World Order Reversed

Background from the Hoover Institution’s Thomas Sowell: “One of the ideas that has proved to be almost impervious to evidence is the idea that wise and far-sighted people need to take control, and plan economic and social policies so that there will be a rational and just order, rather than chaos resulting from things being allowed to take their own course. It sounds so logical and plausible that demanding hard evidence would seem almost like nit-picking.”


Thank you Tom. Indeed, we have all studied control of the violent variety: French, other revolutions. Even of the less violent flavor, the planners are high IQ types; they have all the facts at their disposal and naturally the power of enforcement. And almost everybody has to try it just once.

Friedman and others saw the central flaw. Most charged ahead, which includes of course the USSR in the extreme sense, the UK after WWII and Europe to one degree or another. The US took the other course, with a needed mid-stream correction applied by Ronald Reagan.

The USSR’s experiment folded, Thatcher resuscitated the UK, yet most of Europe continued to surrender decision making to gov’t types. Meanwhile, the US remained a beacon.

Until now. We have witnessed a drastic and rapid reversal of world order. Past two years most of Europe have moved center right, this after years of witnessing the destruction to society effected by planners. It was the crisis of Q4 ‘08 (for which we thank the Democrats) which accelerated the process. As reported in today’s Washington Times, “If you look across Europe, the political center of gravity has clearly moved to the right,’ notes Charles Kupchan, sr fellow at the Council on Foreign Relations, ‘There were deep and broad structural problems of the economy that Europeans had to tackle.” The nearest role model was the UK under Thatcher. “Now that process,” continues Kupchan, “of undoing large state-centered economies is moving to the Continent.”

Thus, as the balance of the free world moves right, embracing personal initiative and personal freedoms, we under BO have moved decidedly left.

Another needed mid-stream correction is soon to be applied.

Robert Craven

Economic Reality Ahead

Let’s review economic reality ahead.

First, a background:

- The Dem’s refusal to reform the twins (in an effort to buy black votes) sparked the crisis of Q4 ‘08. That is, Bush attempts at regulation were thwarted by the likes of Obama, Dodd, Frank and Pelosi, to name a few. This resulted in ground zero.

- Ironically, the crisis along with his being half black got BO elected, even though he had a hand in creating the mess!

Left-wing legislation enacted since has stalled any meaningful recovery.

Now where?

- Voter revulsion after extremists gained traction speaks well for Nov results. The so-called tea party movement represents more than a spark, maybe even a rush for the economy. To the extent these types gain office, economic optimism will grow as uncertainty is put to bed.

We tell our lefty friends - ok, want to continue with a miserable bottom line; fine, vote Democratic. Walk the walk. You were happy before to pay the price of pulling the trigger.

Not so much fun now guys? More interested in your business, and 401K?

Good. First, deep 6 the latest chant fed to you by the DNC. Next, read a book or two. Finally, vote for responsible government come Nov.

This is not partisan, simply reality.

Robert Craven

Careful Which Hand You Bite

The anointed are having a great time witnessing the explosive energy as Tea Party folk cross country begin something new. To the media, faculty lounge types, tenured elites, it’s entertainment. To our lefty friends who are small business owners, it had better be something more than that.

Our nursery pals for example (the poor guys, they provide a default, and we beat them up almost daily) better leave the derision to the postal workers; they’ve got something on the line; criticizing this movement is the equivalent of bitting the hand that is about to feed them.

Obama is obviously bad news for the economy. His statist agenda won’t cut it. There is no need to explain, or elaborate; we already have. Tea Party types want to do away will all that BO has placed in front of a meaningful recovery - tax & nationalized energy scheme, the health heist, the stimulus tragedy, GM bailout, the risk of much higher taxes, corp and individual, the threat of even more gov’t control of even more segments of this economy. With this dread ahead, no one will hire.

We have known that the Nov elections held some promise for the economy. With recent results providing a propellant to free market ideals, the elections may provide more than promise, maybe an explosion. From Larry Kudlow’s column today quoting a recent WSJ piece, “Raul Labrador, the tea-party-backed House candidate from Idaho, says he opposes all government programs that help one segment of business over another. ‘I’m against all of them,’ he tells the Journal. ‘I don’t think the government should be picking winners and losers. We should have taxes low for everybody, and not just for a particular industry or segment.’”

Now this is about as close to a reincarnation of F.A.Hayek as we’ll get, for it is not only about prosperity, but the gov’t “picking winners and losers,” as Labrador puts it is a direct road to serfdom.

