More Obama Spending Won’t Do It and Stocks Know It

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Harry Hope

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Aug 5, 2011, 10:49:28 PM8/5/11
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http://www.cnbc.com/id/44039381

There he goes again. Out on the campaign trail, President Obama is
proposing more federal spending as his answer to sluggish growth and
jobs. That won�t do it, Mr. President.

He wants more infrastructure spending, undoubtedly in the form of an
infrastructure bank. That�s a terrible idea. It�s borrowed from Latin
America, where bloated and corrupt bureaucratic construction agencies
have helped bankrupt any number of countries in the past.

He wants to lengthen 99-week unemployment insurance, although numerous
studies have shown that continuous unemployment benefits are associated
with higher unemployment.

And he wants to extend the temporary payroll tax credit, which is not a
permanent reduction in marginal tax rates, has no incentive effect, has
not worked so far, and is really a form of federal spending -- not real
tax relief.

Earlier this week, when he signed the debt-ceiling bill , the
president ranted on about the need to raise tax rates on successful
earners, investors, and small businesses. He�s trying to bring back tax
hikes as part of the phase-two special committee seeking additional
deficit reduction, even though his own party rebuffed him on this in the
late stages of the debt talks. All this is a prescription to grow
government, not the economy.

What the economy needs, Mr. President, is a strong dose of new
incentives, with pro-growth tax reform that flattens marginal rates and
broadens the base for individuals and businesses. This includes moving
to territorial taxation that ends the double tax on foreign earnings of
U.S. companies. Plus, we desperately need a complete moratorium on
federal regulations. As Sen. Barrasso recently noted, the government put
out 379 new rules on business in July alone, amounting to $9.5 billion
in additional costs.

None of these pro-growth reforms are in sight. So the stock market is
going through a nasty 10 percent correction over fears of another
recession (and European debt default).

But at least we got some good news on jobs. The July jobs report came in
stronger than expected. It�s not great. But at least nonfarm payrolls
increased 117,000 � as the prior two months were revised upward by
56,000 � while private payrolls gained 154,000.

That�s definitely not a recession reading. But neither is it a strong
performance. If the economy were really rebounding, we would be creating
300,000 new jobs a month.

In the report, the unemployment rate slipped to 9.1 percent from 9.2
percent. But that�s mostly because nearly 200,000 workers left the
civilian labor force. Another negative is the household employment
survey, which fell 38,000 in July after dropping nearly half a million
in June. That survey measures job creation among small owner-operated
businesses or the lack thereof.

Yet when looking at the new jobs report, along with reasonable gains in
chain-store sales and car sales, plus the ISM Purchasing Managers
reports (which stayed above the 50 percent line), I repeat my thought
that we are not headed for a double-dip recession.

Over two years of so-called economic recovery, growth has averaged about
2.5 percent. It fell to less than 1 percent in the first half of this
year, largely from a commodity-price shock that included oil-,
gasoline-, and food-price spikes. That price shock resulted mainly from
the Fed�s QE2 depreciation of the dollar � a big mistake. It eroded
real consumer incomes and spending.

Lately, the dollar has stabilized and energy prices have come down quite
a bit [.DXY Loading... () ]. That will reduce inflation and
support better consumer spending. Businesses are already highly
profitable and cash-rich. They are investing some of that, but not
nearly enough to create sufficient new jobs. Who would, with all these
Washington policies?

Finally, the Fed remains ultra-easy with excess liquidity and a zero
interest rate.

So it looks to me like we will return to the sub-par 2.5 percent growth
trend rather than dip back into recession. However, at this pace,
unemployment may hover around 9 percent right up to election time next year.

More spending won�t do it Mr. President. Tax and regulatory incentives will.

Ray Fischer

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Aug 6, 2011, 3:34:27 PM8/6/11
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Harry Traitor <riv...@ix.netcom.com> wrote:
>http://www.cnbc.com/id/44039381
>
>There he goes again. Out on the campaign trail, President Obama is
>proposing more federal spending as his answer to sluggish growth and
>jobs. That won�t do it, Mr. President.

The anti-American teahadist screeches in outrage that Obama dares to
cut taxes in order to help veterans.

Why do these GOP extremists hate America?

--
Ray Fischer | Mendocracy (n.) government by lying
rfis...@sonic.net | The new GOP ideal

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