Wednesday, October 14, 2009

Taipan Daily: Revisiting the Carter Thesis

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Wed., October 14, 2009
Taipan Daily: Revisiting the Carter Thesis
by Justice Litle, Editorial Director, Taipan Publishing Group

Back in May of this year, Taipan Daily posed the question, “Is Barack Obama the next Jimmy Carter?” (You can find part one of that discussion here and part two here.)

The question is not meant as political bait. To Democrats and Republicans alike we say, “A pox on both your houses.”

The question matters because if the answer is yes – if President Obama is, in fact, channeling President Carter – then the inflationary malaise of the 1970s looks set to repeat. The darker aspects of the disco era could become as much a part of the future as the mostly forgotten past. And that, in turn, leads to some pretty clear investing and trading implications for the years ahead.

Norway’s Exploding Cigar

As if you hadn’t heard, a committee of Norwegians has bestowed upon Barack Obama the Nobel Peace Prize. They might as well have given him an exploding cigar.

(As The Onion put it, "Oh, to be honored among such towering presidents as Woodrow Wilson and Jimmy Carter.")

The sentiment behind the prize was silly and unserious. Given how far in advance these things are decided, the POTUS was in office for a scant 12 days before the committee deemed him worthy. He barely had time to find the Oval Office bathroom, let alone do anything peace-worthy.

This matters because many of President Obama’s tasks will be harder now. One could argue that countries like Russia and Iran will take the White House less seriously, knowing that the U.S. Commander in Chief has a dovish reputation to live up to. On the other side of the coin, if the president makes a distinctly “non-peaceful” military decision – of the sort that looms large, re, Iran and Afghanistan – the subject of the prize could surface again as an object of mockery.

It’s almost as if the Norwegian committee wanted to hog-tie Mr. Obama – to mold him into the vessel of hope and salvation they craved, subtly seeking to limit his options with a deliberate preemptive gesture. “If we give him the prize, he’ll be that much less tempted,” they may have reasoned. Or maybe they were thinking something else entirely.

Either way, an attempt on the part of Europe to influence American foreign policy simply looks bad. The act in itself feels mildly insulting. It comes off as unfortunate no matter how you slice it.

Of course, it is not the president’s fault he got nominated. But he could have said no.

North Vietnam’s Le Duc Tho was awarded the Nobel Peace Prize jointly with U.S. Foreign Secretary Henry Kissinger in 1973. But Tho declined to accept it, on the grounds that a true Vietnam peace agreement had not yet been secured.

Le Duc Tho, in other words, recognized the importance of being a worthy recipient. President Obama could have graciously declined too, making the point that no shortage of compelling nominees existed.

This would have been a wise thing to do sheerly on political grounds. It might have even bolstered Mr. Obama’s standing as a leader, distancing him from the baggage of utopian expectations and starry-eyed rhetoric.

Instead, the POTUS accepted the award... and let the cigar explode in his face. Why?

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Tennis Courts and Swimming Pools

Perhaps because, like President Carter before him, our current president is just too damn distracted.

Jimmy Carter was known for being a micro-manager, caught up in such a vast array of little things that the truly big things were left untended. For example: Legend has it that, in his first six months in office, President Carter personally reviewed all requests to use the White House tennis court. (Carter later denied this, but various insiders confirmed it. As James Fallows writes in The Atlantic, “I always provided spaces where he could check Yes or No; Carter would make his decision and send the note back...”)

Your editor was reminded of this anecdote on reading a recent Washington Post piece, “A Vigorous Push From Federal Regulators.” According to the Post, “The Obama administration is taking on Cheerios. And popular cold remedies and swimming pool drains and rhinestones on children's clothing.”

In a move designed as much for symbolism as effect, the new chairman of the Consumer Product Safety Commission dispatched all 100 agency inspectors across the country last month to enforce a law that requires special drains on swimming pools to prevent children from entrapment. The agency shut down more than 200 pools.

“Symbolism” indeed. The frightening message we are getting is that swimming pools, Nobel Prizes and Olympic bids (witness the recent mad dash to Copenhagen on behalf of the city of Chicago) have more mindshare in the president’s head than things like the rapidly deteriorating job situation, the unfinished business in Iraq and Afghanistan, and the quiet coup that has taken place on Wall Street.

And then there is healthcare...

Neither the Time nor the Place

Whether you stand adamantly in favor of universal healthcare coverage or adamantly against it, at least one thing has become clear. Efforts at healthcare “reform” have become a giant boondoggle.

According to fund manager Jeff Matthews, who took a keen look at the Senate Finance Committee’s efforts, the bill as it stands would still leave 25 million Americans uninsured in the year 2019. (So much for “universal.” What was the point again?) An additional 29 million “nonelderly” Americans would be insured under the bill at a theoretical cost of $829 billion.

