It must be an election year! How do I know, because politicians of both parties are spouting talking points about the need for fiscal responsibility even while they do the opposite. These same politicians have set up themselves and the rest of us for what is being called the ‘fiscal cliff’ at the beginning of 2013.
The fiscal cliff is the consequence political evasion, ill-considered gimmicks and cynicism. Because the cost of enacting the ‘Bush tax cuts’ on a permanent basis was seen as politically unacceptable without also cutting spending by like amounts—also seen as unacceptable, Congress did neither. Instead Congress jumped into the pot of cold water and turned on the heat by adopting the Bush tax cuts, giving them an expiration date, never expecting the water to boil on their watch thus engaging in the age old sport of driving up the deficit while complaining about all the spending. This was not the finest hour for Republican leadership not because they got the policy wrong but because they bungled the execution and accountability. Had Republicans made the Bush tax permanent there would be no tax cliff. Had they adjusted spending to match revenue the deficit would be substantially smaller today even counting the first round of stimulus spending. And ten year later Republicans in Congress are still on shaky grounds preaching about fiscal responsibility.
The other part of the fiscal cliff is made possible by another politically correct but imminently silly gimmick called sequestration. This scheme allowed for the extension of the Nation’s debt ceiling sufficient to pay the bills but ordered automatic cuts in spending divided equally between defense and non-defense programs. The Democrats agreed to this because they had no choice if they wanted to get the President’s debt ceiling measure approved in a divided Congress. The Republicans agreed to it because it exacted a pound of flesh from the President’s backside because he needed something and decided to take the beating to get it. Longer term, the Republicans believed they would win the next election and (avoid having their frog boil) by undoing sequestration for at least defense programs to avoid the cliff even if they sacrificed a few nondefense programs to claim they were cutting the fat out of the budget.
President Obama and the Congressional Democrats made the consequences of the tax cliff manifestly worse than the Republicans by driving up government spending, programs, staffing levels and industrial policy grants to favored players. In typical Washington fashion any discussion of slowing down the INCREASE in Federal spending as a percentage of GDP is labeled as a ‘cut’ and YouTube videos of Paul Ryan pushing grandma over the cliff in her wheelchair suddenly appear.
“A Pox on Both Your Houses!”
That is the American public’s reaction to these stunts. But here we are—careening down the 2012 election highway way above the speed limit heading toward the cliff.
In 2008, we voted for Barack Obama because we wanted to believe in his message of hope and change. We wanted to be part of a historic presidency that celebrated to the world everything we cherished in the American dream. We wanted to demonstrate that America was still the world’s leader and superpower. We wanted to again reinvent America to face our economic problems squarely and to be that beacon of hope and change that a desperate world in 2008 desperately needed.
But President Obama has disappointed us instead by playing bait and switch, divided us by endless class warfare, apologized abroad for America’s vision of freedom and world leadership, and undermined our sense of optimism and American exceptionalism that drives Americans to confront challenges with a ‘yes we can’ spirit. The challenge for President Obama in the 2012 election is America still longs for the 2008 hope and change historic Presidency he promised. But President Obama abandoned hope and change—and us—after the 2008 election. We do not like this ‘new normal’ and we don’t want four more years of what he’s given us. The President has lost the benefit of our doubt and he has very little time left to try to change our minds.
The Republicans are set to nominate Mitt Romney. He has the business experience a recovering America desperately needs. He has the executive management and leadership experience the President lacked and we’re now paying for our ‘hiring mistake. We are persuaded that Mitt Romney will be a good manager of America’s programs, services and finances. The problem for Mitt Romney is so far he has been unable to ‘close the sale’ with us because while we need a good manager for America’s economic recovery—we still want a hope and change leader to restore America’s potential, self-confidence and global leadership.
Having been baited and switched once before on hope and change we are reluctant to sign up for another ‘squishy promise’ even one of competence and business savvy. To close the sale Mitt must be more than the un-Obama. He must inspire us more. He must reveal his strategy in more detail so we can KNOW this time what is in the bill before we vote for it.
We want to hold our President accountable to deliver what he promises to deliver.
There are worse fates than a competent, but boring President. But we have waited so long for hope and change and we don’t want to settle for less.
The polls tell us the campaign is a dead heat. I believe the polls are REALLY telling us that Americans still want to believe in the 2008 hope and change Obama. But Obama must persuade us that he still believes in hope and change. We’re listening! But if the 2012 Obama keeps giving us more of the same class warfare, hyper partisan, left of center rhetoric with continuing bad performance results, Americans are more likely than not to vote for competent but boring Mitt than take a chance of four more years of Obama under-performance.
