Posted by Larry Doyle on January 14th, 2010 2:07 PM |
Cartoon by Lisa Benson
Posted by Larry Doyle on July 17th, 2009 12:31 PM |
What 3rd grade kid ever really enjoyed the multiplication tables? Every youth in Boston would race through those tables in order to get outside and play some street hockey, a much more stimulating experience!!
In a slightly perverse way, I think many participants on our economic landscape would prefer some form of youthful entertainment because President Obama’s Stimulus Plan is not creating any sort of multiplier for our economy.
Bloomberg takes the offensive in reporting, Obama Stimulus Fails to Reboot Economy as No Multiplier Effect:
The debate over whether the $787 billion stimulus package is sufficiently large or efficiently designed obscures a broader question, some economists say: Can any fiscal measure pull the economy out of the recession?
With credit still crimped and the outlook for consumer demand gloomy due to rising unemployment and increased personal saving, no amount of government intervention will be able to stanch the hemorrhaging of jobs and quickly ease the U.S. out of its deepest recession in a half-century, they said.
Why hasn’t the government stimulus gained traction, attracted significant private capital into the economy, and spurred the economic multiplier? In my opinion, for the following reasons:
1. Obama’s basic economic premise is the redistribution of wealth implemented across virtually every economic program and proposal. He won the election and he is entitled to put forth his plans. Whether the plans work or not is for the market to decide. So far, that question remains unanswered but the Stimulus is receiving very poor grades.
2. The markets, whether for housing or other assets, are not being allowed to clear. What does that mean? Assets are not being transferred from weaker hands to stronger hands backed by private capital in a timely fashion. Why? Uncle Sam is propping up individuals and institutions which could not now, nor should they ever, have financed the purchase of these assets. The result is that prospective buyers of these assets are compelled to hold off injecting new private capital because the overhang of current supply and future supply is weighing on the market. (more…)
Posted by Larry Doyle on July 9th, 2009 3:59 PM |
Is our economy so weak that we will need another Stimulus Package? In my opinion, the American public has become so numbed by the depth and breadth of the government bailouts and fiscal follies as to not fully appreciate their overall magnitude.
Let us not forget that in current dollars the initial Stimulus Package passed under the Obama administration was only exceeded by Uncle Sam’s funding of World War II. The development of the interstate highway system under the Eisenhower administration was of comparable size to this initial Stimulus. For those who care to compare and contrast the size and scope of federal programs over the years, I submit from the January 6, 2009 edition of the Wall Street Journal “Feel Like a Trillion Bucks”.
While politicians and bankers receiving federal bailouts throw “OUR” money around liberally, let us hold them to account. On that note, let’s revisit commentary from noted Harvard economist Martin Feldstein just prior to the passage of the initial Stimulus.
I resubmit “An $800 Billion Mistake.”
Posted by Larry Doyle on July 7th, 2009 1:50 PM |
Does the United States economy need a second Stimulus Package? Can we afford to do it? Can we afford not to do it? What happened to the first one? Why hasn’t that package seemed to have a greater impact?
So many questions and seemingly so few concrete answers. The White House itself is sending out mixed messages on this topic. Add it all up and there is little doubt the U.S. economy is “between Barack and a hard place,” and neither looks all that appealing.
From my standpoint, the reason why we are at this juncture is ultimately due to the fact that the government, media, and financial industry have not fully explained the basic structural changes at work in our economy currently. That structural change centers on the fact that our economy is adjusting from running on excessive debt to operating on real savings and cash flow generated by real earnings. That adjustment takes time.
Obama has largely painted himself into a corner in regard to the economy and another stimulus package. What is surrounding Barack and team?
> The Wall Street Journal reports House Majority Leader Hoyer Signals More Stimulus May Be Needed. Steny is not exactly going out on a limb here, while clearly trying to curry favor with his constituents back home.
> Bloomberg highlights that Obama Adviser Says U.S. Should Mull Second Stimulus:
The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama.
The current plan “will have a positive effect, but the real economy is a sicker patient,” Tyson said in a speech in Singapore today.
> The other side of the stimulus coin has real White House representation in the persons of Austan Goolsbee and Joe Biden, as Bloomberg reports:
Tyson’s comments contrast with remarks made two days ago by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said it was premature to discuss crafting another stimulus because the current measures have yet to fully take effect.
While Barack is catching it from all sides within his own party, the talk of green shoots has significantly subsided. From my standpoint, it seems rather obvious that the following are true: (more…)
Posted by Larry Doyle on April 21st, 2009 7:52 PM |
Yesterday I asked, Is The Stimulus “Stimulating?” Today, Bloomberg reports how Caterpillar Says U.S. Stimulus ‘Missed Opportunity‘. Specifically, the bulldozer manufacturer described the Stimulus Package as “disappointing and less effective than measures approved by China.”
“The infrastructure portion of the stimulus package was disappointing in that it was less aggressive than other countries and missed an opportunity to correct past underinvestment in U.S. infrastructure.”
In my piece, I highlighted how the Stimulus Package was more a promotion of the Democratic agenda rushed through Congress without a full and proper review. Without targeted spending on immediate areas of need and benefit, our economy suffers while our deficit worsens. While the Democratic leadership railroaded the Stimulus legislation through Congress, which country did enact targeted fiscal stimulus? China.
The Chinese economy is benefitting from their stimulus while many workers in our country suffer. While President Obama visited Caterpillar in February to push the Stimulus Package, I do not get the sense that he would be invited back now. Caterpillar’s CFO said:
“We think China has it right,” Chief Financial Officer Dave Burritt said in an interview. “The majority of their package is on infrastructure spending. We are seeing life there. We are seeing the turnaround. We would like to see a more robust infrastructure package in the United States.”
