Saturday, January 23, 2010

Obama vs. Capitalism: Take Two

Obama Fights to Save Bernanke--Law of Unintended Consequences

If you read our post on Obama's trashing of the big banks earlier this week, you'll easily note our displeasure. It crashed the hell out of a precariously toppy stock market, wiping out plenty of  middle-class retirement money--money only recently recovered from the twin market debacles of 2008-2009. Some of it included my own. To paraphrase what they used to say in WWII: "Loose Lips Lose Lives."

Making matters worse, Obama's faux-populist anti-capitalist crusade has emboldened Senators on both sides of the aisle to gang up on Fed Chief Ben Bernanke, threatening to derail his confirmation vote which must be held before the end of the month. Without confirmation, Bernanke must immediately step down on February 1 with uncertain consequences after that.

Obama himself has figured this out and is trying to repair the damage to his nominee. So has the recalcitrant and possibly brain-dead Harry Reid. Both are now trying to salvage this nomination, put on hold by at least four senators from both sides of the aisle. His nomination now effectively requires 60 votes to confirm.

Immediate consequences of this ridiculous political snarl? Another thorough trashing of the market on Friday when it dawned on already-spooked traders that Bernanke's re-appointment may not happen.

Flush!

Regardless of what you think of Uncle Ben--and I think he and the Fed were too slow to react to the early warning signs of the real estate debacle in 2007--he came through ultimately as a creative genius who did the opposite of what Herbert Hoover did after the Crash of 1929 and what the sainted FDR did again in 1937. He flooded the market with credit and worked with the Treasury to mount a massive intervention to buck up the major financial institutions. The ultimate object was to halt a potential run on the banking system along with incipient deflation. That's a far more difficult beast to control than inflation as anyone who survived the 1930s will tell you.

What Wall Street detests is uncertainty. But this administration has provided plenty of it. First, they pushed the first "stimulus bill" early in 2009--a boondoggle primarily aimed to shore up the public employees' unions by sending essentially bankrupt states enough money to keep paying their inflated salaries for another year.

Second, they wasted an entire year trying to ram through a socialized medicine plan containing more pork than real medicine, losing time to solve the employment problem their "stimulus" never addressed. Worse, their very fixation on "healthcare" has put businesses small and large into lockdown mode. Why? Once again, like Wall Street, businesses large and small abhor uncertainty, particularly of the Federal kind.

What terrifies businesses large and small is the forced addition, via Federal government edicts, of larger and larger mandatory employee benefit packages and related taxes, fines, etc. All increase the cost of doing business and would make the hiring of new employees by small businesses prohibitively expensive. The reaction of most businesses has been to hold off hiring new employees even if they're needed. They're terrified that, in a delicate economy, mandatory benefits additions will drive them right out of business.

Our economic recovery, in spite of all these gaffes, is actually underway. But at this crucial inflection point, both the Democrats in Congress and the amateurs in the White House are, for purely political reasons, squabbling about details, still focusing on their own re-election campaigns, and are risking a double-dip recession with their obtuseness. In point of fact, most Dems in charge today either have very little experience in business. Or, like Team Obama, they're Marxists who want to go socialist and kill all businesses they or the government don't run. This is a recipe for disaster.

A focused economic team is needed behind the scenes to keep things on an even keel until the fall 2010 elections can effect genuine stabilization by throwing a lot of the Congressional obstructionists out. The only team available right now with the smarts and the know-how to keep what remains of our economy afloat is run by Uncle Ben. Like him or not, to throw him out in a faux populist fit of pique over last week's Senate race in Massachusetts, is a fatal misreading of voter sentiment. It risks a massive market crash that will equal or exceed those we've already scene. It may erase confidence in the markets for at least a generation.

Lefty Democrats don't care, of course, because for them, US capitalism is a post-colonial system of oppression that needs to be shut down anyway. Righty Republicans hate the fact that Bernanke flooded the earlier problem with money--ignorant of the fact that it was his only choice. Everyone in the middle--most of us--is being completely ignored. The country may want some elements of the system to be repaired, but they don't want the whole system trashed. At the end of the day, they still like it.

Mark this: If the Fools on the Hill keep this up, the market will waterfall like you've never seen it before. If Ben Bernanke is not reconfirmed next week, you'd better get your money into your mattress, because that will be about the only safe place left for it.

UPDATE: Looks like I'm not the only voice crying in the wilderness here. Jennifer Rubin writes:
Pundits debate whether Obama’s new populist red meat will “work” — that is, allow him to recover his political footing. But if he unnerves the markets and spooks investors, he’ll be in further trouble. After all, he might insist that the economy is all George W. Bush’s fault, but fewer and fewer voters are buying that. And if his own policies — spending with abandon, pursuing a junk-a-thon stimulus plan, spending a year on the job-killing ObamaCare and cap-and-trade, and now frightening the financial markets – have paralyzed employers, then he surely is accountable for those results.

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