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>From Stimulus To Cold Turkey In One Year



Monday, June 14, 2010
[«] Money and Markets 2010 Archive View This Issue On Our Website [»]

Glimpses of the End Game 
by Martin D. Weiss, Ph.D.

Dear Don,
Martin D. Weiss, Ph.D.
Anyone not blinded by greed can plainly see the sick cycle we’re in:
First, the government helps create a great asset bubble.
Next, the government-created bubble bursts under a dark cloud of hardship for millions of Americans, and …
Last, the government responds by creating still ANOTHER bubble, often far more dangerous than the previous.
A rare sequence of events? Hardly.
Just in the past dozen years, we’ve already seen three — the tech bubble and wreck … the housing bubble and bust … and now the sovereign debt explosion and implosion.
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So by this time, millions of investors already know the drill. What they don’t know is the answer to the biggest question of all:
What’s the End Game?
Will the world’s money printing presses inevitably run amuck, trashing any remaining value in paper currencies?
Will major governments ultimately default on their debts, destroying the global credit system?
Will our entire civilization crumble?
My answer: The threats are certainly real. But the final outcome could be very different indeed.
In fact, no matter how many tricks governments may play and no matter how wild this 21st century roller-coaster ride may get, there will also be another possible end game:Austerity.
Austerity can come in many forms: Governments may impose austerity strictly in reaction to market-driven forces … or by pro-actively taking the lead. Austerity may come with wild inflation … or without. It could trigger deep social upheaval … or merely sporadic protests.
But regardless of how austerity finally arrives, it cannot happen without across-the-board cutbacks in government payrolls, severe reductions in unemployment benefits, massive cuts in pensions, big hits to social welfare programs, and invariably, NO MORE ECONOMIC STIMULUS!
New Austerity Measures Sweep The Globe
Hard to believe? Then take a closer look at the sudden rush to austerity announced just in the past few weeks …
Greece has finally bowed to unrelenting attacks from global investors and is slashing 30 billion euros from its budget in three years.
Spain, also under massive pressure from investors, has announced spending cuts of 15 billion euros, plus a 5 percent reduction in public worker wages.
Portugal is getting ready to embark on a program to cut 2 billion euros this year alone.
Italy is slashing 25 billion euros from its budget over the next two years.
Germany, supposedly the most robust of all euro-zone countries, has no choice but to follow a similar path — cutbacks of 85 billion euros by 2014.
But this is just the beginning.
In the UK, newly elected Prime Minister David Cameron has wasted no time in confessing that Britain’s financial situation is “even worse than we thought.” He has blatantly declared how sharply he’s going to break with his predecessors on stimulus programs … how hard he’s going to slam down on the brakes, and … how quickly he’s going to prescribe a harsh regimen of spending cuts.
Expect cutbacks of at least 6.2 billion pounds this year alone.
In Japan — where newly installed leadership is also trying to make a clean break with the past — we see the same pattern: Late last week, Prime Minister Naoto Kan pulled no punches in declaring that …
Japan’s “outstanding public debt is huge” …
Its “public finances have become the worst of any developed country” …
And the entire country is at “risk of collapse.”
Even in Washington, voices advocating a second round of stimulus have suddenly gone silent. According to the New York Times,
“At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable.
“The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again.
“It is a measure of the mood that Mr. Obama on Tuesday hailed an initiative by his administration to cut the budgets of most major government agencies by 5 percent, at a time when conventional theory would call for more government spending to lift the economy.”
Will politicians in Washington, Tokyo, London, Berlin, Rome, Lisbon, Madrid, or Greece cut enough to restore fiscal balance? I doubt it.
But never forget:
These governments are the ones that injected the mega doses of stimulants into the bloodstream of their economies last year. And these governments are also the ones that everyone hoped would provide the NEXT big fix.
Now, even if they don’t cut their budgets by a penny — even if they simply fail to renewtheir stimulus programs — the impact could be severe.
This isn’t rocket science, Don.
The U.S., Europe and Japan are addicted to stimulus. But instead of more injections, governments are now prescribing cold turkey.
Even if they don’t cut very much, instead of more economic recovery, we will inevitably see severe withdrawal pains and another major slump.
My recommendation:
Don’t wait. for the Biggest Shock of All.
Good luck and God bless!

