Archive for June 2011

Is President Obama Naive?

June 30, 2011

I am seeing a number of suggestions and comments that claim President Obama is naive.  I don’t think so, but I can see why some would suggest that.

The President promised that Washington business would not be as usual, and partisan politics were over.  After 2 1/2 years in office, things do not look much different.  Is this because he is naive?

In a dysfunctional relationship, it takes at least two.

The current basis for most all Congressional members to remain in office is, at its heart, only remotely in the interest of American tax payers.  It is very difficult to dine sumptuously from the public troth and still serve the tax payer honestly.

Congress members are about getting reelected and in the process improving their own personal wealth.  This is no different than anyone else in the public sector, except Congress members have been elected to serve first.

It should come as no surprise then that the President is locked hopelessly in a battle with Congressional Republicans (and some liberal Democrats).  Each of these Congress members needs to appease key constituents who hold the means to finance their reelection.  Compromise and, dare I use the words, “personal sacrifice” are not part of this game.

The President is well aware of this situation.  His style is not “in your face”.  As a consequence, he must use committees, commissions, and study teams to vet issues.  These are all doomed to failure but they are building a consistent record of the President trying.

The President’s tactics have also another aspect.  Like a chess master, President Obama has allowed Republicans to cook their own goose.  Representative Paul Ryan put forth the Republican fix for Medicare and Medicaid.  Not content to just push costs onto those with fixed incomes, Ryan proposed tax cuts for the wealthy at the expense of Medicare recipients.  In the debt ceiling debate, Republicans are hanging tough on no tax increases even when presented with tax loop holes that favor only the very wealthy.

The President has cleverly enabled Republicans to define themselves.  Once again they have stepped forward as the party of the rich who view the rest of us as second class.

Barack Obama is anything but naive.

A Failure To Communicate?

June 29, 2011

President Obama met with Senate Minority Leader, Mitch McConnell, and came away with no breakthroughs.  McConnell maintains that tax increases are off the table during the current debate over raising the US debt ceiling.  This is not a new demand, so what part of “no” did President Obama not hear?

When lenders begin to fear they will not get repaid for their loans to a sovereign power, their first action is to raise the interest rate on all new loans.  Suddenly the debt service begins to seriously crowd out other government spending, unless, of course the government does not borrow even more.

So far, lenders have been very willing to loan the US all the money it wants, and at very low interest rates.  This speaks volumes about what other options are available to big time lenders.

Sooner or later, however, some lenders simply say “no more”.  When that happens the borrowing country is between a rock and a hard place.  They cease to have a source to continue their rate of expenditures.  Without a sharp reduction in expenditures or a marked increase in taxes, they are soon in bankruptcy.

Some countries ask for interest “holidays” where they do not pay any interest for some period.  Investors do not like this.  Others ask for “forgiveness” where lenders agree to forfeit some amount of principle they have loaned in return for payments on the rest.  Investors really don’t like this options.

But in bankruptcy, what other options does a lender have?  Consequently, lenders try to pressure governments to impose rapid solutions to their running deficits.

This week we are seeing a modern country struggling with massive debt.  Greeks took to the streets with violent protests over proposed cuts in entitlements, government jobs, and other benefits coupled with tax increases.  “No way”, Greek protesters cried.

The EU has said that without significant cut backs in Greek Government spending along with increases in taxes, they would not extend any more loans (even at the higher interest rates).  No more loans is the death sentence for the Greek economy.

The amazing aspect of these demonstrations is that the cuts in government jobs and benefits will take place whether Greece can qualify for more loans or not.  In fact if Greece defaults, it is arguable that the impact upon Greek citizens will be more severe.  In default, the government will have too little money to maintain the rich entitlements Greeks have come to enjoy.

The US situation has many similarities.  Congress continues to spend more than it brings in taxes.  Congress continues, for political reasons, to avoid dealing with entitlements, defense spending, and tax code loop holes.

Somehow I think that the American public could understand the argument to reduce spending and increase tax revenues if only it would be made.  Greece could have averted their current situation by having discussed their situation openly with Greek citizens several years ago.  (The current Greek crisis is not a new event, it has been brewing for several years.)

The issues in both the US and Greece are similar.  Spending more than a country takes in taxes will eventually bankrupt any country.  Failure to deal both with spending and taxes fairly makes finding a solution extremely difficult.  Electing public officials whose higher priority is maintaining their elected jobs is a country’s death wish.

It is these officials who contribute mightily to the failure to communicate.

