November 3, 2010

Here we are the day after the elections and the pundits are out in force spinning the results. The Republicans are planning a January trip to Washington to put an end to debt, government spending, the health care bill, and all things Obama.

The Democrats are pointing to silver linings, doing "mi culpas" and basically saying that "we did some good things"  but secretly happy that they don't have to take heat before the 2012 presidential election when the big money gets back in play.

This is not to minimize the results of the elections for both, but the fact remains that both sides have sold out to wall-street, the banks, and the corporations.

So nothing will change except the increasing impoverishment of the middle classes, a deepening recession, unto a depression, huge banks playing blackjack with depositors money and a volatile angry, American politics where little is actually accomplished; thereby maintaining an entrenchment of the status quo. And this is precisely the outcome which benefits wall street.

No change or loans for us thank you very much.
 

The banks are taking our money, (add to this 600 billion from the Federal Reserve) and using it to cover their own toxic assets, increase our debt to them, and trying to reduce the value of the dollar to raid the central banks of other countries, buy up their real estate and other assets with these cheaper dollars. It will ignite a currency war.

But meantime back home. here are a few important items of note which will have an immediate impact in the next few months.

Let's see what the deeper meanings underlie, not only the election, but the next 60 days.

1-This election essentially involved the loss of 35 or so blue dog democrat seats seats in mostly red states. Therefore , there is a resetting the clock back to the pre-Obama period. These blue dog democrats were way right of the center of the party and now what has occurred is the democrats have a much more left party caucus pressing Obama from the left. There will be fewer moderate republicans to please, because they are gone from the party so now  there is a clarification of the battle lines for 2012.
  Moreover, since 55% of the electorate did not show up for these mid-terms, things will look very different when the mass of these voters show up in that presidential year in 2012. Both parties know this and the next two years are a waiting period as they both try to appear busy.

2- Secondly the Tea-Party people will, even before January, have to witness the current republican establishment face several critical dilemmas:

    A.  The Federal  Debt ceiling has expired. The current Republicans have to decide whether to let the government come to a halt, ala Newt Gingrich in 1994, and risk immediate public anger and probably face Tea-Party pressure to let it happen. They will, if unwise, let the ceiling expire and government come to a halt pretending they are the new more tea-party republican party and to hell with the public; they look conservative and responsible.

They could decide to extend last years budget which would require no debt ceiling legislation; or  increase the debt limit of the republic, up to perhaps over 15 trillion dollars-this would have to be done by early spring--or do it with some fancy accounting tricks, or  they could steal the money from the social security trust fund which they have done in the past to pay for wars.

But these are unavoidable dilemmas, so expect an avoidance in an off the books accounting gambit to hide an increase in the debt ceiling.

What will also likely happen is an extension of the current budget until after January when the Tea-Party people show up. But they will show up angry because the Republican establishment essentially voted to keep the current deficit budget and spending going.

The current Republican establishment could whack off huge chunks of the current budget in the next 60 days (not likely) like social security, the pentagon budget, health care, the poor; but where would such cuts come from in the amount of money to make a real difference? No where, that's where. Expect a freeze to keep up appearances.

Also, if possible, expect the Republicans to punt to the Tea-Party people who come in January--if they cannot get Obama to join with them in a secret pact agreement about what to cut.

3-Then there are the Bush Tax Cuts which expire December 31, 2010. What to do about that? Ignore it, extend the deadline, or cut a deal with Obama to have all tax cuts extended?

At issue here is that among the tax cuts is the Alternative Minimum Tax cuts which benefit the middle class. If the cuts are not extended it will end that tax cut for the middle classes who will scream bloody murder, even as they might like to see the tax cuts for the rich expire.

Complicated huh.

So you can see what the horse-trading is likely to be. My prediction: all tax cuts will be extended--the Democrats to protect the middle class and the Republicans to protect the rich.

Then there is the health care bill and its implementation aspects, some of which have to be decided in committee. This is ugly, but any hearings will also make it clear that the bill has lot in it which benefits the middle class and to air that would help the democrats and Obama. So we will see a lot of general talk, seeking to keep resentment going, but few real changes.

And then there is the unemployment extension for the 99 month people. Congress left town without doing anything about that and the deadline to do so is here in November.  December is urgent. If they don't act you'll have a chunk of people upset, and unemployed for the holidays; not to mention the loss of consumer purchasing power to help the economy recover. The Republicans and TP people will have to wear Scrooge Hats around Christmas time if they don't act.

