by John Browne, Senior Market Strategist at Euro Pacific Capital
Following the huge gains made by Republicans in the midterm elections, it was widely expected that President Obama would use the State of the Union address to signal a major policy shift toward the center of the political spectrum. On the surface, at least, he appeared to do just that, hinting that he took budget management very seriously and that Americans should be prepared for shared sacrifice. However, as the final applause still echoed in the House chamber, many astute pundits were left trying to make sense of the many contradictory policy prescriptions the President proffered.
Classical political maneuvering dictates that when clouds are grey, politicians must offer good news, tell jokes, and remind us warmly of our childhood (or in Obama’s version, America’s triumph over Russia in the Space Race). Disclosure of specific measures should be avoided at all costs. President Obama followed these tactics closely.
While he did address plans to cut non-defence, discretionary federal spending – a small fraction of the overall budget – the President also announced his intention to increase spending on several existing and new initiatives. The scope of the new initiatives will surely eclipse the modest cuts pledged.
by Michael Pento, Senior Economist at Euro Pacific Capital (www.europac.net)
The Fed’s lucky streak of luring bond investors with low interest rates may be drawing to a close. Nevertheless, the extended period of low borrowing costs has bred a new breed of investor. To the bulls and bears, we can now add the ostriches – those who bury their heads in the sand of declining debt service ratios while refusing to face up to intractable levels of total US government debt. If these ostriches were to actually look at the numbers, they would realize that it is their investments which are made of sand.As the issuer of the world’s reserve currency, the US government has enjoyed the benefits of low interest rates despite its inflationary practices. When we run a trade deficit with a country like China, they have a strong incentive to ‘recycle’ the deficit back into our dollars and Treasuries. This practice has hidden what would otherwise be much higher borrowing costs and much lower purchasing power for the dollar. This artificial price signal allows people like Paul Krugman to claim that the Obama Administration’s stimulus programs should be much larger. Because our yawning fiscal deficits have not driven bond yields significantly higher, he sees no reason to curtail spending. Krugman wants to spend like its World War III, and then has the nerve to call those worried about the budget mindless zombies!
Krugman is just one partisan Democrat shouting at mirrors, but the misunderstanding has struck the right-wing as well. Last week, in a debate with me on CNBC’s The Kudlow Report, Brian Wesbury, Chief Economist of First Trust Advisors and writer for The American Spectator, claimed that our $9.3 trillion national debt is of little consequence because our GDP is a far greater. However, he failed to note that our $14.7 trillion of GDP only yields about $2.2 trillion in revenue for the Treasury. To fully access that entire GDP, the government would have to raise all tax brackets to 100% without producing any reduction in output or decrease in revenue. This is, of course, preposterous. As was demonstrated in the 1970s, even small increases in marginal tax rates have a substantial negative impact on output. A healthier appraisal would center on the fact that our publicly traded debt is now 422% of our annual tax revenue.
John Browne, Senior Market Strategist at Euro Pacific Capital
Given all that stress that the Federal Reserve’s currency debasement program is laying on the global economy, last week’s G-20 summit in South Korea should have been the monetary equivalent of a military degradation for the U.S. dollar. The greenback should have been slapped across the face, stripped of its medals, and cashiered from the ranks of respected currencies. Instead the dollar escaped unscathed, retaining its privileged status as the world’s reserve.
However, the meeting did have its dark moments for America. The troubles starting even before the summit began with the failure of president Obama to conclude a long-planned trade deal with South Korea. Once the G-20 meetings began in earnest, the United States made scant headway with its main initiative to pressure the Chinese on Yuan revaluation. Just when it looked like the dollar would benefit from strife in Europe, a joint statement by key European leaders signaled that potential problems within the euro-zone may have been averted. In other words, nothing from this meeting should give any confidence that the dollar has a bright future.
In reading local newspapers and channel surfing through TV political commentary programs, it is quite apparent that the Mainstream Media has taken on the Herculean task of trying to discredit the Tea Party movement. With the results of the recent national election in hand, media pundits try to claim every Republican loss as attributable to their meddling and every Democrat win a repudiation of their beliefs. Tea Party-supported victors are seen as an anomaly.
But nowhere is this new crusade more evident than in the Mainstream Media’s newly-concocted premise that the Tea Party was responsible for Republican losses in the Senate. Christine O’Donnell, Sharon Angle, and Ken Buck were all puppets of the Tea Party and all losers at the ballot box, so they got theirs. Ha-ha!
Nevertheless, if one swallows the Mainstream Media’s thinking, it must then follow that the Mainstream Media itself was responsible for the Democrat losses in the House. While Tea Party miscalculations might have contributed to Republican defeats, it appears that Keith Olberman’s secret Democrat donations, Chris Matthew’s thrill up his leg, and the open bias seen in the body language of news anchors of the Top Three television networks all worked together to defeat the Democrats pulling Nancy Pelosi’s rickshaw.
