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March 04, 2010

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Here are some comments about events of the day:

There is an article in the WSJ today about Bernake's strategy to announce rate hikes in the future. I believe it is very important that the Fed's hold on announcements until we see some real improvement in the economy. Manager and consumer confidence is closely tied to interest rates. And, until we get confidence up again we have no hope of getting employers hiring again. At least this time he is working on his strategy of how to announce it. But with this economy there is no rush.

2. The small business confidence indicator dropped last month after a few months of increasing. This indicator is tied to the perception small business owners have of seeing profitability in their future. Bernake's statement and the continuous war over healthcare are helping dampen this again. Sooner or later the Democrats have to let things heal. But, that is not to be-----

3. There is an article indicationg that the President is meeting with Senators to get his climate change and energy legislation moving. This is another mistake. The economy needs to recover before it can take any more huge debates over rising business costs from such a program. Managers need a rest. I know Obama believes that this is their only opportunity to pass some of his programs given the losses it looks like they will incur in the fall. However, they will incur less losses if the economy starts to recover than if they punish it one more time. This "idelogocal" President is much like Grant in the Civil War --he will sacrafice whatever men he has to in order to achieve his long term goals. At the moment it is interesting to watch him try to motivate his troops to charge ahead ignoring the consequences.

4. There actually is a little hope on the horizon as Rangle's replacement is talking about reducing capital gains taxes for small businesses and reducing the inheritance taxes. It's good to see a Democrat who understands how America's economy works. He will likely be replaced soon.

5. Ironically, the only place Obama is gaining ground with the American people is the one place he "blistered" the Bush administration on: the war against terror. His beefing up Afghanistan is actually gaining him some pluses. The further he gets away from the far left the better off he is with Americans.
And, the more the Far Left fires away at him.

6. Interesting article in the WSJ today about Ireland. They have taken heroic steps to reduce their debt. Good read and lesson ahead for Americans. Government workers given an 18% pay reduction.

7. The Banks again have pushed Americans backward. Prompted by a new law from congress regulating against overdraft allowances banks have eliminated the overdraft protection that allowed customers to pay for things even when they did not have money in their account with ATM cards without telling the bank. This has the effect of eliminating, I guess, overdraft protection accounts. Bank America announced however that they will authorize it for a fee of $35 per charge. In today's WSJ BA has a full page ad saying that they have "heard their custmers" and implemented this program. Hmmmmm---ad runs same day the bill forcing them to do it comes out of congress. Banks---they are all for us aren't they?

Right on Al. Very well said. It is not fun thinking of our children's life trying to settle these debt issues.

A couple items: Let's take a look at why the Stimulus bill might not be helping grow jobs or even save many.

First, the money itself is not targeted anywhere it can grow jobs. Here are the statisitics on the Virginia money uses. The state has received to date $5.1 Billion dollars. Here is how it has used it:

58% for Medicaide payments
26% for Unemployment benefits
11% on the compensation board
3% on Social services
1% on Transportation (roads and bridges)
1% on all other uses

So basically this is a giant social program with 87% going to medicaide,unemployment and social services. Other than the positive effect the money might have on medical and consumer oriented businesses it cannot directly stimulate the creation of anything but healthcare jobs.

Second, Senator Reid's bill coming out of Congress this week provides $30B for community banks to lend to small businesses but this money (similar to the forclosure money) does not have with it mandatory rules that it must be loaned out. So we are at the mercy of bank loan officers to deem us credit worthy before approving loans. As with forclosure workouts requested by congress and bank bailout money loaned to banks there is little likelihood that bankers will use it to stimulate small business growth in America and the job creation that comes with it.

So where will the end to job losses come from? They will have to come from the consumer. But with consumer confidence in freefall last month it may be that this recession will be difficult to shake.
One thing that might help is the end of the healthcare debate. Whether Reid and Pelosi pass pieces of it in reconcilliation or it fails and goes away at least the debate will be over for a while. Then perhaps the consumer and the US managers can focus on getting back to business with a reasonable chance of understanding their budgets for the year. That alone would improve things.

However, I doubt we will see an end to the "big issue" proposals from this administration. Energy is looming as the next nightmare for US managers as regulation, fines and taxes are proposed to reduce carbon emmissions and save the world from "climate change". All this before the consumer is hit by the expiration of the 50 Bush Tax cuts dramatically increasing taxes for consumers.

As a fiscal conservative, the most nettlesome legacies of the Obama administration and Pelosi/Reid Congress are the huge deficits, government expansion to manage businesses that used to be in the private sector, and new "entitlements". State Governments increasingly rely on Federal money through stimulus spending and earmark pork to make ends meet. Could a future Congress adopt fiscal restraint without causing severe pain on the state level, where unsustainable spending also has become the norm?

Since much of government's administration authority has been given to public unions, it will be very difficult for expenses to be reduced by a reduction in government employees or pay/benefits, no matter what happens to funding of programs they administer. And, how often have "entitlements" been trimmed once implemented?

Even if fiscal conservatives take charge in the future, they will have an incredibly difficult time dealing with the Obama/Pelosi/Reid legacy of trillion dollar deficits and bloated government. Most likely, it will be dealt with in the traditional way of currency devaluation and inflation (which does not augur well for us geezers without COLAs for our fixed assets). It is a longshot, but maybe some Reagonesque folks will come along who have the gumption to take lessons of the Air Controllers Stike to the next level and restore affordability of Federal and State Governments.

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