The heat has been turned up under the Congressional frog with the tax cliff. But like it or not the President and now Mitt Romney are also in the same pot as the Congressional frog. Whoever proposes the most rational and achievable political strategy to avoid the fiscal cliff, rescue the nation and jump start our economic recovery will win our votes. A deal that avoids the tax cliff BEFORE the election is what we expect, but if we don’t get one there will be plenty of frog legs on the menu.
- Democrats seek leverage as fiscal cliff looms (cnsnews.com)
- Lawmakers signal deep ‘fiscal cliff’ deadlock in Congress (mercurynews.com)
- Mitt Romney’s Tax Plan Reveals His Core Vulnerability (tpmdc.talkingpointsmemo.com)
- America Held Hostage (snspost.com)
- Voters Must See Candidate Plans for Avoiding Fiscal Cliff – Bloomberg (bloomberg.com)
I know we are still in the season of Easter but this is not an Easter story. By now you’ve heard the news report of EPA Region 6 Administrator Al Armendariz’ remarks at a local Texas government officials meeting in 2010 where he used a crude analogy to describe his “philosophy of enforcement.”
“It was kind of like how the Romans used to conquer villages in the Mediterranean. They’d go in to a little Turkish town somewhere, they’d find the first five guys they saw, and they’d crucify them. And then, you know, that town was really easy to manage for the next few years. You make examples out of people who are in this case not complying with the law … and you hit them as hard as you can” — to act as a “deterrent” to others.”
Apologies have dutifully now been issued disclaiming these remarks and called them out as not reflecting the Administration’s policy on enforcement. But the reason the video clip went viral is that it rings so true of what many have come to believe is, in fact, the Administration’s policy.
This comes on the heels of a unanimous Supreme Court Decision in Sackett v US EPA where the Court overturned an enforcement order of the EPA which sought to fine a couple thousands per day in civil penalties for the temerity of challenging an EPA decision that building a house on their own property was a violation of the Government’s wetlands policy. The decision overturned longstanding precedent that enforcement orders must be challenged administratively before an action is taken to court.
The Regulatory Process is Not Serving the Public Interest
These examples are easy to focus on, but the bigger issue is the pervasive, creeping and creepy over reach of regulation that once just strangled the economy but now is being used to pursue a political agenda the Administration has been unable to get approved by the Congress.
There is a de facto war on fossil fuels being pursued by the EPA. The rush of new regulations is focused on getting as much done in the first term as possible administratively, perhaps out of fear there may not be a second terms or that the Democrats will lose the Senate.
Congress is also to blame big time for this mess. It writes laws that are vague or ill-considered and leaves it up to bureaucrats to define the details and sort out the problems. The Code of Federal Regulations now consists of thousands of pages of rules bearing only a vague resemblance to their authorizing legislation.
We can do better than this:
- Require that rules must either be incorporated directly into legislation or proposed as a companion rulemaking by affected parties BEFORE Congress passes the law. Force the parties to work out their differences before the law is passed and embody the rules in the law.
- Require that EVERY regulation contain a sunset date of not more than 7 years. The law and every rule adopted pursuant to it should expire unless it is reauthorized by Congress. This requirement would be applicable to EVERY existing rule which should be subject to sunset review.
- Require that NO rule may be proposed without a cost benefit analysis based upon standard objective criteria applicable to all regulation for calculating cost and benefits. No rule may be published if the results of the cost benefit analysis show that the costs outweigh the benefits. The cost benefit study may be challenged as not meeting the standard objective criteria before an Administrative Law Judge to decide whether the rule meets the cost benefit test.
- Require that Congress much approve EVERY regulation imposing a cost of more than $100 million on an up or down vote to be taken within 90 days of submittal of the rule to Congress or else it is automatically rejected.
These steps would clarify that regulations are designed to cost effectively and fairly implement specific policies adopted by Congress. It clarifies that rules are not a separate process for pursuing political agendas. It levels the playing field giving business an equal opportunity in the rule making, enforcement and sunset review process with other interest groups. It forces ALL SPECIAL INTERESTS to work out their differences BEFORE laws are passed and rules proposed or have those interests framed to be decided in an up or down vote for all to see.
- Red Tape and Regulation Strangulation (insightadvisor.wordpress.com)
- How to Escape from our Regulatory Winter (insightadvisor.wordpress.com)
- Between FERC and a Hard Place (insightadvisor.wordpress.com)
- U.S. environmental official apologises for ‘crucify’ gaffe (rawstory.com)
- E.P.A. Official Spoke of ‘Crucifying’ Polluters (green.blogs.nytimes.com)
- ‘Crucify’ Slip ‘Revealing’ Of Obama Energy Policy? (foxnews.com)
- The EPA as a Roman Soldier:Crucify the O&G Companies!..and FIRE Dr. Al Armendariz (thefracdog.com)
- EPA Official Apologizes For “Crucify” Remark (dfw.cbslocal.com)
- EPA Official’s ‘Philosophy’ On Oil Companies: ‘Crucify Them’ Just As Romans Crucified Conquered Citizens (Videos) (thedaleygator.wordpress.com)
After all the headlines and wailing as the US marched like lemmings to the cliff over deficit spending, the last minute debt deal was passed off as a tough bargain that both sides hate. Fitch and Moody’s reaffirmed the AAA credit rating and Congress went on to other business proud of its accomplishment.
