Friday, October 30, 2009

Obama's Economic Plan - Trick or Treat

The Obama Administration continues to hope against all odds that the recession is over citing a few positive indicators while ignoring negative indicators in an effort to spin the news. Christina Romer, who chairs the President's Council of Economic Advisers is hanging her hat on the fact that business in the third quarter increased spending on new computers and software at an annual rate of 1.1%. Like that is a big deal. Computers are typically replaced systematically based on a useful life schedule not some big corporate buy decision. Mrs. Romer, who is an academic personality not a businesswoman from the real world, has concluded that this is a "sign" of the private sector getting some confidence back and starting to rebuild the capital stock. The fact that consumer confidence is at an all time low, which is far more significant, seems to be lost on Mrs. Romer. Well let me tell you, I work in the business world and I can say without any hesitation that the recession is not over and that more jobs will be lost in the months ahead. Let me tell you why.

The economy expanded in the third quarter by 3.5% on an annualized basis that was the result of the Cash for Clunkers and Home Buyers Incentive Programs under the SwindleUS Plan, which bribed consumers to buy cars and houses that they might have bought anyway in future months. All this did at considerable tax payer expense was accelerate demand not create new demand. In fact, Edmonds, the car experts, estimates that out the roughly 700,000 primarily foreign cars that were sold under Cash for Clunkers that about 150,000 purchases represented new sales that may not have happened anyway. So the real cost for this program was about $24,000 per car sold paid by the government in deficit spending to generate these sales. The Homebuyers Incentive has stimulated sales at a cost of up to $8,000 per home and as a result this program has apparently be extended until next April, which is a good thing because foreclosures are rising with no end in sight. Otherwise, with the exception of the minimal tax cuts that came from Obama's SwindleUS Plan, Obama economic plan has down little or nothing to end the recession.

Matter of fact, the FHA (Federal Housing Authority) is apparently sitting on about 1,000,000 mortgages that are delinquent. When these homes are foreclosed, it has been estimated that it will cost the government about $50 billion. And, that should be no surprise since Obama's Economic Plan has not created new jobs and there are about 17% of Americans, the real number and growing, that are unemployed. In addition, the next big shoe to fall will be commercial properties. Since the commercial vacancy rate is skyrocketing, which devalues commercial buildings, it is impossible to refinance these structures when loans come due. Many of the buildings are going back to the lender in foreclosures, which will wreck their balance sheets. As a result, there will be many more bank failures in the months ahead.

The FDIC, which is bankrupt, is trying to manage these bank failures so that they don't hit the street all at once. In fact, the FDIC needs $35 billion to deal with all the bank failures that have already happened and the money is just not there. So the FDIC is pre-billing surviving banks insurance fees to try to cover this $35 billion. This is taking money from banks, which will not have this money to lend and or to stabilize their balance sheets. This is all a vicious circle that when combined with all the other Obama Socialist schemes mean just one thing; job losses and continued recession.

As someone who works with major corporations throughout the US and around the world, I can say that major US companies for the most part are just not hiring new employees. And, the reason the US stock market is up is that US companies have laid off 6 million employees since Obama was elected President, which has seriously reduced expenses causing higher profitability not because business is up. As such, forget about Mrs. Romer and other Obama Administration officials attempting to spin the data. This recession is not over until I say it is over. And, that will not happen until I see American companies hiring again. You all will be the first to know when I see it happening.

The UCLA Anderson School of Business is projecting GDP growth in 2010 of just 1.7% not nearly enough to stop the lay off's and get companies hiring again. A growth rate of 3% or higher is need to spur job growth. And, until we have job growth, we can't stop the vicious circle and that will not happen if Obama and crew continues down the path of tax increases, trillions is deficit spending and more government regulation. CAP and TAX and HealthScare in particular are job killer bills. So, President's Obama's Economic Plan is a lot of trick and very little treat, in keeping with Halloween, except that it will not be over on November 1.

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