James Pethokoukis

Politics and policy from inside Washington

Why time has run out for 2010 Democrats

Jul 7, 2010 02:27 UTC

More and more, the political cake looks fully and thoroughly baked. Oh sure, perhaps congressional Democrats can sidestep the coming Republican wave through clever campaign tactics. Perhaps they can de-nationalize the November midterm elections by successfully waging dozens of bloody, up-close-and-personal knife fights coast to coast. Make every Republican a controversial Sharon Angle or Ron Paul with a radiation vibe.

Yet for that “fight them on the beaches” approach to really work, Democrats probably need a bit of  breeze at their backs. They need some some help from the economy, the dominant issue with American voters. As last week’s miserable jobs report made clear, however, help does not appear to be arriving anytime soon. Just 83,000 private sector jobs were created in June, after a mere 33,000 in May.

Sure, the unemployment rate fell to 9.5 percent from 9.7 percent. But that’s because the workforce shrunk by 650,000, hardly sign of a burgeoning boom. Had it only stayed stable, the jobless rate would have climbed back up to 9.9 percent. The unemployment rate has now been been 9.4 percent or higher for 14 months. That’s twice the level Americans have becomes used to during the past two decades.

If history is any guide, pushing the unemployment rate below 9 percent by Election Day would take a sudden and dramatic surge in GDP growth to a six or seven percent annual rate. But something between one and three percent seems more likely given recent economic data. Also likely is an unemployment rate back above 10 percent. Even Mark Zandi, Nancy Pelosi’s favorite economist thinks that. Republicans will surely remind voters that Obamanomics was supposed to keep unemployment below eight percent.

So expect more erosion in President Barack Obama’s approval ratings, historically a key driver of his party’s performance in midterm elections. Now for a month of so last spring, it looked as if Obama’s audacious political and economic gamble from 2009 might pay off. Back then, the economy seemed to be growing at a steady clip of three to four percent. And it was adding private-sector jobs in modest bunches, 158,000 in March and 241,000 in April.

More importantly for the November midterms, the slow bleed in the president’s polls had stopped. Obama’s approval ratings seemed to stabilize right around 50 percent, disapproval in the mid-to-low 40s. Thanks to a bit of an economic bounce, Team Obama could not only plausibly suggest its $800 billion economic stimulus package had brought America back from the brink, but also that it had put America firmly on the road to recovery. The Spring Thaw would surely turn into Recovery Summer – both for the economy and Democrats long fearful of an Autumn Annihilation.

“Summer Swoon” looks like the better description, both economically and politically. The decline in Obama’s approval ratings has resumed. He’s now down to 44 percent approval, 46 percent disapproval, according to Gallup. Unemployment and oil seem to be topping legislative achievements likes healthcare and financial reform during this brutally hot summer.

Perhaps the economy will kick into gear in 2011. But for the Obama agenda beyond 2010, it’s all about preventing a historic political reversal in November. And with just three employment reports left until Election Day, the economic cake may already be baked, too.


