Obama Dresses US as Banana Republic

"After the cult of personality," the Colombian explained, "what comes next is nationalization." Fidel had nationalized the Cuban sugar mills, Chavez the Banco de Venezuela, Morales the Bolivian oil and gas industries.

..."The last step?" asked the Cuban. "Censorship. It won't be obvious at first--they're always too smart for that. But it will come."

"Never," replied the American. "We have the First Amendment."

"And soon enough," the Cuban said, smiling sadly, "you will also have the Fairness Doctrine." _Forbes

Latin Americans have seen the phenomenon occur time after time. They are repeat suckers for the big talking populist. But fter 8 years of GW Bush, 8 years of Clinton's finger, and 4 years of GHW Bush, the US was completely unprepared for a catastrophic populist socialism oozing from a reassuringly soft baritone that could lip-synch to a telprompter.

America is being put to the test. Can it wake up in time to stop the slow-motion cataclysm, or will it play dead to the dictator, as Latin America has done so well so many times? Because the real world of economics will not be charmed by a soothing telepromptered voice. The real world of economics will make people bleed and die if its rules are not properly followed -- despite the consensus of rich socialites, celebrities, media culture, and left-wing politicos.

The source of skepticism for many Americans is not the prospect of government waste but Obama's theory of job creation......most jobs are created by private capital in the private sector, often by small businesses. And small businesses got little policy attention in Obama's speech. An example Obama used -- retaining police officers -- is a worthy cause, but hardly typical of American job creation. A small-business owner heard nothing about his daily struggles with litigation or regulation.

There is an element of psychology -- of confidence -- in taking the risks of entrepreneurship and small-business expansion. It is difficult to imagine how that confidence is built by being ignored.

Obama was even less credible on the issue of debt. Most Americans seem to accept the need for the temporary deficit spike to provide a jolt to the economy. But Obama's pledges to go "line by line through the federal budget" and to remove "waste, fraud and abuse" were the most tired portions of his energetic speech -- and simply were not credible with Speaker Nancy Pelosi in vivid green over his left shoulder. _WaPo

Ever since mid September, 2008, when Obama became a heavy favourite to win the US Presidency, the markets of the US and the world have been dropping. Obama should have seen the panic of the markets, and reacted as any sane leader would have done. Instead, he has moved even more wildly in the opposite direction, proving to the markets that their panic was reasonable all along.

....economic activity adheres to some predictable truths. If you tax businesses and investors more, they’ll have less money to devote to wealth creation and hiring. If you bail out firms that should be put through bankruptcy, you’ll perpetuate ineptitude in management and misallocation of resources. If you keep credit-unworthy people in homes, they’ll eventually default and further weaken financial institutions.

Some things can’t be disguised by stagecraft or media cheerleading. In the end, it matters what you do, not how you describe your plans. _Commentary

The US becomes another third world nation, if it continues along the Obama / Pelosi road.

Demand Destruction vs. Creative Destruction vs. Opportunity Destruction

Demand destruction is an economic term used to describe a permanent downward shift in the demand curve in the direction of lower demand of a commodity such as energy products, induced by a prolonged period of high prices... _Wikipedia

Sometime late last spring, Al Fin warned that the world's economy could not support the ongoing upswing in energy prices, predicting demand destruction at the least, and perhaps even a recession as a result of the unsustainable costs of energy. In hindsight, it appears that last summer's price surge did indeed help trigger the current world economic recession -- along with other factors.