After the adrenalin dissipated we’re learning more about the ‘real deal’ adopted—it’s not pretty.
- The $917 billion in current year spending cuts to satisfy Republicans aren’t really spending ‘caps’ not spending cuts. It means that Congress agreed to modestly reduce the amount of the increase in debt ceiling they actually will spend to an ADDITIONAL $917 billion but even these limits are spread over 10 years and back loaded. The Congressional Budget Office (CBO) estimates that $9.5 trillion in new debt will be needed 10 years to cover the spending expected and the net result of these “cuts” will be $7.1 trillion MORE DEBT by 2021. The Bottom Line: Only about $25 billion in actual cuts will be made is 2012 and $47 billion in 2013. This is rounding error in the Federal budget.
- By Thanksgiving 2011 a Joint Committee of Congress is supposed to propose a second round of ‘cuts’ totaling $1.2 to $1.5 trillion to also be effective over ten years. If Congress fails to act then automatic across the broad cuts are to go into effect. But the fine print tells us none of these cuts take effect until at least 2013 and nothing prevents a future Congress—say one safely re-elected—from changing these rules. The Bottom Line: This is how we got to $14 trillion in debt. Nothing in this debt deal is changing that or even seriously modifying the pace of deficit spending.
And the only reason the parties agreed to an up or down vote on the balanced budget amendment is that they know there is no prayer of getting the 2/3 vote in each house of Congress to pass it.
There is only one word to describe what has happened —-DISGUSTING!
- Deal or Dangerous: The Debt Celing Compromise (ajbulava.wordpress.com)
- Don’t Look Now but the National Debt Could be $23 Trillion by 2021 (xkorpion.wordpress.com)
- The Debt Ceiling Deal From Hell (whitelocust.wordpress.com)
- Bottom-lining the debt deal (hotair.com)
- CBO Report on Debt Ceiling Deal Released (fdlaction.firedoglake.com)
- American Sauce: Debt deal cheat sheet (politicalticker.blogs.cnn.com)
- Questions and answers about the debt-deficit deal (seattletimes.nwsource.com)
Can you imagine anyplace else on earth where a spontaneous political movement like the TEA party could arrive on the scene with such intensity without serious repercussions? Whether you agree with the TEA party views or not this is a pure and perfect exercise of the constitutionally celebrated freedom of speech, assembly and petition.
Thomas Jefferson would love this.
Perhaps it is because after more than 234 years we have come to accept—and even welcome a little revolution now and then to shake up the status quo. A recent Gallup poll reports that Americans’ confidence in Congress is at the lowest level in decades.
“A record-low 36% of Americans have a great deal or fair amount of trust and confidence in the legislative branch of government, down sharply from the prior record low of 45% set last year. Trust in the judicial branch and trust in the executive branch also suffered sharp declines this year but remain higher than trust in the legislative branch.”
“Trust in the legislative branch was highest, at 71%, in May 1972, and remained generally high from that point to the mid-2000s. It then dropped to 50% in 2007, 47% in 2008, and 45% in 2009, all record lows at the time they were measured. This year’s 36% legislative confidence rating marks still another record low, and is the lowest trust level in any of the three branches of government in Gallup’s history.”
“Trust in the executive branch has shifted up and down with some frequency over the last four decades, generally in sync with movement in presidential job approval ratings. Gallup measured the lowest level of trust in the executive branch, 40%, in April 1974, in the midst of the Watergate scandal, which later that year resulted in Richard Nixon’s resignation. Trust was nearly as low in the waning years of the George W. Bush administration. Last year, the first year of the Barack Obama administration, trust in the executive branch shot up to 61%, but it has fallen back again this year, coinciding with the fall in Obama’s job approval ratings to below 50%.”
“Trust in the judicial branch of government is at 66%, down from last year but roughly in line with readings since 2003. Gallup recorded the highest judicial branch trust reading, 80%, in February 1999, at about the time the Supreme Court’s Chief Justice William Rehnquist was presiding in the U.S. Senate over the impeachment trial of President Bill Clinton.”
These people we have elected to Congress in the past are not bad people. But some of them have been there too long, have come to see their views as “righter” than those of their constituents, and more recently have seriously misread the public desire for a change in leadership at the top with public support for a sweeping intrusion into the lives of average Americans with breathlessly large expenditures of money we do not have.
