Steven G. Percifield--author

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Steven G. Percifield  Author and consultant
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DISCLAIMER: I don't like politicians. Based on my experience, they don't much care for me either.
I don't like politics; although I follow them closely. I have to because politics and politicians have
so much impact on all of our lives. I don't think this is what the Founding Fathers intended. I have,
by the way, voted Republican in every Presidential election since 1972.

The following is the opinion of the author and does not necessarily reflect the opinions of the management of this household (Sue).
 

Conventional thinking

If the election were held today, I've no doubt that Barack Obama (Is that Irish? No, that would be O'Bama) would be President for yet another term. What's not to like about a candidate and a party whose stated purposes are to eliminate suffering, misfortune and inequality for those who are hurt, unfortunate or consider themselves to be unequal in some way beyond their control?

As for the party's conventions themselves, I've watched every evening of both of them so far and, as advertisements for their respective parties, felt both were outstanding. Hands down, though, the finest presentation (not necessarily content) thus far was that of President Bill Clinton; That boy could charm the parka off an Eskimo in the middle of a blizzard...in fact, he probably has.

But with all the talk about all the great things that President Obama has done to stabilize the economy it's important to realize that every sword cuts both ways. President Clinton spoke on and on about how President Obama's actions had 1) prevented GM's bankruptcy, 2) retained GM workers' jobs, 3) how GM was now profitable and had regained its crown as the #1 auto producer, 4) how GM and Chrysler had paid off the government loans that had kept them solvent and 5) how loose controls during the "W" administration had created the real estate melt-down that precipitated the recession that Obama had inherited.

For each of these, though, there's an opposite direction for the sword.

  • 1) prevented GM's bankruptcy--GM was a bloated, corporate anachronism, producing adequate products while, smaller, nimbler, less constrained competitors ate up its once-dominant market-share. Bankruptcy would have permitted a chance for it to become a leaner, meaner fighting machine. Thanks to the bailout, GM's bloated inefficiency remains intact.

  • 2) retained GM workers' jobs--see #1 above

  • 3) GM (is) now profitable and has regained its crown as the #1 auto producer--figures don't lie but...(see below)

  • 4) GM and Chrysler have paid off the government loans that had kept them solvent (see below)

  • 5) loose controls during the "W" administration had created the real estate melt-down--in fact, GWB had warned Congress of the impending crash, the fact that Freddy Mac and Fannie Mae were at the root of it, and that these "private/government" entities had to be better controlled. Led by Barney Frank and the Democratic Congress, his pleas were ignored.

Using General Motors alone as an example of the other way the sword cuts, they were bailed out for a figure upwards of 50 BILLION of your tax dollars. But it doesn't end there--not by a long shot. The last figures I saw, the government (we) owned some 500 Million shares of GM stock which had DECLINED in value by more than $170 Million, adding to our cost for the "investment." Further, we (taxpayers) were paying a subsidy to purchasers of Chevy's electric Volt models equal to $7,500/per unit sold (this car, which pre-bailout GM claimed would be its corporate savior, was discontinued by GM last month due to poor sales).

In addition to this (and this is the real capper) thanks to our bail-out money, subsidies and also--in no small part--thanks to the tragedy of the tsunami which disabled a large portion of competitive Japanese auto production capability, GM for 2011, claimed record profits--$7.6 BILLION according to our President's proud announcement--UPON WHICH THEY PAID NO TAXES. ZERO. Not only did they pay no taxes, they got a REFUND of $110 Million due to the Obama Treasury Department ruling that Section 382 of the tax code (limiting the carryover of previous operating losses) simply did not apply in this case. And not just this year; GM's tax-free profits (assuming there are any) can continue for years and years thanks to this ruling.

Strange isn't it: this is the same President who has railed against corporations paying no income tax. For a corporation to pay no tax on a profit of $7.6 BILLION must really piss him off--unless, of course, the company paying no taxes is one of his favored beneficiaries.

As regards GM regaining its crown as the #1 auto producer, that was for model year 2011 when much of the Japanese auto industry was handicapped by the results of the devastating tsunami. Once the Japanese supply line was rebuilt, Toyota promptly regained the number #1 position (and this occurred well before Clinton's speech).

But the real "elephant in the bedroom" that was unseen during the Democratic convention is the national debt. The Obama administration realizes that a sword can cut both ways. They, as well as Republicans know fully well that there is a monetary price involved for any action the government takes whether it is maintenance of the war machine, aiding the poor, assisting education or whatever. What the Republicans seem to grasp, however, even as the Democrats ignore it is that, although a sword can cut both ways, it can only cut one way at one time.

Under Obama, there has been a total disconnect between our fiscal policy and our monetary policy.

The Federal Reserve Act "specifies that the Board of Governors and the Federal Open Market Committee should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." These are daunting goals as, even in good economic times, as they can be mutually exclusive.

For all practical purposes, the Fed does what it does by determining the supply of available money in our economy. If, for whatever reasons, inflation rears its ugly head (too many dollars chasing too few goods), the Fed could reduce its impact by reducing the money supply. If the economy dallied creating sub-standard growth and unacceptable rates of unemployment, the Fed could increase the money supply, making capital more easily obtained and stimulating the economy.

Whether one believes that this sort of control is a necessary means of "controlling" the economy or not, most would admit that too much money in the economy makes that money's worth go down (inflation) and that a ready supply of capital is a boon to borrowing and growth.

Enter our fiscal policy (or lack thereof). President Obama came into office with a solid majority in both houses of Congress. He enjoyed that advantage for a full two years of the three and a half during which he has been in the White House. Despite that, since he has taken office the US Congress has not passed a single budget. Zero. It has simply been ignored while Obama has gone on a spending spree.

During Obama's three and a half years in office, the national debt has exploded from its already too-high level at the beginning of the his presidency to more than $16,000,000,000,000,000 ($16 TRILLION).

The irreconcilable conflict is that deficit spending of such gargantuan nature, completely sidesteps whatever actions the Federal Reserve could take to stabilize prices or stimulate the economy. The reason for this is that deficit spending, in and of itself, is inflationary. This debt effectively adds to the money supply, which should--without a commensurate increase in goods produced--make each dollar worth less.

In order to quash the predictable inflation resulting from deficit spending, the Fed has tightened the money supply even at times when looser money was advantageous.

What we are left with is an economy restrained by tight monetary policy, hampering employment even as our fiscal policy takes us further and further into debt.

Why do we still have such a tepid economy? Because wealth is produced by only one thing: commerce. Unless it is created, wealth cannot be invested, shared, taxed, or "trickle down" to improve those at the lower end of the economic stick or to add to employment.

And a marked increase in commerce just isn't going to happen when we have an administration trying to cut in two directions at the same time with the same sword.

 

Bottom Line: if I were to bet today, before the last day of the Democratic Convention, I would bet that Barack Obama will win the November Presidential Election. We will have four more years of the same. And that sword WILL cut both ways.