Obama's Economy

Now that Barack Obama has officially signaled that he's ready to take responsibility for the American economy, let's take a look at some of the things going on in his economy.

Taxing Businesses

The Obama administration wants to tax "business."  Actually, the administration currently is pushing at least three significant business tax hikes.  And that doesn't count whatever might emerge from health care "reform."

But Fortune's Geoff Colvin helpfully reminds us that when you tax business you actually tax people.  Which means all of us.

Colvin discusses three new ways Obama will tax businesses: overseas profits, inventories, and via carbon emissions.  All three will ultimately end up landing on the consumer, not the business:

The problem with sticking it to business in these three major ways is that, ultimately, business doesn't get stuck. Tax-wise, a company is just a bunch of incorporation papers; all taxes are paid by people -- customers, shareholders and employees. And guess who would bear most of the burden of these tax increases? It's the U.S. employees of the companies being taxed.

Research has shown that when business taxes are raised by a dollar, 70 to 92 cents comes out of employees' pay.

HOPE! CHANGE! SCREW YOU, AMERICA!

Quick - spend the money before the taxpayers get it back!

Byron York catches Barney Frank with his hand in the till. The issue is TARP: recall that the banks that received TARP money are supposed to repay it to the Treasury, along with dividend payments. President Obama has held out hope that the taxpayers may, in the end, make money on the TARP program. Recall, too, that TARP was billed as an extraordinary response to an unacceptable risk--that the nation's financial system might come crashing down. So the federal government bailed out the banks, but the banks were supposed to repay the money and the TARP statute provides that when the money is repaid, it "shall be paid into the general fund of the Treasury for reduction of the public debt." Which, of course, benefits the taxpayers who put up the money.

The greedy Congressman Frank apparently can't bear the idea of taxpayers getting their money back, so he has proposed to divert the money to a more politically appealing purpose. York explains:

[N]ow Rep. Barney Frank, the chairman of the House Financial Services Committee, has come up with a proposal to spend any TARP profits before they can be returned to the taxpayers. Last Friday, Frank introduced the "TARP for Main Street Act of 2009," a bill that would take profits from the program and immediately redirect them toward housing proposals favored by Frank and some fellow Democrats. ...

The original TARP legislation required that money made from the program "shall be paid into the general fund of the Treasury for reduction of the public debt."

But now Frank wants to spend the money before it can be used to pay down anything.

These people just suck.  There's no other way to say it.  You might want to call your Rep and Senators and advise them of your opinion on this move.

Millionaires Get a Clue

Millionaire investors lost their springtime cheer and turned pessimistic in June as worries over the economy and political climate soured the mood, according to an index released on Wednesday.

High rollers became slightly bearish last month, according to the index that measures investment sentiment of the wealthy.

The plunge of 18 points to -20 on the Spectrem Millionaire Investor Index in June was a record drop for the index, which was created in 2004.

The drop in sentiment comes after a record rise of 17 points the month before, suggesting millionaires underwent a reality check after an over-abundance of optimism in May, Spectrem said.

This is always something that amazes me - how is it that so many wealthy people support Obama?  Anyone bothering to look at his policies will plainly see that he's attacking them the hardest.  Got any explanation?  Regardless, they've finally gotten a bit of a clue.  Better late than never, I suppose.  Hopefully.

Moving on...

Naked Paybacks via TARP

Sen. Daniel K. Inouye's staff contacted federal regulators last fall to ask about the bailout application of an ailing Hawaii bank that he had helped to establish and where he has invested the bulk of his personal wealth.

The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm's losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn't meet the criteria for receiving a favorable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.

Two weeks after the inquiry from Inouye's office, Central Pacific announced that the Treasury would inject $135 million. …

Inouye reported ownership of Central Pacific shares worth $350,000 to $700,000, some held by his wife, at the end of 2007. The shares represented at least two-thirds of Inouye's total reported assets. Inouye has requested a delay in filing his annual financial disclosure for 2008, which was due this spring, and he declined to provide the current value of his investment. Since the end of 2007, the bank's stock has lost 79 percent of its value.

The short version:

In other words, Inouye interceded to get TARP funds to secure his personal assets.  He used his political clout on Capitol Hill to get Treasury to approve a "marginal" application that had already been rejected once, in order to save his own bank from collapse.

But he's not alone:

Inouye isn't the first member of Congress to have used TARP to rescue personal fortunes.  Maxine Waters did the same thing with OneUnited of Massachusetts, where she and her husband had significant investments.  In that case, Waters arranged a meeting between OneUnited and regulators, while Barney Frank wrote legislation that required Treasury to grant special consideration to OneUnited's TARP application.

Amazing how all of these people are Democrats, isn't it?  Equally amazing is the rarity of the word 'Democrat' in these articles.  In fact, of the three major news outlets (Washington Post, Wall Street Journal, L.A. Times) with the root stories, only the WSJ dares use the word, and even then only once.  In contrast, a quick spin through a randomly selected L.A. Times article about Mark Sanford's Argentinian fling reveals the word 'Republican' five times.  Amazing.

But, let's move on again...

...to a different form of naked paybacks:

Spending by lawmakers on taxpayer-financed trips abroad has risen sharply in recent years, a Wall Street Journal analysis of travel records shows, involving everything from war-zone visits to trips to exotic spots such as the Galápagos Islands.

The spending on overseas travel is up almost tenfold since 1995, and has nearly tripled since 2001, according to the Journal analysis of 60,000 travel records. Hundreds of lawmakers traveled overseas in 2008 at a cost of about $13 million. That's a 50% jump since Democrats took control of Congress two years ago.

Speaking of creative paybacks, did you know that Congress will be exempt from whatever health care 'reforms' they impose upon the country?  Oh, and their buddies in the unions.  I'll post more on this later, but those little details didn't get much press.  Wonder why...

But, we move on yet again...

Obama Blows Budget Big-Time

When the non-partisan Congressional Budget Office (CBO) released their original estimate of President Obama's Budget , they said it was going to be expensive: in ten years the President would accumulate over $9 trillion in deficits. Turns out, that was low-balling it.

In their original estimate, CBO assumed that interest rates would be held constant. This makes modeling the costs a bit easier, but makes little economic sense. In reality, as annual deficits are piled onto the national debt, any rational person (or foreign government) debating whether or not to purchase a newly issued Treasury Bond will begin second-guessing the wisdom of that investment. To get them to stop second-guessing and start buying, the government will have no other choice than to raise interest rates to increase debt-buyers' returns. Rising interest rates would drive net interest costs up further, driving deficits and debt up even higher, driving interest rates up further, and so on in a vicious cycle.

At the request of Congressman Paul Ryan (R-WI), CBO recently redid their estimate assuming interest rates would not be held constant, and this more realistic scenario paints a very scary picture indeed.

Looking at three different interest rate scenarios, more accurate estimates of President Obama's deficits would cost an additional $1.2 to $5.3 trillion, bringing the grand deficit-total to as much as $14 trillion.

And remember, that's on top of uber-rosy projections!

You know, I think that taking responsibility of the economy at this point in time may not have been a good move.  Obama should have waited at least a few more months until things really take a dive.  If he jumps into the fray when things are at rock bottom, there's nowhere to go but up, and he can take credit for 100% of the recovery.  By taking responsibility now, he's kind of stuck himself in a corner if things continue going south (which, thanks to his policies, they will).

Oh well.  Just drink your Kool-Aid, and he'll make it all better.

There's my two cents.