But what a spectacle America was treated to in the days before November 2nd and what a comparison between these two competing titans: if the Tea Party was strident, the Mainstream Media was shrill; if the Tea Party was energized, the Mainstream Media was dour; if the Tea Party looked away from the establishment, the Mainstream Media was the establishment; if the Tea Party labored for free, the Mainstream Media feasted off campaign advertising revenue; and if the Tea Party fought for the freedom inherent in capitalism and democracy, the Mainstream Media worked to enforce the enslavement built into big government and socialism.
The Tea Party represented the spirit of independence that wrested this country from wilderness and brutality, the Mainstream Media represented the sloth and oppressiveness of the British Monarchy.
Given the choice, was it really the Tea Party which lost in this election or the Mainstream Media?
As high profile White House personalities like chief of staff Rahm Emanuel and chief economic advisor Larry Summers hog the spotlight as they leave the Obama administration at midterm, there are also lesser known, yet just as important, figures departing. They have toiled tirelessly in their positions but now merit nary a glance from the press as they exit through the wide White House doors.
For example, there is Albert Springwater, who is the president’s teleprompter cleaner. “It’s a very important job,” he says. “Without a clean and readable screen, the President might go from talking about oil drilling to reciting the Gettysburg Address. In fact, I let one of my assistants go the other day when, because of careless wiping, the president mistook the word ‘France’ for ‘Venezuela’ and threatened to put a sea blockade on Paris.”
But what really lured him away from his prestigious White House job? “There was an opening at Best Buy that I just could not ignore. Aisle after aisle of TVs waiting to be dusted off and sprayed with glass cleaner. How could I pass up an opportunity like that?”
Yes, someone said these words to me today, “If Obama says it, it must be true!” And the guy wasn’t being sarcastic. I couldn’t help but reply with, “Obama is full of shit” and then I pointed him to the following by Matt Welch at Reason.com:
Between 2001 and 2009 [...] a very specific philosophy reigned in Washington: You cut taxes, especially for millionaires and billionaires; you cut regulations for special interests; you cut back on investments in education and clean energy, in research and technology. The idea was if we put blind faith in the market, if we let corporations play by their own rules, if we left everybody to fend for themselves, America would grow and America would prosper.
That was the philosophy that was put forward. For eight years, we tried that. And that experiment failed miserably.
Important note: Obama is full of shit.
Somehow this has become Obama’s minions favorite arguments. This is a very dangerous lie if left unchecked. If the “previous 8 years” were a period of deregulation and lower spending according to Obama then what are the next 8 years (at this point it looks like it may be only 2 more) going to look like? Of course, Obama doesn’t call it “spending”. He calls it “investment”. Here’s a newsflash for our president. Investment that shows a 0% or negative return is really just a nice way to say that you wasted a bunch of money (ie. spent it).
And it needs to be pointed out yet again that the money he is talking about wasting (sorry, investing) is yours and mine, not his.
I’m not sure how they got the hidden cameras in the room, but here is Peter Schiff, donning a cowboy hat discussing economics with President Barack Obama. There seems to be something odd about their speech patterns and use of profanity though. This must be how they talk when they think cameras aren’t around.
To paraphrase what I heard in Barack Obama’s speech earlier tonight…
- We’re bringing our combat troops home from Iraq… and sending them to risk death in other no-win wars.
- But we’re gonna keep about 50,000 troops in Iraq to… do what they’ve already been doing since around 2005… nation-building.
- Sometime in 2011 we will remove all U.S. military troops from Iraq (yeah right) but we will leave behind a private “force” to continue our nation-building there.
- Though George W. Bush was a patriot and we may have disagreed on a bit of foreign policy minutia we are in large agreement that we must continue breeding hatred for all things America by shifting our focus toward different faux-monsters to destroy in far away lands.
- Yes, like George W. Bush, I have trouble going to sleep at night because there are terrorist monsters under America’s bed. I don’t care if you can’t see them when you turn on the light and look. They are there! I swear!
- We spent far too much money on the Iraq War so we must bring it home and spend it on entitlement programs then borrow perhaps another trillion or so to copy our Iraq effort in Afghanistan and who knows maybe we’ll do the same in Iran or Pakistan a bit later. This will be sure to help our economy here at home.
- God Bless America because we need all the help we can get with me as your president.
- You should have all voted for Ron Paul. Let’s hope you get another chance in 2012.
That about sums up what I heard from President Barack Obama tonight. The non-paraphrased version is available too. I assure you there is not much different than my condensed version except for maybe that last Ron Paul bit.
Quote of the Day: “If the government can provide affordable, quality medical coverage for all Americans, let them prove it by providing it to our veterans.” – Unknown
In this message . . .
* How I lost my doctor
* Terrifying statements from the new head of the Centers for Medicare and Medicaid Services
* Plus, a special offer from NullifyNow.com
The Democrats promised us lots of things about their healthcare bill (just like the Republicans promised us lots of things about Iraq). For instance . . .
* If you have insurance you like, it won’t change
* If you have a doctor you like, you’ll be able to continue seeing him or her
Well, how are those promises working out for you?
Personally, my insurance hasn’t changed, YET, but my doctor has.
My “liberal Democratic” doctor probably cheers most of the Social-Fascist policies proposed by his favored political party, except that the healthcare bill happened to gore his personal ox. The result is that he has stopped . . .