The Unintended Losers

June 28, 2011

We are approaching a reality check in Iraq.  The remaining US military presence is scheduled to end in the coming months.  Public hinting by Defense Department personnel that the US would stay if asked has gone unheeded.  This is a blessing although we might not appreciate it now.

Iraq is one of the “make believe” Middle East countries cobbled together by the British.  Their unstated goal was to combine together bits of lands and peoples into a new country.   They would be destine to remain un-united and therefore powerless to pose a threat to British interests.  Afghanistan is another.

After spending the better part of $1 trillion in borrowed money and wasting the lives of over 4000 Americans, the Iraq invasion and occupation is ending.  When it does, the US and the world will see reality.  Kurds, Sunnis, and Shiites cannot live together unless one has a club over the head of the others.

The un-intended loser will be all those American military members who went there with noble and patriotic purposes in mind.  These soldiers cannot be blamed because they thought they were on a purposeful and valuable mission.  This is what the Cheney-Rumsfeld crowd told them.  When the last American leaves, however, another reality will emerge.

Iraq is a dismal failure and a travesty for everyone involved.

Afghanistan will end in the same manner, someday.  There can be all sorts of unpublicized reasons for occupying those countries.  Iran, Middle East peace, Pakistan, and the Taliban will all be quietly whispered as threats to world peace.

A careful assessment, however, will conclude the US’ expeditions in both these countries were a waste of time… except for the munitions makers.

It’s All How You Look At It

June 27, 2011

This past weekend saw celebration in New York’s (and many other States’) gay communities.  With the passage of same sex marriage, New York has made a loud statement about the legitimacy of gays and their right to equal treatment under the law.

It is not that long ago that most of America held that gay life styles were acquired behavior.  In fact many held that gays could “unlearn” and become straight.  Some prayed for this and others within religious communities encouraged this false belief.

Little by little Americans have learned first hand, through a close friend or relative, that gay people are everywhere.  Even more surprising is they are talented and do not seek out straight people to “hit” upon.  Americans, now are realizing that being gay is as normal as being straight.

Under those conditions (that is being gay is normal), then what is the basis to deny gays any rights normally accorded straights?

We are told the bible calls homosexuality an abomination.  Marriage is a union between one man and one woman.  Interestingly, church goers seem to contribute more when their priest or pastor tells them homosexuality is a disease at best, or a chosen and disgusting life style at the worst.  For religions, gays are a perfect target since they are a minority.  To the casual uninvolved observer, however, these religions are a perfect example of ignorance and hypocrisy.

It will be interesting to see how these same sex marriages work out.  Will male-male or female-female unions last longer?  Will these marriages suffer the 50% divorce rate heterosexuals currently enjoy?

In the end, it will make no difference, these marriages or unions are simply legal contracts that can be revoked.

We may need another 10 years before a majority of States grant same sex marriage.  Ignorance and hypocrisy will still be going strong even then.  We are humans after all.  But just as it was a good bet the earth wasn’t flat, denying some committed couples the rights accorded under marriage laws just because they are of the same sex, is not a good long term bet either.

Don’t Flinch This Time, Too

June 26, 2011

The Republican and Democrat debt ceiling limit negotiating team has disbanded.  They were not successful in their attempt to gain a compromise.  Rumors are that talks collapsed because Republicans insisted upon no tax increases.  As the current debt ceiling limit deadline approaches, President Obama has a chance to try again.  Last December, he flinched (sort of) and agreed to allow no tax increases for the wealthiest of Americans.

His compromise to keep in place the Bush tax cuts was short term brilliant.  The compromise package pumped about $600 billion into the economy but of course put the same amount of pressure on the national debt.  There are no free lunches.

There is no route either through straight tax increases or straight budget cuts foreseeable to eliminate the deficit.  One hundred percent of either will cripple the country.

Republican leaders are between a rock and a hard place.  Intellectually they realize there must be tax increases.  A small but financially loaded fanatical minority has hijacked the Republican party on this issue as well as on social conservative ones.  It is with the risk of ones personal political life for any Republican to voice support for tax increases.

Ironically, President Obama has a strong hand.  He needs to make clear to the public that he would support deep cuts.  He must then make clear that tax increases must accompany any budget cuts so that the burden is shared fairly.  Let the Republicans call his hand and let’s see what happens.

There is a small chance that nothing will happen.  In other words, world lenders just sigh and say “ok, we will wait to be paid”.