For almost a year now, we have been exposed to report after report stating that we have turned the corner and the economy is on the mend, that things are not that bad, that happy days are here again. There is a problem with these messages. They ring hollow at best!
The real unemployment rate (that which includes all of the unemployed, not just those still collecting unemployment benefits) is at 21.7%. Yes, the government figures state that unemployment is at 9.6% but that percentage reflects only those individuals still collecting unemployment benefits. The individuals who have already collected the maximum, are self-employed but without work, or have given-up looking for work after a year or more are not counted by the government. The “U6″ figures are the most accurate unemployment figures and even the “U6″ figures do not include all of the unemployed. Remember when we were told that unemployment would not exceed 8%?
An recent AP article titled “Homes lost to foreclosure on track for 1M in 2010″ and written by ALEX VEIGA states that the number of homes foreclosed on in 2010 will exceed 1 million. In 2009, the number of homes foreclosed on was just over 900,000. The number of foreclosures prior to 2009 averaged just 100,000 homes. That is a 900% increase in yearly foreclosures since Obama took office. Only Obama, Pelosi, or Reid would try to rationalize this as being on the right track.
RealtyTrac® (http://www.realtytrac.com/gateway_co.as p?accnt=137300), the leading online marketplace for foreclosure properties, released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009. Does this sound as if we are headed in the right direction?
Check what you are paying for groceries now vs. 2008. Is bread, milk, eggs, meat, seafood, cereal, or for that matter, anything you regularly buy the same or cheaper that it was in 2008. Has your income kept up with the increase in the price of groceries? Most individuals reading this article would have to say no and that is certainly not being on the right track.
Is your savings account (providing you still have one) earning the same or more than it did in 2008? Right track? Not likely!
40.2 million Americans are currently on food stamps (up 21% from just a year ago) and the White House estimates that food stamp usage will increase to 43.3 million Americans during the 2011 fiscal year. No one could possibly believe that this indicates that we are on the right track!
Those lucky individuals who managed to either keep their jobs or find new jobs did so at a reduced pay rate. Benefits at many jobs have either been drastically reduced or eliminated. Jobs are being shipped off shore at an astounding rate and many foreign nationals are being brought to the U.S. to fill existing jobs at a lower rate of pay than the U.S. citizens who once held those jobs were making. Again, I ask, “Do you think this is heading in the right direction”?
The current administration and Congress should have been promoting and passing legislation that would (1) give companies a reason to create new private sector jobs, (2) give companies a reason to keep jobs held by taxpaying U.S. citizens here in the U.S. and filled by U.S. citizens, and (3) give companies a reason to bring jobs that have been sent off shore, back to be filled by U.S. citizens. How, you might ask, could they do that? The answer is quite simple really, tax breaks! You see, companies are in business to make a profit for the individuals who invest in them. When taxes go up, those companies will find a way to reduce expenses, thus keeping profits up and one way to do that is to find cheaper labor, which usually translates to off shore hiring. Large enough tax breaks for employing taxpaying U.S. citizens would provide the impetus necessary to reverse the trend to replace taxpaying U.S. workers with foreign nationals.
Until the government realizes that the average U.S. citizen prefers a leg-up to a handout, the deterioration we are currently experiencing will continue. The bottom-line is this: Rather than taking steps that would create a job rich environment, the current crop of career politicians chose and are choosing to focus on programs that push spending (and ultimately taxes) to obscene levels. Programs like Cap and Trade, Obamacare, Stimulus, Cash for Clunkers, Suing Arizona for trying to protect their citizens (and the country) against the results of illegal immigration, Bank Bailouts, and Automotive Company Bailouts have created a fiscal chasm that will probably take generations to bridge. Once again . . . this is absolutely not the right direction!
When U.S. citizens are told the truth and work together, they can accomplish any task but these two elements are key to beating the economic morass we currently find ourselves in. The truth has been quite scarce coming out of Washington recently and those elected officials (from both sides of the political aisle) warming the seats there offer divisiveness and partisanship . . . not leadership.
So, the next time you hear “The recovery plan is working” or “We are in a slow recovery”, question the intelligence, the veracity, and possibly even the sanity of the speaker. Common sense tells me that BS belongs in a pasture . . . not the Whitehouse or the Halls of Congress!

Posted by Colli | Report as abusive

Recovery Summer and the big fade

Jul 1, 2010 17:24 UTC

So how goes the economic news today? The job market?

The jobless claims data remain the weakest indicator of labor market activity. On the face of it, the rise in the four-week average to the highest level since the beginning of March points to a weakening in the labor market and a potential decline in private payrolls. … we find the level and direction in jobless claims somewhat troubling and the increase is likely to feed double-dip fears.  (RDQ Economics)

How about on the factory floor?

Forward momentum is slowing down in the manufacturing sector … price pressures have virtually vanished in the short space of a month.” (IHS Global)

How about overall economic growth?

Incoming data have led us to lower our tracking of second quarter GDP from 4.0% to 3.2%. In addition, the ongoing tightening in financial conditions is leading us to mark down our projection for third quarter GDP from 4.0% to 3.0%. Since the intensification of the European crisis in late April, the risks to US economic growth have been tilting to the downside. The latest round of data confirm that the sovereign crisis transmission channels have been operative and weighing on the economy: export orders tanked, confidence has stumbled, and the hit to households’ equity wealth is becoming a considerable impediment to consumer spending (JPMorgan Chase)

Me: More and more arrows seems to be tilting the wrong way. I don’t know if there will be a double-dip recession, but the cake is rapidly being baked for a weak economy on election day in November.