The TEA party movement is a uniquely American way of telling our politicians—You are so busted!
The Democrats see this coming but the Gallup polls suggest the public is just as uncertain that electing the same old Republican team will produce a better result. That is why the TEA party movement has gained such momentum so fast. It is seen as made up of people more like us. It seems to reflect the “common sense, Main Street” values we hear about so much but see practiced in Washington DC so little. The recession has sapped our confidence and we don’t see the policies and spending deployed to restore the ship of state as working very well.
We long for a return to traditional times, traditional values, traditional economic conditions of growth that resulted in traditional jobs with benefits. Whether that toothpaste can be put back into the tube is uncertain but candidates who promise to try to do so are favored this year over those who are seen as part of the problem.
So Jefferson’s revolutionary spirit first writ large in the Declaration of Independence and then embodied in our early government lives large again today. But it is the other genius of America that is more lasting and arguably more important—the ability of America to reinvent itself, to adapt, to grow into tomorrow. From the early lessons of de Tocqueville that ability to imagine a future better than the past and live into it has separated America from every other nation on earth.
It is why today 234 years later people still clamor to come to America—to live the American Dream. And no one has ever been shot in the back trying to escape America because no one can imagine the need to do so.
There is much we need to fix in our country but the lack of confidence in our Congress and our disappointment with our President’s job performance are serving Jefferson’s genius well today 234 years later offering a little revolution and a continuous process of reinvention.
Celebrate it—-and make sure you vote!
While the politicians in Washington and elsewhere try to figure out what the TEA Party is and how it affects them, America seems to have already made its judgment. The answer:
Those TEA Party people are just like me! And I’m mad as hell at the direction of the country too.
The Republicans in Congress hoped the TEA Party would help them swamp the Democrats boat and restore the Republican majority—-but they are learning the hard lesson that America often sees little difference between the two parties actual behavior once they are in the majority.
Election 2010 is one of those ‘a pox on both your houses’ near death experiences for both political parties as incumbents on both sides of the political aisle get washed overboard. Democrats are getting fired for doing a bad job. Republicans are getting fired for being too much like Democrats.
Thomas Jefferson must be cheering from his grave over this glorious rebellion.
But the GOP brass in Washington reacted to Christine O’Donnell’s defeat of long time Delaware pol Mike Castle with shock and shot back—don’t count on any help from us, sister! They call her a flaky candidate who cannot win—and worse risk the Republican win they expected from Castle to help take control of the Senate.
There is one problem with the GOP logic. O’Donnell beat Castle 53% to 47% for the Republican nomination for the Senate seat once held by Vice President Joe Biden. Castle’s problem with the voters of very blue Delaware was he voted for almost all of the Obama agenda the TEA Party members are railing about including ObamaCare and Stimulus programs.
If The Democrats agenda can’t win in deep blue Delaware they are in deep, deep trouble. And Castle got “fired” by Delaware Republicans because he behaved too much like the Democrats they are disgusted with and voted for their agenda.
Panic has set in not just on the Democrat side of the aisle but the GOP side too. The prospects of cheering crowds sweeping the good ole boys of the GOP back into power are giving way to the cold, stark reality that the young guns are at the door and the TEA Party faithful are right behind them locked and loaded to take back the country.
Call it a generational change, call it a rebellion, call it a great awakening—-the President’s bluff has been called and he has thrown away his aces in an audacious gamble that is failing. Maybe the President hopes that if he loses Congress to the good old boys of the GOP in 2010 he could blame them in 2012. But the independents that supported him in 2008 are moving in droves to the TEA Party.
The risk to the nation is that at a time when we crave stability and adult leadership we might just get angry, impassioned, but inexperienced leaders in Congress who act first and think about the consequences later. Or we could get good old Main Street business people who know how to make payroll, live within the budget, read the bills they are asked to consider BEFORE they vote on them, make common sense decisions to serve their Country then go home to go back to work.
What a concept!
Scenario Signpost: RELOAD
This is a signpost for the Reload: America’s New Industrial Revolution Scenario. The plot line of that scenario is a major swing in electoral focus toward restoring America’s economy and job creating potential by reindustrializing the US and expanding domestic energy production to support it.
Thomas Friedman wrote a very interesting op-ed piece in the New York Times recently entitled “Superbroke, Superfrugal, Superpower?” He hit on all my hot buttons about the profound consequences of America’s diminishing competitiveness in the world and why we must turn that around fast. He talked about the role of America as the world’s sole superpower and why there is no logical replacement for us on the world stage today. He talked about the need to set priorities and make choices that live into our values.