>Obama Is Spending America Into Depresion


My reply to the following article is positive. bw1 has done a good job and I entirely agree with his premise. Unless Americans stand up and complain to the Obama administration they will go merrily on their way trying to spend their way out of something that should be left alone.

For example, I am one of those who believe Franklin D. Roosevelt’s New Deal spending caused America to stay in the great depresion for almost 11 years — much longer than European countries who did practically nothing. It’s on the record and historians don’t dispute that fact. In her book, The Forgotten Man, Amity Shlaes said, “The big question about the American depresion is not whether war with Germany and Japan ended it. It is why the Depresion lasted until that war. From 1929 to 1940, from Hoover to Roosevelt, government intervention helped to make the Depression Great.”

The current recession, like the Great Depression, has been prolonged by the vast amounts of indiscriminate and wasteful spending that has been thrown at the problem — as if money, like water, can put out a gas financial fire. It won’t happen. No, what the Democrats are about isn’t totally extinguishing the terrible financial crisis but growing government.

Thrift has not been a part of the American business lexicon for many years, but the Obama spendthrift recovery plan is outrageous.

Yes, there are companies frugal enough to go it alone without government funding, like Amazon and Ford. They will remain independent, but the General Motors, Chryslers, AGIs, and underfunded banks are both the victims and the cause of the problem.

Can we lay the total blame on Wall Street. No, of course not. The major blame for this recession lies in Washington. But the solution to the problem is not there. The solution is to let teetering banks and other companies fail. That’s the American way. In the past we didn’t guarantee any company’s survival. Obama is only doing it now because he wants to shore up votes for 2012, those of the unions. Buying votes is despicable and shameful. That is what we should be writing and calling the White House about. They need to hear our voices.

What Obama did regarding Chrysler’s stock is shameful. He has replaced number one creditors, the investments of teachers and police officers, which had a preferred position on the bonds, and has given that position to the unions. The State of Indiana is currently prosecuting the president and his staff for deliberately pilfering retirement funds of teachers and police officers so that he could favor unions and gain their votes. This is utterly disgusting and I expect the courts — if they’re not loaded with liberal hacks — will reverse this egregious Obama malfeasence in office.

I predict gloom and doom under the economically naive Barak Obama. And as for the writer of the following comment who is called bw1, on his prediction that America won’t go into bankruptcy until 2030 to 2040, even he hedges on those dates. We all need to take into account the funding of baby boomer retirements. This is a large bubble of people born between 1948 to 1964 — a 16 year period — and the oldest boomers will be age 62 next year, 2010. So the volatile period of time for America to become bankrupt from what will become known as Obama’s depression — unable to pay our bills — is between 2010 and 2026, and more likely somewhere in between like 2018 which is only 9 years away.

The Obama-caused depresion could drag on for years past that as the Treasury’s printing presses whirl away creating new money each year, diluting any money Americans have socked away. People on fixed income will be wiped out. Rampant inflation is in our future, especially if we don’t voice our opinions strongly now against this madness.
From: bw1>
Date: Wed, 6 May 2009 08:08:40 -0700 (PDT)
Local: Wed, May 6 2009 11:08 am
Subject: Re: Is the National Debt a Problem?
The majority of US citizens don’t seem to understand the concept of
fiscal responsibility. For that reason it’s going to take a huge
effort by those who have common sense in this department to be able to
turn public opinion back in the right direction. We face an uphill
battle at the moment in this regard, but I don’t think we should
shrink back just because it’s not the most popular view. We have to
work to change the popular view. We need to show people why it’s
important that our government gets back on the road toward
sustainable, responsible fiscal practices. The truth is we are
digging ourselves into such a deep hole right now that it will be
very, very painful to dig ourselves back out. Every day that we keep
up the current big-spending trend we are digging ourselves in deeper.
The Congress and the President currently have no incentive to hold
back on spending unless the people stand up and say “enough is enough”
and “now you’ve gone too far, let’s bring it back down a notch”.
People with some wisdom and forethought must stand up and make their
voices heard. Maybe the severity of what’s at stake will finally
begin to wake up the sleeping majority if we can pay attention to the
signs of danger on the road ahead of us and get the word out. We need
a radical shift in policy. The policy of deficit spending and the
allowance of a national debt is something the congress can’t be
trusted to maintain in a responsible fashion. A little known fact is
that the US has never been out of debt except for a brief time under
one President — Andrew Jackson! A big justification for this is that
people think our leaders need to have the power to spend as much as
they need to in case of national emergency. Yes, a national emergency
might call for extra spending. But, what that argument fails to take
into account is that we could indeed be running a surplus during the
good times. Why shouldn’t we be building up reserves during the good
times so that they can be used in the event of a crisis? That’s true
fiscal responsibility. How much more productive would it be if the
government could invest a surplus rather than continually paying
billions of dollars in interest on it’s debt? We ran a surplus in the
1990’s. We ought to be able to do it as a general rule in the future
and we all ought to vote for leaders who will work for that. Any hope
of a prosperous future for our grandchildren is being stolen away from
us daily by the current administration’s total lack of financial
sense. We have got to bring balanced, measured thinking back into our
public conversation. Every day that we stay silent about this is
another day we sell out our grandchildren’s financial freedom.
On May 5, 12:12 pm, bw1> wrote:

