Monday, November 16, 2009

Talk is Cheap - Obama Promises to Put America in Rehab

On his Asian tour Barack Obama has been doing what he does best - hand out more ludicrous and empty promises. This time he has tried to assure Asia that U.S. borrowings will not spiral out of control. The Telegraph reports:
"As the economy recovers, I intend to take serious steps to reduce America's long-term deficit," he [Obama] told the APEC forum in Singapore. "Debt-driven growth cannot fuel America's long-term prosperity." The assurance comes amid growing doubts across the world over the wisdom of White House spending plans. The US Congressional Budget Office expects the deficit to remain around $1.8 trillion as far ahead as 2019 under current plans.
First of all, the economy is not recovering - unemployment has officially crossed 10% and is unofficially touching 18%. Consumer confidence is falling and factories are operating below break even.
Secondly all the talk of deficit reduction defies Obama's own budget projections of running a $1 trillion+ deficit in each year until 2019.

Lastly the President should at least get his facts right before speaking: "Debt driven growth cannot fuel America's prosperity"...except that it IS!
That is precisely the plan currently put in place by Obama anointed geniuses Ben Bernanke and Tim Geithner. Thanks to their 0% interest rate** policy a highly leveraged (debt-driven) dollar carry trade is underway. Large financial institutions are borrowing massive amounts of dollars on the cheap and buying up stocks, commodities and real estate around the world. That is why the Dow has crossed 10,000 defying all fundamental logic, and real estate and stock prices across Asia have soared.

And the newly rich wall street class is once again pushing up sales of luxury goods as they get ready to gather rich pickings from their debt fueled asset bubbles - huge bonuses.

So it seems that a gifted President Obama can offer only one thing to the world - Cheap Talk. That is all that a bankrupt America can afford these days.
Note: ** While we understand Bernanke's motives for keeping interest rates at 0% so as to not choke of any weak recovery, we however do NOT agree with his belief that the only tool he has at his disposal is monetary policy. One tool cannot solve ALL problems. To contain asset bubbles which are a byproduct of an easy monetary policy, Bernanke should focus on parallel regulatory enforcement e.g.: imposing greater margin requirements and curbs on the amount of leverage a financial institution could employ in buying stock futures, currencies and commodities. A simple rule such as implementing a 20% down payment before you buy a second home or higher taxes if you flip quickly, would have gone a long way in curbing the real estate bubble in America. (More on this to come soon).

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