That really is what this election year is all about isn’t it? Setting priorities and making choices about what we want our country to be like for our children. The economy suks and so does our attitude about how it’s going. But this testing of our values and resolve may prove to be just what we needed to wake up to the slow slide we have been on for some time.
This is not a commentary on either the Democrats in power today or the Republicans who were and may be again. We had grown complacent. We bought into a globalization theme that has sapped our strategic strengths and we spent too much time apologizing for America’s successes. We fought wars no one else would fight and we saved—or tried to save—countries that the world might have been better off without.
But something happened to us as a result of this great recession. We woke up! Sat up and said wait a minute, we don’t like what is happening to America. This is not about blaming someone for the problem—it is about fixing it.
That’s where we are now and all of our politicians are rightfully running scared because we want change WE can believe in. And that does not mean going backward either. It means we are ready for a fresh start and are in the midst of defining what that requires and who best to lead us back to competitive advantage. The TEA party movement is the political equivalent of an IED unleashing America’s pent up anger and frustration wreaking havoc when it goes off but causing us to play smarter defense and then take offensive action to deal with our real problems.
Thomas Jefferson would love this volatility and “little bit of rebellion” alive in America today. He saw the ability of the people to shout “Wait a Minute” as the singular best feature of the system of checks and balances embodied in the Constitution.
If what we want as Americans is to ‘get our groove back’ economically, politically, globally we need more than income redistribution through stimulus spending we have today or the Republican alternative of redistribution of essentially shifting America’s economic engine overseas through complex financial transactions and tax manipulation that make Wall Street rich but create little value except in the “flip and churn” of transactions.
This is the Thomas Jefferson rebellion our political class on both sides of the aisles fears. It is that we are coming to take back America seeing its promise as more than the sum of its debts. We are ready for change, but we want it our way this time.
Principles of an Insurgent Recovery
- STOP SPENDING MONEY WE DO NOT HAVE. Calls for additional stimulus spending are landing with a thud because the previous rounds have not produced a satisfying effect. The uncertainty created by the impact of rising spending and deficits has business sitting on its cash and biding time instead of investing, hiring and growing the economy faster.
- SHOW ME THE ROADMAP. Business wants to see where the economy is going and what the government will do—and how much it will cost. When that is known they can decide whether to invest in America or not. What everyone wants is certainty in uncertain times. Not everything can be fixed quickly, we know. But we want as few surprises as possible and we need to know the Government has adult supervision.
- GET OUT OF MY WAY SO I CAN GROW MY BUSINESS. The cumulative costs of ObamaCare, higher tax rates, regulatory costs in finance, energy, environment, health, state taxes to cover deficits and the fear of looming inflation are job killers. The best way to restore confidence is to create an economic and political foundation that encourages economic growth—that rising tide lifts all boats.
How to Get from Here to There
This is the hard part isn’t it? And the added problem is we mistrust both parties with majorities because they tend to revert to their worst instead of looking out for our best interests. So my formula for getting our groove back includes the following:
- VOTERS TO POLITICIANS: A POX ON BOTH PARTIES. WORK TOGETHER OR ELSE! We should elect as many non-incumbents who seem reasonable not ideological as we can this November. Congress needs more Main street people and fewer professional politicians. Throw out the leadership of both parties and start over. Elect a Republican majority in the House but with many insurgent TEA party members to give the old guard fits. Retain Democrat control of the Senate but not 60 votes so they must compromise. The President is entitled to propose his agenda but majority control of both houses by either party just leads to too many opportunities for bad behavior when we want checks and balances to require both parties to work together or face our wrath in 2012.
- VOTERS POLICY ROADMAP FOR WASHINGTON: GET IT DONE OR ELSE! Here is what we want a bipartisan effort to deliver for us by the 2012 election:
WE WANT A FAIR, FLAT TAX SYSTEM. We want it simple, easy to understand, no loopholes, few deductions and no need for an army of accountants and lawyers. We want everyone to pay something. No alternative minimum tax, no double taxation, low capital gains tax, and corporate rates lower than competing countries. The goal is to turn America into an investment magnet for the world to jumpstart investment, entrepreneurship and job creation.
ROLL FEDERAL SPENDING LEVELS BACK TO 2008. Un-appropriate all unspent stimulus money using it to reduce the deficit. Stop spending money we don’t have and reset the budget base to pre-stimulus levels across the board—and we mean it! Force a zero-based competition for available new spending and a public vote on the ranking of priorities. Ban all earmarks. Give the President line item veto authority or impounding authority to manage spending to revenue. We want this done before the 2012 election.