– Show quoted text –

>The Real Cost of the $819 Billion Bailout

>One of the ways rich people discriminate against the poor is in charging exorbatant interest rates. Try 42 percent, for example.

But that’s against the law, you protest. What about laws on the books prohibiting gouging or usury? You’re right, consumers are not supposed to pay rates in many jurisdictions higher than 18 percent.

The word usury means the charging of unreasonable or relatively high rates of interest. As such, the term is largely derived from Abrahamic religious principles; Riba is the corresponding Islamic term. The primary focus in this article is on the Christian tradition. The pivotal change in the English-speaking world seems to have come with the permission to charge interest on lent money: particularly the Act ‘In restraint of usury’ of Henry VIII in England in 1545. Every state has usury laws on the books.

But we’re talking about government usury. Not ours, but probably China’s. A country like the USA borrows all its money and then pays back at an effective rate of about 42 percent. Sounds awful, doesn’t it. It is!

How could we have gotten ourselves into this bind — having to pay the communists almost half of our bailout money? We’re dumb, and they’re smart. They also have savings accounts, while most Americans use a credit or debit card and spend every last dollar coming in.

When the wall came down in East Germany we thought we had won the cold war. We did. But now we’re losing it, and it’s an economic war not a political war. The more we bail out companies, banks, and governments the smaller our U.S. dollar becomes — and the less it buys at the grocery store. American people are becoming poorer, not better off because of these bailouts and many Americans are convinced the bailout stimulus package is not a good idea at all. In essence, America is becoming a socialist country and with each passing day and an increasly larger planned economy and less capitalism, we are resembling Communist China — at least socialist Germany.

Taxpayers will pay much more for the fiscal stimulus than previously revealed – over $1.17 trillion according to the Congressional Budget Office (CBO).

Most sources have assessed the cost of the stimulus package at approximately $825 billion. But the CBO reports those estimates do not include the cost of the money that must be borrowed to pay for the plan. [Editor’s Note: To view the CBO letter reporting on the total cost of the stimulus plan, go here now.]

Rep. Paul Ryan, R-Wisc., asked the CBO – the research arm of Congress – to calculate the “money cost” of borrowing the funds needed to fulfill the stimulus projects being sought by congressional Democrats and President Obama. Like every other borrower, the government must pay back borrowed principal plus the interest on its debt.

The CBO responded with a Jan. 27 letter from CBO Director Douglas W. Elmendorf estimating the cost of borrowing the money would be $347.1 billion – or about 42 percent of the cost of the projects. That would push the total cost of the stimulus package to over $1.17 trillion.

>Republicans Are The Party of "Getting America Right," Not The Liberal Left-Wing Democrats

>Barak Obama has his sights set on reversing all of George Bush’s moderate and conservative actions, changes so startling and aggressive it is as if he were taking a knife to the white man’s throat, “setting thing right”

You can sense the pent-up Democrat frustration now focused on making those who support conservative measures bend their knees as never before, and it is about these liberal, self-defeating actions by the Democrats that conservatives think of their mission in life as “Getting America Right” after Obama has ruined it, and, hopefully, no later than 2012.

