, he brings a worldy understanding to all who participate in this particular financial climate.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2008 Copyright Nicholas Jones / Oxbury Research - 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.

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