The Economy: Here we are at the economy. What can the Dems and Reps do about the economy in the next sixty days? Not much. The ideological lines of demarcation are so rigid there is little room for compromise. The Dems will claim slow progress and the Reps will claim the Dems made the unemployment mess and both of their noses will grow longer and longer.

Finally, to boot, the Tea-Party people will be looking over Republican shoulders in the next 60 days making their views known about what to do about the above items, and being ideological purists that they are, they will come to town angry no matter what the Republican establishment types do.

So the scene is set.

So what is likely to happen in the next two years? The Republicans will overplay their hands and supenoa everyone, threaten to shut down the government, back off of massive cuts, especially in the military (too many republican votes there, back off social security, too many republican votes there etc) all the while claiming massive victories for the benefit of the back home crowd.

In the end only Wall-street and the banks will in fact, be left standing dusting off their checkbooks for the 2012 elections to make sure that nothing in Washington changes-once again.

This blog is not for the faint of heart.

Nov. 5, 2010

Just a quick note today to be amplified tomorrow. All the talk today is of the economy and of jobs.
  The truth is that "putting America back to work" is a flawed strategy. Think of it this way. At the present rate of job accretion, it will take five to fifteen years to recover the 11 million jobs lost since the recession began.

It will not happen. It takes a 100 thousand jobs a month just to keep pace with population growth and 150 thousand jobs a month is minor compared to the need. 

Add to this the fact that the long term unemployed are not employable and may have to be given re-training which will cost billions we don't have.  Add this to the returning vets who need jobs, housing etc whose medical costs are high in an already aging population; add to this that many of the jobs created are low-paying service jobs and you have a bleak outlook on jobs. 

Jobs will not happen- and that is the real problem--especially if you understand the real unemployment and underemployment rate is 17%.

So what to do? For a short answer see my blog on this site on "A Report Card On Obama" and a companion blog on this site called "What America Needs to do to Survive." See the Nov 5th entry where this discussion begins.

More detail tomorrow.

Nov 6, 2010

Obama and company recognize the fact that jobs will not be coming back. So what to do while pretending that they will?

The current strategy apparently is to float the 600 billion onto the currency market, allowing the dollar to dip in value, thereby, increasing the demand for cheaper American goods and thereby increase American exports and thereby increase American jobs.

Sound convoluted?

Well that's because it is.

The announcement that his trip to India (now underway) with 200 American tycoons in tow, will result in 50 thousand new jobs is to put window dressing on the problem. Yet, true , it is a start.

What has to be done I have identified in Obama blog on this site.

The problem is simple:
Consumers, who propel 70% of the American economy, are debt ridden, and like good soldiers some are trying to pay down the Debt That Has No End. They will default in increasingly massive numbers. (Already happening.) 
What has to  be done is to to lower or forgive that debt or put money in their pockets by direct dollars--that would have been a better use of the 600 billion-- rather than the round-about-give-to-the-banks-first strategy. They will simply spend it over seas and not put a dime into America.

Gloomy? Well yes. But not if people take off the blinders and see what is occurring. Things have changed. What we do, therefore,  has to change also.

The old strategies will not work.
So we have to look to new ones.

I have a few, modest suggestions. Tomorrow.

Dec 2, 2010

Time is short today so first lets list some solutions and come back tomorrow for the detail.

1-The military budget is 60% of the total federal budget. It has to be cut because that is where the money is. 10% cut = 100 billion

2-The top 1% of the population has 35% of the wealth and half the tax rates of the rest of us.  Tax their stock market holdings 15% along with capital and dividend income. 15% revenue= 1.8 trillion

3- Increase the current cap on social security and medicare taxes to include the wealthy. The current system has no tax on people earning above 110k per year and is a free ride for the wealthy. Best guess is 2.3 billion inflow.

4-Have a tax payroll holiday for the middle classes thereby putting money in their pocket, increase the home mortgage deduction, and declare a moratorium on foreclosures. Outflow approximately 2 trillion.

5-Put the 600 billion into mortgage relief, greening and insulating American homes. Remember winter is coming and oil prices are rising. There will be demand to keep warm. It will be a long winter with high prices and cold voters, otherwise. Dollar return on this investment is two dollars for every dollar invested =1.2 trillion

That is the flavor of some of the suggestions and any three of them will eliminate the so-called deficit. (Net of all of them is 1.3 trillion against a deficit of 1.2 trillion. No more deficit.
 

There is no need to go after social security. That program has no deficit.
No need to go after the middle class at all.
The money on wall street is our money and they should have to give it back.

These are just preliminary but achievable in a short period of time, absent political stagnation. I know that is a big if, but a solution is a solution even if blocked.

Let's hope our leaders get some bull apparatus and act.