Saturday, February 28, 2009

Rendezvous With Bankruptcy

At times of crisis, countries turn to their leaders to learn the truth and what needs to be done based on the facts. Thus, FDR, the crippled man leading a crippled country, didn't sugar-coat matters. In what sadly was a prophetic speech in 1936, he said:

There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny.

As a Boomer, much was given to my generation. The generation of Boomers' children is inheriting an America of bankruptcies of the largest and previously best-respected companies, and something other than the truth, the whole truth and nothing but the truth out of our business and political leaders.

These young adults are scared and depressed. They voted heavily for Barack Obama because they wanted real change. They don't want the same-old same-old out of Washington. Unfortunately, that is exactly what they are getting from the new boss, same as the old boss (from Jake Tapper at ABC News) in an article today called, if you can believe it:

Obama Will Restore Fiscal Discipline

The article describes the comments of Peter Orszag, director of the Office of Management & Budget, who pointed to the current budget deficit (created by a Democratic Congress, which authorizes all Federal spending and revenue measures):

The first step in addressing this very deep fiscal hole is honesty.

Our truth-meter comes out whenever a member of any administration has to promise that he (she) is going to be honest. He went on:

This budget will not play the games that are typically played . . .

Double uh-oh. Will they play atypical games, play the old games (perhaps under different names), or both?

The article continues:

Orszag pointed out four ways the deficit will be reduced:
1- The recovery act and "normal business cycles" will cause the economy to eventually recover.

DoctoRx responses to Mr. Orszag:

A. The "recovery act" (ARRA, aka the "stimulus" bill) is a gigantic budget-buster.

B. What is normal about the current business cycle?

2- Allowing "high income tax provisions to expire when they are scheduled to expire, at the end of 2010" and closing tax loopholes.

A. Fair enough.

B. "Closing tax loopholes" is an old canard. Close one loophole, open two, that's how it works in D.C.

3- "Winding down the war" in Iraq.

No new news there. The Obama policy is a direct continuation of the Bush policy. The war has already wound down. But what about the unknown costs of escalation of the war in Afghanistan and Pakistan?

4- Making government more efficient.

The President spoke afterwards on that topic:

Obama promised that when the full budget is developed in the spring that the administration will “go through our books, page by page, line by line, to eliminate waste and inefficiency," and promised that no part of the budget will be free from scrutiny or untouched by reform.

Ha! Double ha! We've heard that one before from Jimmy Carter, Ronald Reagan, etc.

Optimistic economic projections are made, as usual out of the White House:

Christina Romer, chairman of the President's Council of Economic Advisors, predicted negative 1.2 percent GDP growth for 2009 but expected it to grow by 3.2 percent in 2010 and 4 percent in 2011.

The best economic seer this cycle has been Nouriel Roubini, previously an adviser to the Clinton Treasury Department. His projections are for more like a 3% GDP decline this year and at best 1% growth in 2010 and 2011.

President Obama -- flanked by his economic team -- acknowledged that in terms of his budget released today, that additions need (to be) made to the deficit in the short term to provide relief over the long run.

When Roosevelt gave his rendezvous with destiny speech in 1936, he foresaw general war a few years hence. We don't have a few years; our economic and financial war is here. Flash from the front line: we are losing. A change in strategy is needed.

Promising to be fiscally responsible in the future while proposing deficits unheard of since WW II is like my alcoholic patients promising to stop drinking someday. Trotting out optimistic economic projections and promising to make the Government more efficient via a line-by-line review of something or other is not change anyone can believe in, even my children.

The President needs to utilize the gloomy economic projections of Dr. Roubini, not the politically-motivated ones of Dr. Romer. If he's too gloomy, great- he can either retire some debt or spend more. But let the upside surprise happen first! The President needs to drop the cant about making government more efficient. He needs to tell us that we can't keep borrowing massive amounts of money from overseas forever. He needs to tell us that individuals can't borrow their way to prosperity, and neither can the Government on our behalf.

In other worlds, he needs to channel FDR or the best parts of JFK and inspire us while keeping the focus on how difficult our problems are, not how a "normal" business cycle will rescue us.

Unfortunately, as predicted here consistently, Barack Obama is continuing the essential Bush-Bernanke policies to spend money we don't have and to give massive amounts of this borrowed or printed money to stupid lying corrupt large financial companies while not preparing America for worst-case scenarios about which the public is rightly terrified.

Do you wonder why the stock market has gone down for six straight months?

It's past time for real change.

Copyright (C) Long Lake LLC 2009

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