And this:
http://money.cnn.com/2010/07/02/news/eco nomy/bankruptcy_filings/index.htm?source =cnn_bin&hpt=Sbin

With bankruptcy filings on the rise, how is it even possible to claim that an economic recovery ever took place here?

Posted by yr2009 | Report as abusive

Washington and Beijing’s new yuan policy

Jun 21, 2010 14:32 UTC

What does China’s new currency policy mean in terms of efforts in Congress to pass an anti-China currency bill?  Here is some of what some smart people told me. First Gary Hufbauer of the Peterson Institute for International Economics:

1.  The Chinese decision ratifies the forecast I made a while back — announcement of “flexibility” prior to G20 confabs.

2.  This will take the heat off Geithner and put the Schumer bill on the back burner.  Schumer and Geithner can both claim victory.

3.  Going forward, my expectation is that “flexibility” will translate into RMB apprecition against the dollar of around 0.5% per month, for a cumulative appreciation not more than 15% over the next two years.

4.  As the euro weakens against the dollar, China will claim (rightly) that its real effective XR is also appreciating, and that takes some of the edge off of pressure to appreciate the RMB against the dollar.

5.  My guess is that other Asian countries will appreciate against the dollar as well, but less than China.

Next up is the Philip Levy of the American Enterprise Institute:

1. To me, the puzzle is why they did not do this back in February. The move relieves a great deal of the pressure on the Chiense to revalue and they incur minimal costs in terms of export sector pressure. The only position that really united the bulk of Western critics was that Chinese stasis on currency was unacceptable. As soon as this becomes a debate over the appropriate rate of appreciation, the critics will split.

2. There will certainly be continued criticism. It is highly unlikely that China will appreciate much faster than the 6 percent annual rate they followed from 2005-2008. That’s not going to deliver the millions of jobs that Fred Bergsten, Paul Krugman, and the Economic Policy Institute have been promising. Those critics were talking about a 25-40 percent appreciation all taking place while the United States is in a liquidity trap. I never bought their premise, but if you did, time was of the essence.

3.  I doubt Sen. Schumer or Chairman Levin will be satisfied with a steady but minimal rate of yuan appreciation, but it should certainly reduce pressure on Secretary Geithner to name China a currency manipulator.

4. And, of course, it will be interesting to see whether the Obama administration will take a firm stand. If they threatened a veto, it would be the first time they’d blocked a measure because of anti-trade content within (going back to Buy America and Mexican trucks). My understanding was that Schumer had hoped to attach the provision to must-pass legislation anyways. I would be thrilled to see the Obama administration take such a firm stand, but surprised as well.

Me: Beijing’s currency concession might temporarily defuse Capitol Hill critics who want to limit imports. But it won’t dispel them. With American unemployment high and congressional elections just months away, China is just too convenient an economic scapegoat. Only if PetroChina oil was fouling the Gulf of Mexico right now could China be a more tempting political target. Trade relations are sure to remain contentious.


China’s Central Bank has sought to defuse the huge pressure being built up on China to appreciate its currency.In a statement,the Bank it talks about “reforming the currency”.There is no hard numbers about appreciation or the timeline of the reforms.It would surprise me that China appreciated the currency too soon as its economy is already slowing down.http://bit.ly/dnpa7I

Posted by AGreenInvestor | Report as abusive

Did Goldmans Sachs just douse Dems 2010 election hopes?

Jun 18, 2010 15:25 UTC

Liberal pundits and economists such as Paul Krugman have no use for the White House “Summer Recovery” PR tour. (Note that it isn’t called the “Prosperity Tour.”) They continue to attack the Obama administration for worrying too much about the budget deficit and too little about high unemployment. The White House response has been three-fold.