The expression "creative destruction" derives from the Austrian economist Joseph Schumpeter’s book, Capitalism, Socialism and Democracy, published in 1942. He coined the phrase to describe the process of change that accompanies innovation. In the book Schumpeter commented that capitalism:

…incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. _Business Opportunities

"Opportunity destruction" is a phrase that was either coined or re-coined by Al Fin. It refers to the a process that is exemplified by what the Obama / Pelosi reich is currently doing to the US economy. This process involves the narrowing of economic activities that are allowed, using unwarranted regulation or difficult license requirements. Or it may involve the restricting of potential gains from economic activity through extortionate penalties such as taxation, or mandated parasitism, eg labour union special preferences. Or opportunity destruction may involve mandated risk, eg tort liability structure that is slanted wildly in favour of trial lawyers. Or it may occur when the government actually takes over an entire industry, and prevents by law the entry of private individuals into that industry. Special hiring, contracting, or admissions preferences to preferred groups also constitutes opportunity destruction. Opportunity destruction is practised by politicians who do not understand the importance of freedom in the marketplace to the prosperity of the overall society.

Given enough time and power, virtually every government will practise opportunity destruction, since the advantages of favouring campaign contributors, cronies, and loyal voting blocs are far more obvious than any advantages of allowing the marketplace to work to create widespread prosperity.

Notice I said "widespread prosperity", rather than "universal prosperity." Universal prosperity is unlikely to happen in the real world given the variability of human aptitude and potential. But even if every citizen were healthy and given every opportunity to succeed, some would fail to live up to the achievements of others. This "inequity" of achievement -- even in the face of equitable opportunities -- would be grounds for a certain class of politician to campaign in the name of "universal and equal prosperity."

And so, in the name of universal prosperity -- equal or not -- politicians will gain power, and in order to solidify power they will re-structure the opportunity structure to favour their supporters. This re-structuring necessarily limits -- indeed it destroys -- overall opportunity in the society. Hence, "opportunity destruction."

A "New" Form of Economics Perpetrated Upon a Complacent American Population and an Unsuspecting World

“America doesn’t have reserves and it doesn’t have anything except, so far, the ability to borrow,” [Jim] Rogers said. “That’s not going to be good for the world economy. It’s just adding more debt, more consumption to a problem that’s caused by debt and consumption.” _Bloomberg

Children in high places are determining the future of the world's economy. Mind-child Barak Obama has joined with mind-child Tim Geithner and the mind-children of the US Senate and US House of Representatives to cancel the private sector in favour of a neo-fascist form of top-down feudalism.The exact form of this brave new reich will be spelled out to the populace as soon as the mind-children in charge decide what it will be.

...Democrats will take the stimulus increases and make them part of a new, higher baseline for future spending growth. Anyone who proposes to cut from that amount will be denounced as "heartless" and Draconian.

The Republican staff of the House Budget Committee has calculated what happens to future spending if Congress continues to fund 19 of the most politically untouchable programs at their new stimulus levels. The list of 19 includes Pell Grants, Head Start money for poor kids, nutrition programs for seniors, Medicaid, special education, food stamps and cancer research at the National Institutes of Health, among others. Across a 10-year period through 2019, these 19 programs alone would increase federal outlays and tax entitlements by $1.59 trillion.

The nearby chart shows how the bill will increase the 2009 budget deficit, which is already the largest in modern history. Perhaps you recall the deficit wails from the Reagan years, but the peak deficit was only 6% of GDP in 1983. In the Clinton years we were told taxes had to rise to reduce a deficit of merely 3.9% of GDP. CBO estimates the 2009 deficit will reach 8.3% of the economy, not including the stimulus or bank bailout cash. Toss in those, and analysts at the Strategas Group estimate the deficit could hit nearly $2 trillion, or 13.5% of the U.S. economy. _WSJ

The Obama plan: Borrow more money than the world's economy can support, and consolidate power through any mechanism imaginable. The American people haven't a clue what this power grab is leading up to. The rest of the world is even less prepared.

But it is good news for all the dictators of the world who couldn't wait to see the collapse of Pax Americana. The world is departing the era of any pretense to the rule of law, and returning to the historical stand-by era of the rule of strong and ruthless men.

If the strongest and most ruthless men hail from Russia or China, the world will assume a certain form. If the strongest and most ruthless men hail from Pakistan, Caracas, or Lagos, the world will assume a quite different form.

The rules are changing. Wait and see, or take steps to prepare. Your choice.

Governments Die, Countries Live On .....