The word “theoretical” deserves strong emphasis there because the present bill 1) assumes large Medicare cuts that will never happen, 2) anticipates heavy taxation of “Cadillac” private insurance plans, and 3) surely underestimates the added fraud, abuse and gaming of the system that would take place under an expanded government mandate.

As if all this weren’t headache enough, the massively powerful health insurance lobby known as America’s Health Insurance Plans, or AHP, appears to have thrown a spanner into the works at the last minute. AHP has released a study saying premiums could rise sharply for all privately insured Americans were the present bill to pass. The White House angrily cried “sabotage.”

All of this leads your editor to ask in strident tone: Why the heck are we getting so caught up in this now?

Healthcare reform is the political equivalent of cleaning out the Augean Stables. Hercules had to reroute two rivers to wash the mountain of horse crap away. Given the intense emotional stakes, the deeply entrenched corporate interests, and the sheer degree of complexity involved, tackling healthcare head-on might rank as one of the most ambitious political endeavors of all time.

In other words, draining the healthcare swamp would be a challenging enough task during flush economic times with nothing but blue skies on the horizon – let alone in the midst of an epic financial crisis/jobs crisis/energy crisis punctuated by wars past, present and future!

It’s the Economy, Stupid

In your editor’s humble opinion, the president should have a Clinton-era campaign phrase affixed to his desk: “IT’S THE ECONOMY, STUPID.” (The prez is far from stupid, of course. He may well be a genius. But then, so was Carter.)

Even the most vocal and loyal Obama supporters, like columnist Bob Herbert of The New York Times, are wondering if the president “gets it” when it comes to jobs. As Herbert wrote on Oct. 6,

The Obama administration seems hamstrung by the unemployment crisis. No big ideas have emerged. No dramatically creative initiatives. While devoting enormous amounts of energy to health care, and trying now to decide what to do about Afghanistan, the president has not even conveyed the sense of urgency that the crisis in employment warrants.

...The word now, in the wake of last week’s demoralizing jobless numbers, is that the administration is looking more closely at its job creation options. Whether anything dramatic emerges remains to be seen.

We’re being set up for something “dramatic” all right – just not the type of drama that Herbert is hoping for.

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On the home economic front, the news keeps going from bad to worse. Wall Street is throwing a stimulus party while “Main Street” America – i.e. regional banks, small business, and U.S. taxpayers – is headed to Davy Jones’ locker. As a certified news junkie, your humble editor reads the equivalent of five or six newspapers most every day. Here is just a smattering of recent headlines:

  • Foreclosures grow in housing market’s top tiers (WSJ)
  • Credit Vise Tightens for Small and Midsize Businesses (NYT)
  • Steep Losses Pose Crisis for Pensions (WPost)
  • Failures of Small Banks Grow, Straining FDIC (NYT)
  • Small firms face credit squeeze as crisis drags (Reuters)
  • Banks cutting back on loans to businesses (MarketWatch)

What the White House refuses to acknowledge is that the jobs crisis ties directly back to Wall Street. The trillions of dollars pumped into the U.S. economy by way of various alphabet soup programs and government guarantees have directly enriched the megabanks and top Wall Street firms, while potentially making things even worse for the average man in the street.

The way this game is played, if you have the U.S. Treasury Secretary on speed dial, you win. Virtually everyone else loses. The list of Wall Street players banking huge profits off the crisis looks uncannily similar to a “who’s who” list of Paulson and Geithner telephone contacts over the past 12 months.

It’s a losing game for America because Wall Street has become a one-way thoroughfare. Huge sums of taxpayer-funded bailout money get poured in, but nothing comes back out. The taxpayer ponies up vast sums to bail out the megabanks... the megabanks use the free funds to make fat profits on guaranteed government securities while bidding up paper assets... and the real economy continues to suffer as small banks go under and small businesses find no one willing to lend.

As Spengler (aka David P. Goldman) puts it in the Asia Times,

The parallels between America in 2009 and Japan in 1989 are uncanny. An asset price bubble has collapsed, just before a tsunami of prospective retirements that the asset bubble was supposed to fund. Demand for savings is bottomless, and the government satisfies demands for savings by running a huge deficit and issuing debt. The crippled banking system borrows at an interest rate of zero and buys government securities. And the economy shrivels up and dies.

The frustrating thing about our Carteresque president is that he shows no visible sign of giving a damn about any of this. (Perhaps he doesn’t see it happening? How could that be possible?)

As the economy contracts, a combination of rising unemployment and explosive government debt expenditure threatens to ignite a period of “inflationary malaise” like we haven’t seen in decades... maybe even surpassing the ‘70s this time around.

Unless the situation is somehow rectified – and the window seems to be closing fast – our president risks being remembered much like Carter: For a raft of lofty promises unfulfilled, crafted against a legacy of deep financial incompetence and a damning roster of big problems left unaddressed.

And what’s your opinion, particularly those of you who remember those dark days of inflationary malaise? Too harsh, or more or less on the money? As always, feel free to direct your thoughts here:

Warm Regards,


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