1) We’re not obsessed with the deficit. “That’s obvious,” Republicans would undoubtedly and snarkily reply, pointing out that under President Barack Obama budget’s plan, deficits would average $1.2 trillion a year for the rest of his term. But the serious White House point is that deficits are only an economic problem in the intermediate and long run. Certainly, both Obama administration and Federal Reserve officials argue, financial markets don’t seem too concerned at the moment given the continued low level of U.S. bond yields. That is why Obama hasn’t rushed to propose some immediate austerity program such as deep cuts in entitlements or a broad-based tax increase. America isn’t Greece. At least not yet.

2) There is no appetite in Congress to pass a pricey jobs bill. As the difficulty in getting the Senate to pass the deficit-expanding “jobs bill” reveals, debt fears are starting to take hold on Capitol Hill. (Or at least fears that voters are starting to worry about all the red ink.) Consider these failed Senate votes a reality check for liberal groups clamoring for a “New New Deal.” The union-backed Economic Policy Institute, for example, wants to spend $400 billion to create nearly 5 million jobs this year. The think tank would try and pay for it with a tax on stock, bond and currency trading. But there is little support for that in Congress, and even the Treasury Department thinks it a bad idea.

3) The labor market may just surprise you — and in a good way! There is a statistical relationship called Okun’s Law (really more of a rule of thumb) between GDP growth and job growth. A simple Okun analysis leads to the conclusion that the unemployment rate rose higher than was warranted given the severity of the Great Recession Why? Perhaps businesses, fearing another Great Depression, panicked and just hacked their workforces to bits. Okun’s Law was suspended, but only temporarily perhaps.

If one buys this theory, then eventually there should be some payback for that psychological overreaction. At some point soon, unemployment should fall way faster than what the rate of economic growth would indicate according to Okun’s Law. At least this is what the White House —  and congressional Democrats hope. And if they are right, the job market might well unexpectedly strengthen right into the November midterm elections, helping avert the worst for Democratic House and Senate incumbents. No Republican tsunami.

But a brand new study from the economics team at Goldman Sachs throws cold water on all this. Their analysis is that the deviations from Okun’s Law were within the historical norm, so no sharp rebound (bold is mine):

It is a common belief that employment and hours worked fell more sharply during and after the 2007-2009 recession than can be explained by moves in real GDP, or in more technical terms, that “Okun’s law”—the empirical relationship between jobs and GDP—broke down during and after the recession. Many forecasters believe that this implies a large amount of pent-up hiring, as the “error” in Okun’s law proves temporary and firms hire aggressively in order to return staffing levels to more normal levels relative to production.

In contrast, we have argued that the relationship between employment and GDP remains quite similar to past cyclical norms, and that employment growth will therefore follow GDP growth without a “special hiring dividend.” … The bottom line is that there is no convincing evidence for a breakdown in Okun’s law, and hence no particular reason to expect a large amount of pent-up hiring during the recovery. … Overall, we see no evidence for any meaningful deviation of the unemployment rate from its historical relationship with real GDP.”

And here is a chart to help visualize the point:


Bottom Line: Unemployment of 9.5 percent or so for the rest of the year seems baked into the cake (this is what the Fed and the economic consensus see) unless GDP growth starts to boom. And good luck finding forecasters who believe that. So far, this recovery has fit into the slow-growth, New Normal paradigm. Although it was a deep recession just like in 1981-82, the recovery has only been half as robust. Voters may not blame Democrats for the Great Recession, but they will likely hold them accountable for the Not-So-Great Recovery.


Goldman Sachs has doused a lot of people’s hopes. Why would they leave out the Democratic Party?

Posted by HBC | Report as abusive

Why economy may not save 2010 Democrats

Jun 15, 2010 20:41 UTC

“Hope” wasn’t just a major theme of Barack Obama’s 2008 presidential campaign. It also might be a one-word summation of the 2010 midterm campaign strategy devised by the White House and Democrats on Capitol Hill. They hope voters get more comfortable with healthcare reform. They hope voters really care about the technocratic bank bill. And, most importantly, they hope voters begin to sense some impact of a slowly recovering economy on their personal financial situation.