As this chart shows, the lessons of the rise of the American economy in the 20th century have finally been learned by the rest of the world. If the top corporate tax rate of 40%, which includes a 5% state tax on top of the 35% federal rate, remains much longer, American companies will find themselves on the short end of the stick thanks to their competitive disadvantage.

That means more people will lose their jobs. That means less wealth for all. _Heritage

Never mistake the government for the country. They are two distinctly different things. And while governments can easily die, countries are a bit tougher. The graph on the left shows the declining global trend for taxing corporations. Corporations naturally go to the countries that tax them the least, all other things being equal. If a government taxes corporations more than it is worth to the corporation to locate there, the corporation will go elsewhere and take its jobs with it.

California, New York, Massachussetts, and several other states are getting caught up in the "tax 'em high" fever emanating out of Obama et Pelosi's DC. But as you can see, the global trend has been in the other direction. Corporations are leaving California etc. and new startups are hesitating to locate there. The same phenomena is beginning to show on the global scale.

The US government is heading down the road of fiscal and budgetary suicide with a lethal combination of new, non-productive spending plus punitive taxation on productive entities and employers. Add to that devastating new regulations and taxes on energy and industry plus a growing stranglehold by trial lawyers and labour unions over business, and one can see how easily the US can go from being a good place for corporations to locate to being a losing proposition.

Corrupt high roller state governments such as California, New York, Illinois, Massachussetts, and Michigan are living well beyond their incomes -- and running to the new Obama / Pelosi reich for multi-billion dollar welfare for the states. Although the federal government is in no condition to be handing out goodies to corrupt state cronies, that is exactly what is happening with the O / P "stimulus bill." And they are just getting started.

Anyone who took the trouble to watch the 30 minute IOUSA film clip should have at least a vague idea of the coming budget disruption. You need to know how a responsible government would deal with such a problem in order to understand how badly our current government is focquing up. Rapidly failing state governments are a microcosm of the larger problem at the federal level.

The federal government can print money, it can sell notes, bonds, influence interest rates etc. as long as it has some degree of fiscal credibility. When it loses that credibility it will be stressed to the breaking point. Looking into the future, there is no sign that either the governing or the governed have an understanding of the problem, nor the will to deal with it. Demographic implosion plus government fiscal suicide plus cultural and educational decadency. Not a pretty combination, although quite common in western Europe also. In fact, most European nations have a bit of a head start. A few countries may even be starting to wake up.

What happens to the country after the government falls? What do you think happens?

Obama / Pelosi : Pissing Away the Tax Revenues of Future Generations On Short-term Bandaids That Don't Solve Our Problems

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The problem with this country is we spent all of our time and resources creating money out of thin air using leverage and smoke and mirrors or serving each other lattes. America needs to produce actual stuff in order to get back on our feet. The government can spend money wisely to steer us down that path...or it can continue to piss away the tax revenue of future generations on short term Band-Aids that don't solve our problems. _MotleyFool

The US is poised on the brink of a disastrous monetary and budgetary policy that will destroy the surviving financial infrastructure of the country, along with any reasonable prospects for an early recovery. We are being given a gargantuan "recovery bill" that is all about political retrenchment for democratic party supporters. Not a recovery bill at all, but rather a wealth transfer bill from producers to political hacks, financial vultures, and non-producers.

If you have worked hard, followed the rules, paid your bills and taxes -- too bad. Unless you are politically well-placed to benefit under the Obama / Pelosi reich, you are only the main course. By the time this financial wrecking ball has done its demolition, your hard-earned assets will be worth a fraction of their current value, unless you make timely preparations.

It is thus almost a dead certainty that the combination of wasteful Keynesian spending (if you will ignore the tautology) and supply-side effects would produce a sharp spike in inflation that is designed to buttress the ability of borrowers to repay their obligations while rendering the value of their payments almost moot for lenders.