The far greater prospect is that world capital markets will freeze.  We will see a return to the near financial sector implosion of 2008.  Much of the Republican moneyed base will see their worlds collapsing (as will the rest of us as 401k’s crash again).  The day of reckoning will have arrived.

The silver lining might be that common sense might return to enough of the country.  If so, expect a house cleaning in 2012 with dogmatic Republicans once more denounced as unfit to lead.  While we would expect Tea Party types to try valiantly, I would expect that “Jon Huntsman type” might emerge as the future for both parties.

In the darkest of possible scenarios, the depths of a world depression might take some of the glow off the emergence of a new political movement.

 

A Voice Still Missing

June 25, 2011

Crossroads GPS announced a new round of political ads this week.  With no election this year, what is Karl Rove thinking?

Rove is a long time proponent of the principle “say it long enough and loud enough” and people will hear it and believe it.  Rove has never worried about whether his messages were true or not.  In fact, most of his messages are carefully designed to spin events in a more favorable direction.  Truth, what is that?

The timing of this latest round of American voters edification begs the question, where is President Obama’s voice?

The President has largely lost or neglected the rhetorical mastery that marked his 2008 campaign.  He has sounded more as a professor at best or an almost disinterested arbiter at his worst.  His messages have lacked a thread of connectivity.  His voice has expressed a pent up frustration “why don’t Americans already know that?”

Looking at the George W Bush years, one can somewhat understand President Obama’s frustration.  In the beginning, Bush praised Enron’s entrepreneurial style, essentially finding ways to make money where others had not.  At the end, Bush turned white at the near total collapse of the world’s banking system resulting from the unregulated US derivative market.  This time American bankers and investment guru’s had found ways to “make” money that no one else had found before.

The most basic lesson in business is that if in the spirit of making things better you decide to put holes in the boat, just do not put any holes below the waterline.

President Obama has been a prudent and careful  leader.  His Administration has pursued sensible although conservative approaches to the nation’s problems.  Yet, hardly anyone has that impression.  In fact opinion polls while favorable to Obama himself, give him poor marks on his leadership and the overall direction of the country.

The President badly needs a progressive Karl Rove.  President Obama needs someone to write his narrative and for the next 18 months he’s got to stick to it.  A return to Republican leadership and the policies that did not work before (and will not work this time) would cement the course to second class status for our country.

The narrative, of course, is written to be understood by average Americans.  It is not a speech just for union workers or one just for bankers.  It is a story about how America can work for everyone.

This is not a pipe dream.  Those who write that America’s reign is over may be speaking prematurely.  Look around and tell me which country has the where with all to replace the US we remember?  Even China has so many severe problems that surpassing the US can only result from one thing.  That one thing is if the US implodes first.

Expanding the gap between the rich and the poor, rationing health care on the basis of who can afford it, discarding the sick and the elderly, abandoning the infrastructure, and ignoring the need to educate are all policies that will lead to self induced implosion.

Why can’t the Obama team write a narrative about that and put their actions and policies in perspective?

Deal or No Deal?

June 24, 2011

The gang of six minus one broke up yesterday when the Republican members walked out.  The gang had been wrestling with finding an agreement on how to raise the federal debt ceiling.  Rumors had it that the gang had agreed upon $4 trillion savings over 10 years but could not agree on tax increases.

Details were not made known but it is safe to say that $400 billion a year will not eliminate the deficit.  The result will be the debt will continue to grow but at a rate lower than otherwise anticipated.  I wonder what the stumbling points were?

First and most obvious would have been the Republican pledge “no tax increases, no way”.  This flies in the face of common sense and demonstrates an example future generations should not learn.  America’s greatest generation in WWII sacrificed everything to fight a war that they did not create but threatened America’s existence.  They did not saddle or pass the problem on to their children and grandchildren.

Today, America has a $14 trillion debt and a slowing economy.  We will not grow our way out of this hole.  Real patriots would do two things.  First they would say “no more”, it will be balanced budgets or nothing.  Second, they would say “let each of us do our part to reduce or eliminate the debt so our children and grandchildren inherit a clean sheet”.

Second, the gang would not have acted like the Medicare/Medicaid crisis did not exist.  This is understandable since the Federal Government cannot fix the Medicare/Medicaid situation without reducing recipient coverage to a meaningless level, or transferring so much of those programs’ costs to the receiving individuals that they would voluntarily cease using those plans because they could no longer afford them.