Oh, and they sure hope the dang hole gets plugged, of course. It’s that last one that’s really biting Democrats at the moment. Obama’s approval rating, after more than a year on the downswing, had finally turned around in April. Then came the gusher in the Gulf. The president’s numbers are now at the lowest level of his presidency. According to weekly Gallup polling, just 46 percent of Americans approve of his job performance (with 46 percent disapproving). If history is a guide, Democrats will suffer heavy losses should Obama’s low numbers persist into November.

Certainly the BP “well control incident” — as the company might put it — is playing a big role in all this. Polls consistently show a ten percentage point gap between those who think Obama is blowing it vs. those who think he’s on top of things. And the closer voters are to the spill, the more critical they are. Just take a look at these numbers from Public Policy Polling. While Louisianans are way angrier with BP than Washington by 53 percent to 29 percent, they are pretty mad at both. By 50 percent to 35 percent, they now think President George W. Bush did a better job handling Hurricane Katrina than Obama’s job responding to the oil spill. Maybe Obama’s prime-time energy speech will turn things around. We’ll see.

But the prime shaper of the 2010 political backdrop is still the economy. A growing gaggle of economists now fret that growth will decelerate in the second half of 2010. Even bullish Ben Bernanke’s Federal Reserve is looking at a Plan B should the economy slow sharply. No double-dip recession, perhaps, but not enough economic oomph to dramatically lower the unemployment rate. In fact, it may again top the 10 percent level before year end. And if it doesn’t, the reason is more likely a shrinking labor force — as measured by government statisticians — than a surge of new jobs.

And the following numbers will only add to the sense of deepening Democratic gloom. A poll for NPR looked at the state of the races in 70 competitive House districts. Just 41 percent of voters favored Dems vs. 49 percent for the GOP. In the 30 most-competitive districts currently held by Democrats, Republicans led 48 percent to 39 percent. And in the 60 Dem districts overall, Obama had just a 40 percent approval rating.

But these results may be the ones most worrisome to Obamacrats in Washington. Only 37 percent of voters in the Dem districts believed the following: “President Obama’s economic policies helped avert an even worse crisis, and are laying the foundation for our eventual economic recovery.” On the other hand, 57 percent agreed with this statement: “President Obama’s economic policies have run up a record federal deficit while failing to end the recession or slow the record pace of job losses.”

In Washington, they call that “losing the narrative.” Democrats can only hope they can somehow get it back.


The reasons why Dems are losing are as follows: (1) they’re supposed to be Democrats, not Republicans, (2) they seem incapable of explaining anything simply and clearly, (3) they are spineless, (4) they are clueless, and (5) they have sold out to big business.

The ONLY reason why Democratic candidates will win against a Republican opponent is because the Republicans are choosing people who are completely insane.

Posted by sharonsj | Report as abusive

Why Meg Whitman can save California

Jun 9, 2010 13:18 UTC

As former Goldman Sachs CEO and ousted New Jersey Governor Jon Corzine can attest, a business background hardly guarantees political success. Though California is no startup website, former eBay boss Meg Whitman, now the GOP’s nominee for governor, might have the right skill-set to tackle the Golden State’s fiscal challenges.

Not that getting the top job will be a simple click of a mouse. Although Whitman handily beat primary opponent Steve Poizner 64 percent to 27 percent, it took $80 million to do it. And California is a heavily Democratic state. Candidate Barack Obama won by 24 percentage points over John McCain in 2008. And her opponent in November Jerry Brown, is a former governor and canny pol. But Whitman’s billion-dollar fortune and voter unhappiness with Democrats nationwide might be enough to seal the deal.

Then the fun would really start. The state’s $1.8 trillion economy is afflicted by a 12.6 percent unemployment rate — the nation’s third highest — and a budget gap of $19 billion. And California has at least another $60 billion in underfunded public employee pension liabilities (perhaps as much as $500 billion when adjusted for realistic market returns and volatility), helping it earn the lowest credit rating among the nation’s fifty states.

The dire situation would seem to require a chain-saw-wielding turnaround artist capable of slashing spending and smashing unions. But a governor is not an all-powerful CEO, as many execs-turned-politicos have discovered. Instead of making unilateral decisions, governors must persuade legislatures and interest groups, as well as rally public opinion.

