My colleague Alan Reynolds has a message for all the paranoid androids in Washington…
My colleague Alan Reynolds has a message for all the paranoid androids in Washington…
President Obama may have preempted the first hour of prime time Monday night, but he certainly did not fail to entertain with several pronouncements that require suspension of disbelief.
Here are four Obama statements that deserve closer scrutiny:
1. “[I]f you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of. We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough…”
The fact is that numerous presidents, including Obama’s immediate predecessor, have used desperation and fear to sell some of the truly awful policies to come out of the U.S. government in the last 50 years – the Gulf of Tonkin resolution and the Iraq War resolution, to name two.
2. “What it does not contain, however, is a single pet project, not a single earmark, and it has been stripped of the projects members of both parties found most objectionable.”
This one severely strains credulity. The president is right about one thing: many of the bill’s projects are online for all to see. But could any reasonable person agree that these projects are stimulative and not aimed at special political interests?
3. “Most economists, almost unanimously, recognize that…when you have the kind of problem we have right now…that government is an important element of introducing some additional demand into the economy.”
We’ve been over this, Mr. President. The truth is that a huge and still-growing number of respected economists think that a massive government spending effort in our present circumstances is wasteful and foolhardy.
4. “What I won’t do is return to the failed theories of the last eight years that got us into this fix in the first place…”
OK, so we actually agree with the president on that one. But then why is he bound and determined to repeat the reckless spending habits of George W. Bush? We thought the November campaign was all about “change.”
With the president adopting his predecessor’s strategy of attempting to scare Congress into approving a bad bill by warning of financial doom, it’s worth remembering that the proposed “stimulus” package is about politics, not economics. If the proposed spending was worthwhile, it would be silly to fuss about whether the total comes to $800 billion, $900 billion, or $1 trillion. If we really can’t afford $1 trillion, then how can we afford $900 billion or $800 billion? In fact, the basic goal for most legislators is just to spend as much money as feasible as quickly as possible.
Thus, in Washington today the most important issues are: who gets all of the wealth extracted from the American people and who gets political credit for giving everyone else’s money away. Just consider the local boondoggles being advanced for federal funding by cities around the country–dog parks, tennis courts, neon signs, Harley motorcycles, golf courses, “eco parks,” frisbee golf courses, skateboard ramps, and much, much more not considered worth constructing with funds from local taxpayers.
Eugene Robinson admitted as much in today’s Washington Post. In urging the president to “roll over the Republicans,” he observed:
The House of Representatives loaded up the bill like a Christmas tree as powerful Democrats found room for their pet projects. This was a good thing, not an outrage. Hundreds of millions of dollars for contraceptives? To the extent that those condoms or birth-control pills are made in the United States and sold in U.S. drugstores, that spending would be stimulative in more ways than one.
Also indicative of how the proposed spending is foremost a matter of politics is the role of lobbyists in divvying up the proceeds. The role of House Financial Services Committee Chairman Barney Frank already has been exposed. But he is not alone. Reports the Washington Post:
“Earlier today, Sen. Bingaman met with Treasury Secretary nominee, Timothy Geithner,” the staffer wrote. “The Senator raised concerns regarding New Mexico based Thornburgh Mortgage and their efforts to access TARP funding and convert to a savings and loan holding company.”
Thornburg had been fighting off bankruptcy, and its best chance at a piece of the $700 billion federal bailout known by its initials as TARP could hinge on transforming itself into a regulated thrift and persuading the OTS to recommend it as a candidate for rescue. Bingaman’s aide wanted to schedule a call between her boss and OTS Director John M. Reich.
That short Dec. 9 e-mail offers a glimpse of the flurry of activity involving lawmakers and federal regulators as firms have pursued hundreds of billions of dollars from the Troubled Assets Relief Program and waited for details of how the Obama administration will disperse even more. With so much money at stake and so much uncertainty about who will get it, beleaguered companies fearful of being left behind are scurrying from Capitol Hill to K Street, trying to find a way to the front of the line.
None of this is surprising, of course. But it does demonstrate that the president’s rhetoric bears no relationship with reality. Unfortunately, his proposed “stimulus” bill will stimulate big government, debt, and inflation, not economic growth, jobs, and prosperity.
I rarely give investment advice unless asked. But I’ve found that most people are unduly shy about using short sales to hedge and, yes, “speculate.”
If you were invested in, say, an S&P 500 index fund over the past two years, you were actually speculating that stocks of banks and homebuilders would go up. Index funds are weighted by the value of shares, so financial firms in particular were much too heavily weighted (the market has fixed that).
Exchange-traded funds (ETFs) make it easy to hedge that sort of unwanted long position with shorts. You buy them like stocks and they have similar trading symbols like SKF or TBT. Since 2007 (but not lately), I was invested in SRS which shorts real estate, and SKF which shorts financial stocks. Those are ultra-short funds, which means the rise about twice as fast as those stocks fall in a day (though not over time). The gains from SKF sometimes topped 150%.
In a May 1 2008 blog, I revealed that “I am shorting oil through an exchange-traded fund (DUG), and shorting precious metals through a mutual fund (SPPIX). I’m also slightly long the dollar (UUP).” Shorting energy stocks and going long the dollar were contrarian positions, but profitable. Shorting precious metals (then, not now) was partly because platinum and silver have industrial uses; gold held up fairly well.
If you still hold any mutual fund or 401(k) that is invested in long-term Treasury bonds that shows admirable patriotism and courage but not much caution.
Two old friends, one at a hedge fund the other a California economist, told me they think the government will be borrowing too much, and that the Treasury and Fed are trying too hard to expand money and credit. That sounds like an easy bet to me. I suggested another Pro Shares Ultra Short fund called TBT. It makes a strong, leveraged bet that the price of 30-year Treasury bonds will fall and long-term interest rates will rise.