FIX ENTITLEMENT SPENDING. Repeal ObamaCare entirely and substitute reforms aimed at introducing interstate competition into healthcare and lowering costs by the 2012 election. Make individual healthcare premiums tax deductible just as group plan premiums to create a level playing field for coverage. Means test other entitlements so the resources are spent on those most in need and put other cost savings or reform ideas on the table by 2012 election to be decided after that election for long term reforms.
When we get these things back on track we’ll focus on our global leadership role during the 2012 election. Listen up Congress, what part of get this done don’t you understand?
There ends the rant. Damn, that felt good.
The volatility in the stock market is telling us something—we’re not quite sure yet what it is, but volatility is always a signal that something unsettling is about to happen.
Our worst fear is that rising debt will lead to rising inflation, slower growth and currency fluxuations caused by trade imbalances that give rise to just the kind of seesaw markets we’ve been experiencing.
Welcome to the future.
The audacity of hope for a new ‘Pax Obama’ or whatever the Obama years were to bring in our 2008 electoral dreams are waning. They are replaced by uncertainty driven by a fear that we got ‘baited and switched’ in the change we can believe in campaign promise. Some of this is just projecting our anxiety over the bad economy onto the guy who is President at the moment. Some of this is a ‘wising up’ that things really are dangerous for our country right now and we may not have the “A” team on the job.
THE DAILY NEWS
My usual morning routine is to fix my coffee and begin my ritual of surveying the headlines and commentary from overnight. I have a list of about a dozen news sites, blogs, and other sources I consistently track. I’ve developed and honed this portfolio over time. A dozen is about all the patience I have to absorb in one sitting. I scan most items, look for patterns of consistency or conflicting views. I save a few interesting things to read later and discard the rest.
I’m not looking so much for daily details as I am trends, context and implications. From all of this I have a working hypothesis about what I expect to happen on several fronts that I continually stress test by events. Volatility both screws up my system and wises me up to the tendency to cling to conventional wisdom. I used to tell my colleagues at Global Energy Decisions that volatility was a wonderful thing for consultants because it forces our clients into action—and when they needed to take action they generally needed our market and risk analytics services.
We may be anxious and uncertain about today’s markets, but the more business and individuals work to ‘get their groove back’ the faster it will happen. Pessimism is tough to maintain once you are up to your eyeballs in repositioning for the growth prospects you see on the horizon.
SEARCHING FOR INSIGHT: MY HUNKER DOWN BUT HURRY UP TRENDS ASSESSMENT
This is a quick attempt to summarize my short list of working hypotheses so I can come back six month, one year or five years from now and assess how well my system of reading the trends turned out to be:
- THE BEST PERFORMANCE OF 2010 HAS ALREADY HAPPENED. This hypothesis drives my short term anxiety. It is the sum of my worries that what we are seeing is NOT really material growth but a tactical move by business decision makers to suck earnings and profits into 2010 before the Obama flood of tax increases begins to hit in 2011. Accelerating economic gains into 2010 masks the weakness of the current market and denies 2011 a more solid foundation for real growth. That sucking sound we hear is the air coming out of our 2011 growth prospects.
- JOBS GROWTH IS AN ILLUSION. Business is hunkering down out of fear of rising costs from health care, taxes, and new regulation on the horizon. They are keeping employment levels sufficient to maintain critical cash flows, skills, and to fulfill current orders—but no more. Volatility really hurts here because global businesses are subject to wide swings in profitability by currency fluxuations and the ripple effect of the EU meltdown and China’s labor unrest, rising prices and growing risks of bubbles bursting in property values and other areas. For now I sense business is hunkered down to ride out the storm hoping 2011 will be better. Next year could be better but there seems an equal plausible scenario that the combined weight of higher taxes, rising costs, inflation, and prospect of more of the above will send 2011 growth plummeting.
- INVENTORY REBUILDING IS NEARLY COMPLETE. The cutbacks from the recession drained inventories across the board and we have seen some growth in manufacturing and trade to replenish inventories, but it feels like merchants learned their lesson about over stocking and thus getting caught with excess inventory they have to write down or sell off at fire sale prices. Just in time inventory strategies seem to be working to stabilize earnings quarter over quarter, but this is a strategy of survival not growth.
- HOUSING IS STILL A BUBBLE. The housing sector is struggling to clean its plate of foreclosed properties and restore a sense of balance. Here in the San Francisco Bay area we have actually seen rising housing values for the last several months ironically at the higher end of the market. It is still ugly out there with plenty of inventory and plenty of foreclosures to go. The question is whether that to go inventory will be dumped on the market in large numbers and drive down prices again. The end of the home buyers tax credit does seem to be motivating some buyers, but rising interest rates will actually help more to get those who can get a loan off the fence.