It’s a challenge that would not be entirely unfamiliar to Whitman. True, ebay was a growth business for most of her tenure. But growing the online auction firm into an Internet giant required massaging and nurturing a large and disparate community of buyers and sellers. She had to discern the messages of the marketplace and react astutely. As governor, she would need similar capabilities in balancing the needs of differing constituencies, be they voters, teachers unions or municipal bond investors.

Whitman also understands how government can accidentally create an environment hostile to business. The Tax Foundation ranks California as having the third-worst tax climate in the nation, including high sales and capital gains taxes. The candidate says if she was starting eBay today, she might choose Texas over California. If California voters see things the same way as the Whitman campaign come November, they just might “buy it now.”


Socialism is collapsing, and Jerry Brown can help that process along by finishing what he started.. Whitman, like any Republican, will prolong the agony by negotiating with the Legislature, stupidly believing, like Arnold, that you can do business with liberal fascists. Socialism has to completely collapse to allow freedom to emerge from the ashes. Politics will not solve this problem.

Posted by enviiro-nazi | Report as abusive

Katrina? Gulf spill may be Obama’s Iranian hostage crisis

May 28, 2010 16:24 UTC

The analogies have been flowing almost as fast as the oil from the Gulf seabed. The BP spill is Barack Obama’s Katrina. Or maybe it is his 9-11. Pick your disaster of choice. But however you want to classify it, the expanding oil slick is a mess for the White House:

1) Voters are impatient. By a 53-to-43 margin, according to pollster Gallup, Americans think the president has mishandled the crisis. CBS News found a similar gap. The spill strikes particularly at  one of the president’s supposed strengths — competence — and highlights a perceived weakness — that he is more an intellectual than a executive. Even Democrats don’t think he has been hands-on enough. (See James Carville’s near-hysterical rant on ABC.) And now Obama is reversing a well-thought out move to allow more drilling.

2) The president’s long-declining approval ratings had been perking up, thanks to the recovering economy and his push for financial reform. Now they’re sinking again. Since World War Two, presidents with sub-50 percent approval ratings — Obama is at 47 percent — have seen their party lose an average of 36 House seats in midterm elections. The GOP needs 39 to take control of the lower chamber.

3) The spill has also undercut Democratic efforts to pass an energy bill that would subsidize alternative fuels and create a limited carbon emissions trading system. Obama has suspended deepwater drilling. But Republicans won’t even consider passing a bill that doesn’t expand such efforts. That demand makes the legislation a non-starter for Democrats. Now energy companies have begun quietly talking to GOPers about what sort of energy policy they would push if they take one or both chambers of Congress.

4) And if BP can’t permanently stop the leak? Then the problem isn’t Obama’s Katrina, it is his Iranian hostage crisis — a long-term problem he has no control over that continually drains his political capital and popularity. The White House better hope the First Father can soon tell daughter Malia that “Yes, Daddy has plugged that hole.”


Devastation Horizon could be Obama’s Iranian hostage crisis if he had a deal with BP to plug the thing and magically clean up the Gulf overnight on the eve of his reelection. Otherwise, not really.

Posted by HBC | Report as abusive

Greece and the 2010 US elections

May 7, 2010 18:39 UTC

The  290k increase in jobs is great news for the WH and congressional Democrats. The rising unemployment rate, from 9.7% to 9.9%, is not. Yes, it reflect workers moving back into the workforce, but it is still a lousy headline number. So, too, the rise in the broad U-6 unemployment number to 17.1%. The good news also gets drowned out by the big drop in the stock market and trouble with EU sovereign debt. Even if Greece’s problems do not metastasize, they still provide unsettling headlines for U.S. voters. Like something is still not right in the world. Then, of course, you still have the moribund U.S. housing market and all that evaporated net wealth. Stronger growth may be enough to keep Republicans from capturing the House and Senate, but big gains nonetheless.


The Euro would be much more tenable if it was the currency of only core Europe. The situation is not terribly different than many other European experiments with empire — too much, too fast.