I would qualify that statement as a courteous indictment of the political process in our country. Caterpillar is not the only company benefitting from the Chinese stimulus. Additionally,
United Technologies Corp., Eaton Corp., and Dupont Co. are among other U.S. industrial companies that said they have seen results from China’s plan. This week all three reported first- quarter sales declines ranging from 12 percent to 20 percent.
United Technologies’ fire and security division “is seeing some benefits from the stimulus already in terms of the dollars which are flowing through to infrastructure,” Akhil Johri, the head of investor relations, said today. The Hartford, Connecticut-based company is the maker of Otis elevators, Carrier air-conditioners and Pratt & Whitney engines.
At Wilmington, Delaware-based DuPont, the third-biggest U.S. chemical maker, “electronics customers are reporting some benefit from the China stimulus package,” CEO Ellen Kullman told analysts on a call today.
Eaton CEO Sandy Cutler, on a conference call yesterday, described China as “the first market where we can really string things through to government stimulus activity.”
Caterpillar predicted the U.S. recession in October 2007, two months before it officially began, and said today it expects the world economy to decline about 1.3 percent this year.
Missed opportunities do not necessarily always present themselves again.
Posted by Larry Doyle on April 20th, 2009 5:30 AM |
As I referenced on my radio show last evening (note: you can listen to an audio recording of the show from the BlogTalkRadio player in the right sidebar), China’s economy is benefitting from economic stimulus enacted by its government. Well, the U.S. government also enacted a major Stimulus Package in early February. How is our package doing? Is it impacting the economy? Our economy certainly does not seem to be benefitting significantly from any government stimulus.
I wrote on February 7th that Martin Feldstein, renowned Harvard economist who sits on Obama’s Economic Recovery Advisory Board, called the Stimulus Package An $800 Billion Mistake.
Feldstein’s concerns about the Stimulus as reported by the Washington Post, focused on several items:
1. On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment.
2. The largest proposed outlays amount to just writing unrestricted checks to state governments.
3. The plan to finance health insurance premiums for the unemployed would actually increase unemployment by giving employers an incentive to lay off workers rather than pay health premiums during a time of weak demand.
4. A large fraction of the stimulus proposal is devoted to infrastructure projects that will spend out very slowly, not with the speed needed to help the economy in 2009 and 2010.
5. The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit.
Let’s see how business executives view the rollout of the Stimulus Package. Would they agree or disagree with Feldstein’s concerns? (more…)
Posted by Larry Doyle on April 4th, 2009 4:45 PM |
I strongly believe Congress and the Obama administration know that the American public has no appetite for further government bailouts. This public demeanor presents a challenge for a government that has gotten used to writing big checks for Wall Street, the Stimulus, and automotive companies.
What is the federal government to do for municipalities, insurance companies, commercial real estate companies, or others who may go bankrupt?
Secretary Geithner has laid the groundwork for government takeover of institutions deemed to present systemic risk. How that power is effected or implemented will be very interesting. (more…)
Posted by Larry Doyle on April 2nd, 2009 1:14 PM |
British Prime Minister Gordon Brown just delivered a statement highlighting the results of the G-20 conference in London. There must have been a lot of work done behind the scenes over the last few months because it’s hard to imagine there was a lot of debate over issues within a 36 hour time frame at this conference. I will grant the world’s political leaders their due as it is most important at times like these to convey a strong, uniform front.
Let’s review the objectives and commitments, each followed by questions and/or comments that I have:
1. Address countries providing tax havens.
My question: who will police?
2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds.
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)
3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?
4. Develop a global systemic risk oversight body.
My Question: who and how? (more…)
Posted by Larry Doyle on March 19th, 2009 9:07 AM |
The Federal Reserve has ZERO room to maneuver on its interest rate policy given the fact that its interest rate tool, the Fed Funds Rate, is currently set at 0-.25%. Could that rate be set at a negative level? Well, let’s just say that it has never happened with any central bank in the world. With no more arrows left in its interest rate quiver, what is a Federal Reserve to do to manage an economy? Let’s enter the world of “quantitative easing.”
Quantitative easing by any central bank is a policy in which that bank grows its balance sheet to purchase assets (government bonds, mortgage securities, government agency debentures, etc). The purpose of purchasing these assets is to drive the prices for these assets higher which in turn brings the interest rates on these assets lower (bond prices and interest rates on those bonds have an inverse relationship). The hope the Federal Reserve holds is that in bringing rates down (government rates and mortgage rates dropped by .3% to .5% yesterday) consumer and institutional demand for money will go higher and spur the economy in the process. (more…)
Posted by Larry Doyle on March 18th, 2009 6:30 PM |
When the economy experiences a massive delevering process, the void in the economy needs to be filled. There has been and will continue to be ongoing debate about the effectiveness of the stimulus plan, Obama’s proposed budget, ongoing government bailouts of a variety of industries, and moves made by the Treasury and Federal Reserve. Has enough been done? Is too much being done? Are our global partners pulling their weight? Are protectionist measures likely to exacerbate our economic problems? The answers to these questions will not be known for years.
Today’s action, Fed’s New Steps Shake Up Markets, is a sign that as everybody is delevering (selling assets purchased with borrowed money), the Federal Reserve is levering up. The Fed has indicated they will purchase billions more than previously advertised in U.S Treasury securities, mortgages, and consumer related assets. Why? By making these purchases, the Fed will attempt to drive the rates for these products lower and reignite consumer and institutional demand for credit. The market responded in startling fashion as 10yr government rates dropped an unprecedented .50% !! Equity markets responded by moving higher by 1-2%. (more…)