- HOARDING CASH FOR A PENT UP DEMAND FUTURE. The earnings reports are full of cash as if business is stockpiling it both for defensive purposes if things go south as well as getting ready for a binge of spending when the ‘all clear’ is sounded. This is the first good news trend. There is still hope for a better future—it’s just not here yet. As the cash accumulates, some of it will be spent on M&A deals where the value is good and the prey is weak in consolidating sectors. For businesses looking beyond near term survival this is a great opportunity to position their strategy, products and prospects for the future. A lot of work should be done in-house to get ready to launch, get ready to sell, get ready to grow. This should be a good time for consultants, investors and product developers to position for competitive advantage—and help the rest put lipstick on their pigs.
So America has seemingly decided to ride out the storm. Yes, we are anxious. Yes, we feel let down by Team Obama. Yes, the November 2010 elections will bring ‘change we think we believe in’ in our civic consensus building. We’re learning all over again that political stalemate more often works for us not against us. Giving either party too much power and they waste it at our expense.
The problem this time is we really need the Federal Government to ‘get its groove on’ to move the economy forward. The problem is the only strategy the current team seems to want is more spending and more government control when what we need is less spending, more global trade, and a perception that America is open for business again.
The other problem is that it is a LONG TIME between the November 2010 election and the November 2012 election and every politician will be running scared or running hard during this period. Little of substance is likely to be enacted in a stalemated Congress. The blood in the water around Team Obama will discourage cooperation across the aisle—not that he ever wanted any. All of this political stalemate will take place in a very volatile and dangerous world where America is increasingly neither feared nor respected at a time when American leadership may be needed most.
A recent Pew Research Center poll found that only 22% of those surveyed said they felt they could trust the Federal Government always or most of the time and only 19% said they were happy with its performance. The poll also found that about half of those surveyed wanted Government to be smaller and do less while an almost but not quite equal number want it to do more.
So that is our dilemma as a nation, we are divided about what we want the government to do and how much, but when it does act we rarely are satisfied with the result or how much it costs. The result is this rise in cynicism and mistrust which begets things like the TEA party and the current vilifying of Wall Street. How does that old joke go? You know the one where the trader says he is “shocked” to learn that there is greed on Wall Street.
If we had more trust that the Government was really looking out for our public best interests we might be more sanguine about the call for scalps at Goldman Sachs. We might wonder less that this might be some orchestrated witch hunt taking place, coincidently, just as Congress debates a financial reform bill. I’m “shocked” to hear that Congress and the Administration might beat up on someone to score political points and pander for votes. Shocked!
While alleging that Goldman Sachs made money betting on both sides of a transaction might make for good headlines it is hardly news. There is an entire industry built around hedging bets and mitigating risk. In fact we count on it to reduce the overall cost of risk in virtually every transaction. To turn that behavior into something more sinister than it is imposes more risk in our transactions. But wait! That would just raise the cost of doing business and the Government would get more revenue since it plans to tax every value creating stage of every transaction. See! I confess to being a cynic in these things.
That said, I do not know whether Goldman Sachs has done anything illegal, but I am suspicious that the SEC has seen fit to bring only civil charges in the matter. That suggests one of two things either this is about scoring political points and vilifying Wall Street for the sake of getting the President’s Financial Reform Bill passed—or the Government does not have a case sufficient to bring criminal charges or is unwilling to risk proving its charges “beyond a reasonable doubt” so it defaults to the lower civil suit “preponderance of the evidence” burden of proof. The latter is the favorite tactic of politicians—ask Elliott Spitzer or Andrew Cuomo or Richard Blumenthal. But the tactic does little to improve the markets nor does it raise our confidence in the fidelity of government. But is does make for BIG political campaign contributions and alleged sins are then settled with big checks to make the pain go away. Both of these outcomes only serve to reinforce the Government’s bad behavior and are a clear and present danger to the Republic since they are nothing more than officially sanctioned extortion.
So part of me hopes, perhaps beyond hope, that Goldman Sachs will use some of its wealth and hedge its bets by turning its lawyers loose on the SEC and force them to fully own their burden of proof (transparency in Government) and then use its money to hedge its bets by donating generously to the TEA parties and Republicans and demonstrably less to Democrats—or better yet NONE to Democrats until the civil suit is dismissed. There are consequences to elections—and to governing especially if you are doing so badly in the eyes of the public.
The Great Recession brought with it increased cynicism and mistrust of Government and Wall Street for causing or aiding and abetting the mess. This is not new news. But like every forest fire it also sows the seeds of renewal and transformation as mistrust is transformed into civic action, voter angst turns to action, new ideas and reforms surface, and great debate ensues in search of consensus.
This is the true genius of the Founders who created a system balanced and self correcting. Who wisely limited the powers of Government and gave the People the right and ability to take back the Government from any who abuse our trust. If the Great Recession turns into the Great American Renewal it will be our most fitting tribute to the Founders.
