Cold Hard Facts

Posted by Jeff Carter
on July 29th, 2010

Obama went on The View today to tout his accomplishments. If you are a left wing liberal, he certainly has put some cherry in your pie. If you are independent, or if you are on the right, it’s more like a cowpie.

One interesting thing Obama said was that he was out there creating jobs. Every President says that, and every President is incorrect in making that statement. Presidents don’t create jobs. Private industry is the economic engine that creates jobs. In the Obama presidency, private industry has shed jobs. Government employment has increased.

It is incredibly costly to hire a government employee. Not only are there stringent standards for hiring that, but there are stringent standards for firing. Government employees also enjoy a virtually riskless retirement with consistent high pay raises year after year. Government benefits are extremely costly. The private sector does all of these things far cheaper.

The stimulus has been a big fat zero. Spinmeisters on the left are now saying that if we didn’t spend all that money, we would be in a Depression. They are parroting the typical Keynesian line.

There is no doubt that if we did nothing back in March of 2009, and in October of 2008, we would have had a very difficult time. However, one of the reasons the mess was so deep was the actions of government in the first place. From the Federal Reserve, to Fannie and Freddie, in addition to the regulatory agencies dropping the ball, the government was the foundation for the crisis. Government action so far has kicked the can down the road. We can have the same type of financial disaster again.

Capitalism works, if one lets it. If Goldman et al would have went under, there would not have been a void for long. Hedge funds, Venture funds, Private Equity and smaller healthier banks would have come into that void. Patrick Young in his book, The Capital Market Revolution, said that pre 1900, there were no large investment banks in the US. He also hypothesized that in an interconnected internet society, structured investment banks are probably not relevant. It is certainly possible to make that argument today.

The real problem now is the extension of the government apparatus that Obama has created via Obamacare and Fin Reg. Virtually every federal agency has added staff in the economic downturn.
This is untenable. Eventually, the US does become Greece. Americans think it can’t happen here, but debt markets are not patriotic or ethnocentric. The bond vigilantes will make you pay. If there are LEAPs on bond puts, you ought to look at buying them. Once deflation stops-inflation will return. For some people at 1600 Pennsylvania Avenue, that will be a surprise.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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