Asians [ed: and others] have saved a lot since the end of the Asian financial crisis, but will find an acceleration of wealth diminution upon them in months to come. Their only defense against this course of action that the G-7 countries have embarked on would be to boycott all debt issuances from the US and Europe over the near-term until yields rise fast and far enough to compensate for inflationary risks. Unless this can be pushed through, the only safe assets would be those that can hold a degree of their purchasing power,namely physical commodities and, of course, precious metals such as gold. _AsiaTimes

Inflation makes it easier for debtors to repay their debts. Since the US government is the big daddy of debtors, it makes sense for Obama and Pelosi to flush the dollar's value down the toilet. They can run the printing presses all night long. When will they start printing a $1 Billion bank note? Give them time.

During the stock panic, central banks around the world panicked. They fear deflation too, so they started cranking up the printing presses at phenomenal rates. The epic deluge of money they unleashed is going to filter into the real economy and drive up general price levels.

You can see this above in MZM growth. The US economy is shrinking thanks to the panic, there are less goods and services on which to spend money. Yet simultaneously the Fed is recklessly ramping broad money at double-digit rates. Sooner or later relatively more money will be bidding for relatively less goods and services, which will drive up prices. You simply can’t have 10%+ MZM growth without seeing big inflation eventually. _SeekingAlpha

Economists and bankers have leveraged themselves up into the stratosphere. Without hyper-leverage buoying them up, they get a strong sinking feeling in their stomachs. The world economy lost a lot of leverage when the commodities boom busted,and home price drops triggering the sub-prime bubble burst. A lot of big-money shops had to close their doors or get bought out. Nowhere to run, hide, shelter, or hedge. The ivy league whizzards [sic-pun] on Wall Street ran out of government sanctioned magic wands.

The direct result was the election of Obama-Messiah, Saviour to the world. Everything the Obama / Pelosi reich is doing now is for short term advantage. Empower the get out the vote for 2010 by giving billions to ACORN. Firm up the DP alliance with the public employees unions, trial lawyers, news media, and low income voters. First assure the retention of power. Then if anything is left over, perhaps you should try to help the economy.

Unfortunately, by the time the reich gets around to constructive purposes, the foundations will have been undermined -- perhaps beyond repair. Take care of your own future, the O / P reich only looks out for its own.

Obama's Hyper-Inflationary Gotterdammerung

Obama himself is incredibly insubstantial in terms of knowledge, experience, and competence. He can best be viewed as a potent symbol and flashpoint for multiple dynamic and powerful social, political, ideological, cultural, and economic forces on the national and international levels. As a figurehead and facade, therefore, Obama is quite effective. It is only when wise and competent action is called for, that figureheads begin to show their core inadequacy.

Most members of the general and voting public have a caricatured view of how the world works and what is involved in administering a gigantic national phenomenon like the 21st century US. For many younger and less intelligent voters, a symbolic figurehead may seem the appropriate type of person to serve as head of state. But in the absence of decisive and informed decision-making from the top of the hierarchy, a multitude of competing bureaucratic kingpins will create an unholy cacophony of governmental destruction.

The current credit crunch and deflationary cycle we are experiencing can be written off to a number of factors, many of which were described by Kondratieff and others (via Dennis Mangan). But whether a timely recovery from this long-expected deflation will occur depends largely on economic decisions that will be made by the incoming Obama reich.

Here are a few of the shoes yet to drop:

1) Commercial Real Estate is going to face the same challenges that the residential housing market went through and continues to go through - except it will be worse. This shoe has implications for banks and insurance companies as well as the commercial real estate developers, both public and private.

2) There will be at least one automobile manufacturer (GM) bankruptcy by early spring. If this shoe drops, a second automobile bankruptcy (Chrysler) should follow shortly thereafter. And, a European automobile manufacturer could also go into Administration as well.

3) Corporate pension plans will show a big problem. Specifically, most, if not all, corporate pension funds are significantly underfunded and will require companies to shore up those pensions using up vitally needed cash.

4) Private Equity will suffer severely as funding continues to be very difficult and operations of the businesses will be impacted by the recession and will require capital. In addition, the IPO market will provide no relief for P/E to monetize investments and exit businesses.