Transparency is a wonderful thing in Government and on Wall Street. Fixing real problems like those created by credit default swaps, securitized mortgage bonds that really weren’t, over leveraging and taking too much risk because you are doing it with someone else’s money—not yours, can all be fixed by exposing the transactions to sunshine before they close. Congress should do more of that and do less social re-engineering and wealth transfer in order to restore the public trust. It would have the added advantage of costing less—much less and get business focused again on creating jobs and growing our economy rather than hedging their bets by not hiring while they wait for the next tax, taking or target of the Government to be revealed.
There ends the rant!
The press is full of ‘blood in the water’ analysis of the meaning of the Massachusetts election of Scott Brown. As a former Bay Stater I appreciate how stunning that victory was in both bad and good ways. For Democrats, accustomed to dominance it is a humbling experience. But the GOP will make the same mistakes the Democrats have made if they see Scott Brown’s election as a triumph for their version of Washington truth.
Let’s face it, at the end of the day the general public see little difference between the behavior in Washington of the Democrats and the GOP. Both parties over-reach when their power is felt to be dominant. Both parties are controlled by their fringes on the left and right. Both parties are hyper partisan. And both parties have been equal opportunity offenders of the public conscious.
“We’re mad as hell, and we’re not going to take this anymore!”
The real message of Massachusetts is that the voters are saying ‘a pox on both your houses’. The tea party movement is a genuine demonstration of disaffection for the direction the country is going and should be seen by the Democrats as ‘in your face’ evidence of over-reaching. Why don’t they see it?
The dirty little secret is they DO SEE IT, but they realize that they are likely to lose their dominance in the 2010 election (the party in power almost always loses seats in mid-term election historically). So the base of the Democrat party came to believe that Obama’s election gave them ONE SHOT at getting their agenda passed in the 2009-2010 term of Congress—and they decided to go for it. But by so fiercely focusing on the end game for their left driven political base they have ignored the public majority in the center and shut-out the GOP on the right undermining the perception of a fair process in their overreach and risking an even worse political outcome. Is this narcissism? Is it desperation?
Don’t rejoice for the Republicans
The election of Scott Brown is not necessarily good news for them either. The truth is the GOP did a terrible job in the majority when they last held it and the behaviors of the Congressional GOP leadership and right-leaning base were just as obnoxious in their time in power as the Democrats are today. Scott Brown’s election is as much a wake-up call for the GOP right as it is for the Democrat left. And reading more support for the GOP into his election is a foolish fantasy for the right wingers. The candidates who are winning in New Jersey, Virginia and now Massachusetts are NOT traditional GOP right wingers, but capable, reasonable, center of the road Main Street folks.
Change We Can Believe In
Scott Brown’s election is a savvy and, so far, successful attempt to take the Obama message of 2008 of ‘change we can believe in’ that the public signed up for and apply it to a center of the road style of governance that the public thought they would get in a President Obama. Instead, Obama campaigned as one kind of president and has governed as a very different kind. The public is feeling like he bait and switched them from a centrist agenda of positive, inspiring change to a left-wing agenda of government control over every aspect of our lives with debt that is never ending to fund it. And they are reacting negatively to it. The president remains personally popular among a general public that truly wants him to succeed, but he is at very serious risk of losing that benefit of the doubt. And there is no way to blame the mess Obama is now in on his predecessor. He did not inherit this political mess—he caused it.
Get back on the Green Line!
Like that Fidelity investments commercial that seems to run constantly these days, you know the one with the green line of “guidance” for the scared investor, Obama can still save his presidency by returning to the “guidance” of his 2008 campaign message and living it as the centrist president the people voted to elect. The election of Scott Brown gives him an opportunity to tell the left leaning base in the Democrat party they failed to deliver a product the people want and now must move to the center. It is a tough love message of ‘follow-me or get run over’ that only he can deliver. But unless he does he will have squandered his historic opportunity and ruined his legacy.
What should Scott Brown do?
Be the centrist independent the People of Massachusetts elected. He may indeed be the 41st vote against ObamaCare, cap and trade, and the political bribery of the Louisiana Purchase, Cornhusker exemption and other desperation deals which should now die a visible death. But Scott Brown must be a demonstrable change of political behavior in Washington to invest and grow the political capital he just received.
If he succumbs to being just the 41st vote for the GOP he looks like every other sleazy politician in Washington instead of living into the legend he inherited with the seat of Ted Kennedy. By being the new “lion of the Senate’ for the center of the road majority of the American people Scott Brown can give President Obama an opportunity to reclaim the captaincy of his listing ship of state and he disciplines both extremes on the left and the right with the true message from the Massachusetts election.
Now that would be change we can believe in.