The gang recognizes (but does not say it) that Medicare and Medicaid are too hot politically to touch, and that any fix begins with a reform of our private health care delivery system.  Until annual health care cost increases become less than the rate of inflation, there can be no fix for Medicare/Medicaid.

It is not over until it is over.  So it is possible that the “walk out” is just part of Washington theatrics.  We will see soon.  The day of debt reckoning is coming soon.

Breathing Life Back Into American Corporations

June 23, 2011

It has probably always been this way.  It is just that I never saw things the way I see them today.

There is a massive malignant disease sweeping across America.  It is called the “I know its not right but why not try it” disease.  Most of our wealthy and aspiring to be wealthy have contracted this disease.  The prognosis is not good.

The symptoms present themselves as a passionate defense of lower taxes and sharply reduced government spending.  Those with this disease become fiery red when presented with the notion of paying more for their government services.  The diseased ones almost explode at the notion that they must in some way bare the burden of reducing the already amassed $14 trillion debt.

They, interestingly, also show a loss of hearing when confronted with the hardships others must bare from lower taxes and less government spending.  Often these diseased faces turn red, white, and blue while they babble about how great America is.  I am not sure why.

Things might be different if the US economy was bussing.  With a better economy, there would be higher tax revenues.  In today’s lack luster economy, American corporations are not producing enough good paying jobs.  This is often viewed as a chicken and egg problem.  Which comes first, good (skilled) workers or good (well paying) jobs?

In any case, not enough workers are employed and those employed are not earning enough money.  Net result is lower tax revenues.  One example is that 47% of American households paid no Federal income tax because they did not earn enough to qualify!  This is a huge red flag.  No wonder the load seems to be getting heavier.

How can we stimulate growth in American corporations?

Looking deeper, jobs come from two primary sources.  Companies that make, mine or grow things (Apple, Exxon, ConAgra for example), and everyone else who services (like banks, Staples, and Starbucks) these industries and the employees of both sectors.

Companies that make things today have large amounts of cash on their balance sheets and yet seem unwilling to invest in new equipment or hire new staff.  While there are many reasons for this, such as prudent respect for low demand, our history is full of examples of industries investing on the idea that “if you build it they will come”.  This is about entrepreneurs seeing the unanticipated demand.

Hidden among the today’s many reasons for lack of investment and creating new jobs is the corporate “Jekyll and Hyde” relationship with Wall Street.  Wall Street is important to corporations because that is where most get large amounts of their capital.

Too many corporate executives, however, seem to prefer to simply to play the street.  Their goal is stock appreciation and the fast money from options and stock holdings.  There are other executives who also love stock options, but fear the relentless Wall Street demand for next quarter’s earnings to beat this quarter’s.  This fear often drives poor investment decisions and promotes the chasing of short term shallow goals.

The net result is that American industry is serving more those who want to strip it bare.  Real growth and resulting job creation comes in second to stock appreciation and capital gains.

So back to our disease discussion.  How can we stimulate increased tax revenues by creating more good paying jobs?

An un-obvious treatment might be to motivate long term growth by changing the tax rates on dividends (corporate) and capital gains (securities only).  If corporate executives focused on the long term, without an incentive for short term personal quick gains, we might see a return to the American business entrepreneurship we remember and miss.

Here the idea.  Make corporation common stock more attractive due to its dividend and less attractive for its potential capital gain.   Tax rates on corporate dividends would drop from being treated as ordinary income to a special rate of 10% while capital gains for securities would rise to 30% or the tax payer’s marginal rate (which ever was higher).

I do not know what impact this would have on overall Federal tax revenues.  My guess is it would be a wash.

The main thrust would be to stimulate, through the tax code, business conduct aimed at the long term.  Blue chip companies were built upon the long term.

As with any disease, medicines work only so long.  Further, once a patient has recovered, it is usually better to cease the medication.  In this regard, I would favor a reexamination of the dividend and capital gains tax rates once the deficit is erased and the national debt is reduced to under $4 trillion.

A Washington’s Dilemma May Soon Be America’s Dilemma

June 22, 2011

Jon Huntsman officially entered the quest for the 2012 Republican Presidential nomination yesterday.  He stood before the Statue of Liberty with his wife and 7 children and made his announcement.  As an optimistic sign, Huntsman said his campaign would occupy the “high road”.  He would not attack his opponents personally.

It is hard to say how far Huntsman’s campaign will get.  Even though he has personal wealth and his father has made billions, it will still be important for him to raise campaign money.  Without some early strong finishes or outright victories, Huntsman will not make it.