Let's return to Mar/4/1925 and the first US presidential inaugural to be broadcast. Cal Coolidge had this to say that day; working Americans may find some application: “I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. That is the chief meaning of freedom. Until we can re-establish a condition under which the earning of the people can be kept by the people, we are bound to suffer a very distinct curtailment of our liberty.”

Through BO the chatterers found for the first time in their lives that notions discussed in the abstract are just plain no fun when experienced in the concrete.

The Tea Party may provide an out for these poor souls.

Robert Craven

Those Dog Gone Pesky Facts

We were scolded this pm by the nursery crowd for not highlighting today’s signing by BO of a bill providing small business tax breaks, something to crow about apparently. Well, we know facts can be very pesky critters, so let’s take a look at this little dandy.

The bill contains $12 bln of tax cuts for little guys, such as a 100% exclusion of cap gains income for certain small start ups, expensing for certain capital expenditures, and new deductions for start-up expenses. Whoa now!

One little problem. Only a fraction of businesses will be eligible, and the write-offs last for only one, maybe two years. What is that Obama?

As the WSJ asks, while in fact granting the WH is correct that a cap gains tax cut will help small businesses raise capital, is “why raise that tax rate to 20% from 15%on Jan/1 for everyone else?” And as these folks illustrate, “This bill isn’t even a net business tax cut, because the temporary small business cuts are offset by permanent corporate tax increases. Obama is promising $12 bln of cuts with his left hand while proposing to collect about $300 bln in tax increases from this bill, and others, with his right.”

Gosh, guess that’s why we didn’t highlight this deal.

Robert Craven

Things Economic and the Masses

Obama continues to self-immolate. In Milwaukee today he 1) blamed the economic mess on Republicans and 2) pimped another spending program. The first year he could get by with this nonsense. No longer. The masses, bored to tears by things economic in days past, have caught on.

CBS reported this weekend that Democrats are distancing themselves from BO. “Not only are they running away from...Obama, they’re running away from being Democrats in some cases,” reports Nancy Cordes, Congressional correspondent. Well ya. Most of these Democrats are not handicapped as is Obama. They listen.

We all know a cure for the economy - cut taxes, then stand back. Kennedy and Reagan proved that works.

Trouble is, most elected officials haven’t learned to sit on their hands; the left doesn’t even try. Now that radicals are at the helm, the US electorate has had enough. Simple.

While BO was busy force-feeding a phony health solution down our throats, bribing opposition along the way and aiding the enemy in Afg by promising a withdrawal date (to gain health heist votes), the masses saw the economy go nowhere.

Now, it is true that the average voter didn’t know up front that gov’t stimulus doesn’t work, that it can’t work (unless you’re a union bloke). Most have jobs; few have time for scholarship. We knew, but then they don’t all read our blog. Now they know.

But BO doesn’t know they know. His background is incestuous, a closed system of a few self-appointed elites living an abstract, shouting out, holding hands together in the dark.

That’s unhealthy behavior.

Robert Craven

Caught Flat Footed

In our sketch of Aug/22 we noted that the Fed has done about all it can. On reflection, that statement is perhaps not accurate; we were a tad hasty; we should have known better given our background. Let’s take a look. (No yawning now. Stick with us.)

Alan Blinder, once vice chair of the Fed and now a Princeton prof said that, “The heavy artillery has already been fired.” We have a letter from Alan dated Jan/96 thanking us for supporting his in-house battle with Greenspan. That was a pleasure. Still, dear Alan represents a certain class of economist - lefties. It so happens that the chorus that the Fed is finished is from this school, which represents perhaps 70% of major names in the trade. We joined them Aug/22. That was a mistake. (Not thinking, watching videos of our granddaughter.)

Blinder, Roubini, Krugman and others may not be completely neutral in their prediction of Fed impotence. All are supporters of Keynesian witchcraft. All now go by the prescription that the ball is in the fiscal court. Most of us know that means more debt and a crushing burden for our kids.

In fact, as a few tethered thinkers have disclosed, “The Fed has an arsenal of neutron bombs if it wants to use them...,” according to Ambrose Evans-Pritchard in today’s Telegraph. He lectures the rest of us to, “Get a grip, the lot of you. While there is no easy way out for the US after stealing so much prosperity from the future through debt, there is no excuse for this dead-end defeatism. Clearly, the ‘canonical New Keynesian' model that holds such sway on America's elites is intellectually exhausted.” Hah! Refreshing stuff from this Brit.