A team of four dozen advisers worked for months in virtual solitude, consulting with liberal advocacy groups, identifying regulatory and policy changes Obama is now implementing.

Transition advisers compiled a list of about 200 Bush administration actions and executive orders that are being swiftly undone to reverse White House policies on climate change, stem cell research, reproductive rights and other issues, according to congressional Democrats.

“The kind of regulations they are looking at” are those imposed by Bush for “overtly political” reasons, in pursuit of what Democrats say was a partisan Republican agenda, said Dan Mendelson, a former associate administrator for health in the Clinton administration’s Office of Management and Budget.

Here are some of the actions the black president is taking to put down the hated white man. Such hatred should be reserved for terrorists, not a president who kept us safe for eight years:

1. Abortion — Funding for abortion literature and help to abortion clinics. Remember, this is the same Barak Obama who told the Pope recently that he was against abortion. The man cannot be trusted. When he’s in Israel he assures Olmert that he is on their side. When he is visiting with Plalastinian Muslim and the Hamas he assures them he is not their enemy. Whose side is he on, anyway? Probably neither, which is a dangerous foreign policy position.

The new president has lifted a so-called global gag rule barring international family planning groups that receive U.S. aid from counseling women about the availability of abortion.

2. Repeal the Ronald Reagan Star Wars Defense System. This is an insanely dangerous move, but it will also likely be followed up by an announcement that Obama will not carry out Bush’s plans to ring Eastern Europe with defensive missiles. That would be a foolish mistake, a sure sign of weakness that could invite Vladimir Putin to attack more Baltic States to gain back lost Russian territory. And how can The Ukraine, Finland and Poland feel good about that kind of misdirection which will be interpreted as weakness in the Kremlin?

3. Bush’s controversial limit on federal funding of embryonic stem cell research — controversial only in liberal views and accepted broadly in America where 90 percent of the people say they believe in God– a decision that scientists say has restrained research into some of the most promising avenues for defeating a wide array of diseases, such as Parkinson’s. Since anti-God people are in the minority in the U.S., Obama’s views on this and other issues is the one that may be viewed as the most highly controversial.

4. Environmental control. The “Green” movement.

As late as a month ago a spokeswoman said that “Before he (Obama) made any decisions on potential executive or legislative actions, he would confer with congressional leaders on both sides of the aisle, as well as interested groups.” The bipartisanship on which Obama ran has already been breached. Republican congressman John Bahner of Michigan said much of the Rupublican House opposition to the $825B bailout bill is because Democrats in the House did not consult with Republicans and allow them to offer counter proposals in the spirit of bipartisanship, but forged ahead alone, drafting a bill that they hoped to stuff down the throats of Republicans and “blue dog” Democrats.

Blue Dog Democratic Coalition is a group of 47 moderate and conservative Democratic Party members of the United States House of Representatives.[1] The Blue Dogs promote, among other things, fiscal conservatism and accountability. Many members come from conservative districts, where liberal Democrats comprise a decided minority of the general population.[citation needed] In 2006, Blue Dog candidates such as Heath Shuler and Brad Ellsworth were elected in conservative-leaning districts, ending years of Republican dominance in these districts.

The Blue Dogs are the political descendants of a now defunct Southern Democratic group known as the Boll Weevils, who played a critical role in the early 1980s by supporting President Ronald Reagan‘s tax cut plan. The Boll weevils, in turn, may be considered the descendants of the “states’ rights” Democrats of the 1940’s through 60’s.

The Blue Dog Coalition was formed in 1994 during the 104th Congress to give more conservative members from the Democratic party a unified voice. The Blue Dogs are viewed by some as a continuation of the socially conservative wing of the Democratic party prominent during the presidency of Harry S Truman. But the only stated policy position of the Blue Dogs is fiscal conservatism, and many of the members of the coalition hold liberal views on social issues such as abortion, stem-cell research, and gay rights.

Bush’s August 2001 decision pleased religious conservatives who have moral objections to the use of cells from days-old human embryos, which are destroyed in Abortion.

Obama is trying to walk both sides of the moral issue street, having had the first openly gay Episcopal bishop offer a prayer at the Lincoln Memorial at an inaugural event, for example. This choice was likely a political response to criticism of Obama for selecting anti-gay marriage pastor Rev. Rick Warren to give the invocation at his January 20 inauguration, according to Western blog.