5) Hedge Funds will continue to face redemptions and underwhelming performance. This will continue to pressure the markets and reduce liquidity. It will also impact the brokerage industry.

6) Municipalities all across the country will face huge budget deficits and will be forced to cut services and raise taxes. A major municipal default will occur before year end.

7) More small and mid-sized bank failures will occur...these will be the flip flops of the shoe storm.

8) The housing depression will continue as prices continue to fall and demand for homes does not materialize even with all the government programs being put forth. Housing inventory will rise to historic levels. at least one major homebuilder will go bankrupt.

9) There will be at least one, more likely many, major retail bankrupcty and at least one major commercial retail landlord, REIT, will go bankrupt.

10) Warren Buffets Berkshire Hathaway (BRK.A) will face the slings and arrows of the ongoing economic weakness and financial crisis. The stock will be cut down to size - maybe $50,000/share or so. Having just won the CEO of the Year award for 2008, which he probably deserved many years ago, it would only be fit for the company to show its vulnerabilities, which believe it or not it has, and succumb to the forces that have impacted every company in every business that Berkshire Hathaway owns or operates. _SeekingAlpha

I don't know about Buffet's company being re-valued, but I wouldn't be surprised. I don't really care. There are worse problems on the backburner. Bubbles within bubbles, threatening to burst.

The Obama phenomenon is clearly a hyper-inflated bubble, aided by Oprah and the national and international news and entertainment media. But the Obama bubble is riding on a much more ominous bubble, the bubble of the US Treasury. The deflationary risk posed by the impending bursting of the latter bubble puts all of the plans of the Obama / Pelosi monetary hyper-inflationary plans at risk. There is no simple formula for balancing catastrophic deflationary processes with deranged hyper-inflationary budgetary policies.

Obama and Pelosi appear to favour the hyper-inflationary approach of recovering from a recession, credit crunch, and de-leveraging of the financial system. They are in the company of a large number of academic, governmental, media and think tank economists in promoting a huge injection of liquidity into the the monetary system. It is an opportunity to spend into the trillions, that they have been waiting for all their lives. They simply cannot bring themselves to walk away. They believe they have Keynes on their side.

For Al Fin readers who want to have some sort of wealth at the end of this government-amplified and prolonged destructive process, think outside of normal investments. Some businesses will do very well if they are not nationalised or otherwise confiscated, hamstrung by regulations, or taxed to death by increasingly desperate governments at the local, state, and national levels. More on those businesses later.

Think about the various systems of barter and off the books trade that may be available. Think about precious metals in various forms. Think about necessities for you, for your neighbors, for society at large. Consider the cascading dynamics of failure as they will play out in your community. Remember, we are a few generations away from the tough people who survived the 1930's Keynes/Roosevelt-prolonged depression. People are much softer now, less competent in basic skills, and far more dependent on governments for even simple things, and soon to become even more dependent on governments under Obama / Pelosi.

But America in 2008 was not the America of 1930. There was never any danger of mass runs on the banks. The vast majority of Americans are of the opinion, rightly in my view, that the fed would not allow the banking system to collapse, an opinion that Bernanke's monetary policy has strongly reinforced. The danger is that by flooding the system with money, Bernanke will trigger a wave of inflation. Considering his unwavering devotion to the Keynesian faith, I think this is a highly likely outcome. To top it off, the crisis was the outcome of Keynesian policies that have given Obama the excuse to massively increase government spending. I think the results are going to be pretty ugly. _SeekingAlpha

This is not climate catastrophe, although if the world cools as recent data suggests it might, climate will make things worse. This is not peak oil, although under Obama / Pelosi, "political peak oil" is highly likely. This is not some obscure Mayan prophecy or other hocus pocus. It is the combination of incompetent people ( who happen to possess the hubris of deities) in places of power, with influence over a cyclic economic process that requires a deft yet delicate hand at the wheel.

Be prepared.