The good news is that there are still over 7 months until the New Hampshire primary.  The bad news is that is also a lot of time for other events to change domestic thinking.

It is also hard to understand how Tea Party interests will be met by Huntsman (or Romney or Pawlenty).  And there is no way Bachman can capture the Republican nomination given her extreme far right positions.  So, can Huntsman win the nomination with a divided Republican party?

Maybe, but at this point, that is purely an academic question.  It is just too early.

What is more likely, however, is that the real money of the Republican Party will stand up.  For them, a candidate more like George W Bush is wanted.  Someone who takes great pictures, wears nice suits, and does not do much thinking is ideal.  This type of candidate could unite the party and more importantly, when elected, be counted upon to support all Republican causes and special interests.  Where is that candidate?

Well why not look in Texas again.  It is not Ron Paul although he might be a hoot for 4 years as President.  Try Governor Rick Perry.  He has had an undistinguished a career as Governor (just as “W” had), takes great pictures, dresses well, and could be counted upon to please his backers.  Where does that leave Jon Huntsman?

For Huntsman, the Vice President spot would be there for the taking.  He would be the ideal ticket balancer.  For many independents, there would be a sigh of relief knowing Jon Huntsman was just one beat away from the Presidency.

Up to now big Republican money has not worried.  President Obama has been assumed the presumptive winner in 2012, and the President has moved so far to the middle that these conservative interests do not see the need to risk their money.

But public opinion polls are eroding for the President and the world’s problems are getting no easier.  There are hints now that President Obama might be beatable.

Once it appears probable that President Obama is beatable, candidates for the Republican nomination will be everywhere.  The hard core, big money, Republican center will not want to take a chance on Jon Huntsman (or probably any of the announced candidates).

Soon the sun will shine again on the lone star state.  Watch out, however, for the dark cloud that will float over the rest of America.

Contracting

June 21, 2011

Foreign policy can be a messy affair.  All too often, what’s in the US best interest does not match up well for the other country.  In some cases like Egypt, making available lots of money was all it took for President Mubarak too adopt a foreign policy towards Israel that pleased the US.  In other cases, like now in Afghanistan, the Afghan leaders have taken the money and tried to follow a “live and let live” domestic policy.  This is not what the US had in mind.

As the Middle East spring awakening took shape this year, the US was faced with a repeat of Iraq in 2002.  The chance to do regime change look there for the taking.  Colonel Kadaffi ranks in the first tier of despotic and unpredictable rulers.  Why not support the rebels and get rid of him?

Cooler voices counseled that US military strength was stretched too thin.  Use of American force should be out of the question.  Kadaffi would soon leave anyways, the reasoning went.

Events quickly showed that (1) Kadaffi was not going and from his personal perspective would be better off fighting for half a country than take a chance on a safe exile. (2) Rebel forces were not prepared to engage Kadaffi’s troops and any chance of overthrowing Kadaffi was remote.  (3) Kadaffi decided to show the rebels (and any civilians who happened to be in the area) who was boss.  Kadaffi looked as if he could regain complete control of the country and in the process kill thousands of innocent civilians.  What should the US do?

President Obama decided on limited military intervention and to “contract” out the fighting to NATO.  Out of a lot of bad options, this one look the most reasonable.

NATO meant that other countries would supply much if not most of the cost and forces.  NATO, more importantly, meant there would be a leadership face other than the US.  It also meant that military engagements would flow from a European command structure.

As the dust is settling in Libya, Kadaffi has found a deep hole someplace and seems to be weathering the storm safely.  NATO has been inconsistent in its strategy and tactics.  The rebels’ efforts seem to have stalled and they will require something more from NATO.

The most tragic consequence, however, has been that recently NATO has mixed up its tactics.  In search of “command and control” centers, NATO bombs have increasingly found civilian targets.  Since the US “outsourced” the Libyan conflict, the US must live with the consequences of its contractor, NATO.  Shall I call it an “unanticipated consequence”?

Hindsight being what it is, one might conclude that the safest position would have been to adhere to a policy of non-intervention.  Darfur and the former Yugoslavia are shining examples of the hazards of non-intervention.  So what is a President to do?

My guess is that there is no absolute strategy.  The President must make the best decision he can and then assess whether the strategy is working.  If not, he must adjust.  Non-intervention or intervention might appear to be wise.   Suddenly, given events on the ground, the selected strategy might turn out tragically.

With Libya, President Obama had better now be looking closely and have a “plan B” ready.  The time to back off may be closer than he thinks.