Warren backed the ban on same-sex marriage that passed in his home state of California on the November ballot, said Newsmax. In trying to keep social conservatives and social liberals happy simultaneously, Obama will likely come to look weak and indecisive.

When Bill Clinton took office in 1993, he rescinded the Reagan-era regulation, known as the Mexico City policy, but Bush reimposed it, said Cecile Richards, the president of Planned Parenthood Federation of America. This is part of the “real change” promised by Obama during the election.

While Obama maintains that his top priority is to stimulate the economy and create jobs, his advisers say that focus will not delay key shifts in social and regulatory policies, including some — such as the embrace of new environmental safeguards — that Obama has said will have long-term, beneficial impacts on the economy.

The president has said, for example, that he intends to quickly reverse the Bush administration’s decision last December to deny California the authority to regulate carbon dioxide emissions from automobiles. “Effectively tackling global warming demands bold and innovative solutions, and given the failure of this administration to act, California should be allowed to pioneer,” Obama said in January.

California had sought permission from the Environmental Protection Agency to require that greenhouse gas emissions from vehicles be cut by 30 percent between 2009 and 2016, effectively mandating that cars achieve a fuel economy standard of at least 36 miles per gallon within eight years. Seventeen other states had promised to adopt California’s rules, representing in total 45 percent of the nation’s automobile market. Environmentalists cheered the California initiative because it would stoke innovation that would potentially benefit the entire country. However, Detroit has already signaled difficulties coming in maintaining their auto production while trying to produce more gas efficient and less polluting cars.

“An early move by the Obama administration to sign the California waiver would signal the seriousness of intent to reduce the nation’s dependence on foreign oil and build a future for the domestic auto market,” said Kevin Knobloch, president of the Union of Concerned Scientists.

Before the election, Obama told others that he favors declaring that carbon dioxide emissions are endangering human welfare, following an EPA task force recommendation last December that Bush and his aides shunned in order to protect the utility and auto industries.

Robert Sussman, who was the EPA’s deputy administrator during the Clinton administration and directed EPA transition planning for Obama, wrote a paper last spring strongly recommending such a finding, but that doesn’t make it true. Others have written opposite position papers. It as an issue on which Obama is keen to show that politics must not interfere with his brand of scientific advice.

Some related reforms embraced by Obama’s transition advisers would alter procedures for decision-making on climate issues. A book titled “Change for America,” published by the Center for American Progress, an influential liberal think tank, recommends, for example, that Obama rapidly create a National Energy Council to coordinate all policymaking related to global climate change.

The center’s influence with Obama is substantial: It was created by former Clinton White House official John D. Podesta, a co-chairman of the transition effort, and much of its staff was swept into planning for Obama’s first 100 days in office.

The National Energy Council would be a counterpart to the White House National Economic Council that Clinton created in a 1993 executive order.

“It would make sure all the oars are rowing in the right direction” — actually the direction would be due left — “and ensure that climate change policy “gets lots of attention inside the White House,” said Daniel J. Weiss, a former Sierra Club official and senior fellow with the Center for American Progress Action Fund.

The center’s new book urges Obama to sign an executive order requiring that greenhouse gas emissions be considered whenever the federal government examines the environmental impact of its actions under the existing National Environmental Policy Act. Several key members of Obama’s transition team have already embraced the idea.

Other early Obama initiatives may address the need for improved food and drug regulation and chart a new course for immigration enforcement, some Obama advisers say. But they add that only a portion of his early efforts will be aimed at undoing Bush initiatives.

Despite enormous pent-up Democratic frustration, Obama and his team realize they must strike a balance between undoing Bush actions and setting their own course, said Winnie Stachelberg, the center’s senior vice president for external affairs.

A large part of the Democrats’ frustration is their self-imposed hatred for George Bush and the conservative Republican agenda. They have told themselves for so long that Bush was doing a bad job that they have started to believe it. Unfortunately, some Republicans bought onto that line also, and apparently, like sheep, voted for Obama, which is unfortunate.

“It took eight years to get into this mess, and it will take a long time to get out of it,” Stachelbergerg said. But not as long as they think, especially if Obama continues on the torrid pace he has set in turning over conservative policy.