Since the end of 2008, this bet that government borrowing will cease being so cheap has risen by 36% – from about $36 to $49.
And that happened even though the Fed has threatened to buy long-term Treasuries.
If the Obama team’s “stimulus” plans and “rescues” keep making it this lucrative to bet that long-term long-term interest rates are heading up, what sort of “stimulus” is that?
According to Bloomberg.com:
U.S. Taxpayers Risk $9.7 Trillion on Bailouts as Senate Votes
The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages…
Only the stimulus package to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients’ names have not been disclosed.
“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”
The pledges, amounting to almost two-thirds of the value of everything produced in the U.S. last year, are intended to rescue the financial system after the credit markets seized up about 18 months ago. The promises are composed of about $1 trillion in stimulus packages, around $3 trillion in lending and spending and $5.7 trillion in agreements to provide aid….
The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve…
Commitments may expand again soon. Treasury Secretary Timothy Geithner postponed an announcement scheduled for today that was to focus on new guarantees for illiquid assets to insure against losses without taking them off banks’ balance sheets. The Treasury said it would delay the announcement until after the Senate votes on the stimulus package…
When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. The Federal Reserve so far is refusing to disclose loan recipients or reveal the collateral they are taking in return…
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In reaction to statements from Obama administration officials who say “all economists agree” that the only way to fight the economic recession is to go on a massive government spending spree, the Cato Institute took out a full page ad in the nation’s largest newspapers that showed that those words were not true. Signed by more than 200 economists, including Nobel laureates and other highly respected scholars, the statement was published this week in The New York Times, The Washington Post and many other publications.
On the day the ad ran in The New York Times, Cato executive vice president David Boaz added more names to the list of economists who are skeptical of the spending bill.
Commenting on the principles behind the stimulus, Cato adjunct scholar Lawrence H. White and fellow economist David C. Rose discuss why we can’t spend our way out of this mess:
You can’t solve an excessive spending problem by spending more. We are making the crisis worse.
In The Wall Street Journal, Cato senior fellow Alan Reynolds examines the numbers and discovers that each government job created will cost taxpayers a staggering $646,214 per hire.
The stimulus package now moving through Congress will spend nearly $1 trillion that the government does not have. With the nation already $1.2 trillion in the hole, Cato director of Tax Policy Studies Chris Edwards discusses the sheer illogic behind pushing for stimulus at a time like this:
If I get up in the morning and drink five cups of coffee and that doesn’t stimulate me, I don’t go and drink another five. I’d recognize my addiction problem and start reforming my bad habits. Federal policymakers should do the same.
For more on the stimulus plan, read Edwards’s Tax and Budget Bulletin, “The Troubling Return of Keynes,” (PDF) co-authored by Ike Brannon, former senior adviser to the U.S. Treasury.
During the House vote on the stimulus bill, just 11 Democrats voted against it, leaving Boaz to ask, “What Happened to the Blue Dog Democrats?”
“Blue Dogs supported fiscal responsibility at some vague point in the misty past, and they will strongly support fiscal responsibility at some vague point in the future,” writes Boaz. “But right now they’re going to vote to put their constituents another $825 billion in debt.”
Obama Promises to Close Guantanamo Bay Detention Center
Cato legal policy analyst David H. Rittgers explains why he approves of Obama’s choice to shut down the prison at Guantanamo Bay and offers advice on how to proceed with the plan:
The Founders wrote the Bill of Rights after a violent insurgency brought on by government oppression, and the principles contained therein are no weaker while countering today’s terrorists. Using national security courts to try the detainees in Guantanamo opens the door to closed and classified trials of domestic terror suspects. This degradation of essential liberties is unwise and avoids the social function of trials.
Listen to a Cato Daily Podcast interview with Rittgers to learn more about the future of the Gitmo detainees.
In the forthcoming Cato Handbook for Policymakers, Timothy Lynch, director of Cato’s Project on Criminal Justice, lays out a plan for the future of our government’s strategy for dealing with terrorism. (PDF)
Gore Global Warming Hearing Goes on Despite Snowstorm
Undeterred by a snowstorm that shut down schools and gave federal workers “liberal leave,” the Senate Foreign Relations Committee held a hearing on global warming this week with star witness Al Gore. Gore promoted ways to end climate change through cap-and-trade legislation and investment in renewable energy, reported U.S. News and World Report.
In a Cato Policy Analysis, author Indur Goklany offers his commentary on how government should handle climate change.
Cato senior fellow in environmental studies Patrick J. Michaels offers his analysis on climate change, and how the international community should react.
Appearing on Fox News, Michaels, who is a former Virginia state climatologist, asserts that when it comes to climate change, there is no immediate emergency. For more, don’t miss Michaels’s new book, Climate of Extremes: Global Warming Science They Don’t Want You to Know, co-authored with Robert C. Balling Jr.
A special thanks to all bloggers who wrote about Cato’s letter showing that there is not a unanimous agreement among economists about President Obama’s stimulus package.
Although we can’t name everyone who linked to the page, some of the bloggers include Michelle Malkin, Don Boudreaux, Damon W. Root, Alex Singleton, Cord Blomquist, , Jason Pye, Jason Talley, Andy Roth, Gerrit Lansing, J.D. Tuccille, , Frank Ahrens, ahrensf [at] washpost [dot] com ( )Rodger Thomas, Amber Gunn, Colin Grabow, Russ Johnson, Michael Patterson, Robert Huberty, David Adams and Mitch Berg.
Also blogging about Cato:
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