In this case, I predict that rather than the weaker participants leaving the Eurozone, the stronger participants will. This is a case of Spain and Portugal needing the Euro more than Germany and Finland.

While this is all very easy to talk about, the implementation will be frightening.

Posted by JCJ | Report as abusive

Imagining a V-shaped recovery and the 2010 midterms

Apr 12, 2010 17:39 UTC

Those who argue that Democrats might lose one or both houses of Congress are making an economic argument. Slow growth/high unemployment = angry, anti-incumbent voters. But what if the economy really perks up? First some analysis by Larry Kudlow:

Sometimes you have to take your political lenses out and look at the actual economic statistics in order to gauge whether we’re on the road to recovery or not. … No one has written more about the future tax-and-regulatory threats from the big-government assault of Obamanomics. But most of that is in the future. The current reality is that a strong rebound in corporate profits (the greatest and truest stimulus of all), ultra-easy money from the Fed, and some very small stimuli from government spending are all working to generate a cyclical recovery in a basically free-market economy that is a lot more resilient than capitalist critics would have us believe. So conservatives should not lose their cool and blow their credibility over a cyclical rebound that is backed by the statistics.

And now the econ team of Wesbury and Stein at First Trust Advisors:

Unfortunately, there is a group of people who still haven’t arrived at the station – mostly because they confuse politics with economic forecasting. Many Republicans and quite a few conservative television commentators are still trying to use the Clinton/Carville method of winning elections – “It’s the Economy, Stupid.” As a result, they keep telling anyone who will listen that the Obama agenda is going to kill the economy – RIGHT NOW.

But they will be wrong. It is true that more government spending and regulation, higher taxes, and government mandates will erode growth in the future. And it is true that recent growth in government will make it less likely the US will be the home of the next Apple iPad-type device. The fact of the matter is that big government and high tax rates hurt the entrepreneurial spirit and slow economic activity (see growth in Europe versus the U.S.).

But arguing that this recovery is not happening is a losing proposition. It is happening; And it’s V-shaped. We expected a V-shaped recovery as the panic ended, as monetary velocity returned and because Fed policy was easy.

Me: I think the key here is to see what happens with unemployment, incomes, housing and gas prices.  Certainly the economic consensus is for unemployment to stay above 9 percent. And my own analysis shows a big lag between an economic turn around and public perception. Perhaps the jobless rate will outperform on the upside as it has underperformed on the downside. One thing to keep an eye on is Obama’s approval rating which is now 45-48, according to Gallup.


zzzzzzz…bed time

Posted by Ghandiolfini | Report as abusive

Why Washington will kill the market (or not)

Mar 23, 2010 13:25 UTC

The wise and wonderful Ed Yardeni gives bullish and bearish Money & Politics scenarios:

Here’s the bullish scenario for stocks: The economy could continue to grow, especially now that the uncertainty is over about how the healthcare system will be overhauled. The resilience of the economy would be attributable to the Profits Cycle. If profits continue to grow solidly this year, as I expect, companies are likely to increase their payrolls and capital spending. Stock prices would continue to rally. A regime change in November would fuel a powerful yearend rally. This is the scenario that I believe is still the most likely to unfold.

Here’s the bearish scenario: The widely expected upturn in employment won’t happen. Instead, job losses could mount again if the Obama administration now pushes ahead with more of its divisive agenda. Much of it is just as controversial as healthcare has been. The President has suggested that he won’t mind if his party loses in November and if he is a one-term president as long as his agenda prevails. On January 25, in an interview with Diane Sawyer on ABC’s “World News,” Obama said, “I’d rather be a really good one-term president than a mediocre two-term president.” He added, “You know, there is a tendency in Washington to believe our job description, of elected officials, is to get re-elected. That’s not our job description. Our job description is to solve problems and to help people.” Spoken like a true community organizer.

Me: In political terms, this is the difference between Democrats a) losing 15-25 House seats and 3 or 4 Senate seats and b) 35+ House seats and 5-Senate seats.


Dividends, share buybacks, M&A and company 2010 guidance are all on the rise, which gooses stocks. That’s what has been driving the market to new highs and it won’t end soon