And of course he is right. In grad school, we all had to memorize the so-called aggregates, the expanding components of money supply. M1 is the core; M2, M3 include a broader scope. No need on this occasion to delve into particulars. In the article we hear from Tim Congdon, from International Monetary Research that, “Bernanke continues to babble on about futile credit easing: neither he nor his staff seems to appreciate the difference between purchases of assets from non-banks and from banks.” Congdon knows that nowadays banks sit on the money and that others use it, or might.
This means huge bond purchases by the Fed but outside of the banking system; it means buying from pension funds, public bodies, insurers, etc. This is the broader M3; these folks might actually spend it. (Where does the Fed get the $? Out of thin air naturally, but we won’t worry about that right now.)

So for all you readers out there who have been distraught, fretting that the Fed’s desultory firing of popguns is all that's left, take heart. We know this topic eclipses all others at dinner time. We know you ponder the aggregates endlessly. Don’t worry. There's a few "neutron bombs" left.

Robert Craven

Today's Aug Payroll Release

Unemployment rose to 9.6%, as expected. What happened is that there was a larger increase in the labor force (+550M) than in so-called household employment (+290M), resulting in an increase in unemployment (+260M). That’s how it works.

The headline result, overall jobs declined 54M, not quite as bad as expected. The private sector job gain, at +67M was a tad better than expected.

Why did overall jobs fall? Due to another huge decline in temp census workers and another drop in state and local gov’t employment.

In conclusion, the economy is generating a modest number of private sector jobs, firing on 5 of 8 cylinders. Only BO’s policies stand in the way of a full blown recovery.

Miscl: The workweek and total hours worked were unchanged as expected. Hourly earnings at +0.3% were better than expected. We don’t know if this indicates future trend or not. Probably not.


Robert Craven

Learning Experience?

We have the key employment report on Friday, this for the month of August. The near term value of every 401K or small business hangs in the balance. We better take a look at this thing.

Formally known as the Non-Farm Payroll report, the BLS gives us a monthly read for payroll in all categories except farm, domestic help, general gov’t employees and some non-profit employees. Why BLS types are afraid of cows or maids, we’re without a clue.

Past years, the market-moving potential of this release was huge. We know. We used to trade each release. With the general dampening of bond-price change, past decade, interest rates are not so vulnerable. Stock prices have replaced bond prices in that regard.

First, the likely result. Let’s take a layman’s look at the components: 1) Overall Payroll is expected to have dropped by 100M, due primarily to census bureau layoffs. Private sector employment is expected to have increased by some 40M. 2) The Average Workweek and Total Hours Worked are expected to be unchanged. 3) Unemployment is expected to hit 9.6%. 4) Hourly Earnings rose a tad, maybe 0.1%.

That’s the guts of the thing. Anything a lot worse and your 401K will tank. Any discretionary spending that might have been coming your way will vanish.

Now let’s think with our pocketbooks. We know that employers are scared to death of Obama. We know this because they’ve told us so. Witness Paul Otelinni, head of Intel, two weeks ago at the Technology Policy Institute’s Aspen Forum. From the IBD, “The Intel chief was harsh on the massive spending by the White House and Congress — and on the failure to extend the Bush tax cuts, the takeover of the health care industry, and the threat of new taxes on businesses to remove carbon from the atmosphere. ‘I think this group does not understand what it takes to create jobs,’ he said. ‘And I think they're flummoxed by their experiment in Keynesian economics not working.’”

OK, that is established, and, it is key to the prolonged slowdown.

And so this reading carries double the horsepower. Not only is it a reading on an economy in isolation, but a reading of an economy, for the first time in our lifetime, hanging on the whim of hamstrung employers (who by the way are cash rich).

So here is what you do, all our lefty-small-business-owner pals out there. If this release blows through estimates to the upside, you can celebrate. Buy a new Volvo or tie-dyed shirt. It means more discretionary spending in the future; folks will buy your flowers and spend for new breasts once again. If the release is below or at expectations, then be prepared to vote Republican in November. You don’t have to tell a soul, not even your spouse. But if you care about the bottom line, it’s a good move.

Face it lefties. You screwed up big time. Before you were insulated - ok for everyone else but you. It felt good to talk up the typical abstract notions. Now the hens have come home to roost because for the first time in recent memory, you guys actually gained traction by the way of BO.

How’s it feel now, making the personal sacrifice?

Try making it a learning experience while you’re at it.

Robert Craven