Downgraded

The country is heading into uncharted waters.  Even some of President Obama’s supporters are beginning to realize what a disaster his presidency is. Of course, the closest parallel is the Presidency of Jimmy Carter, until now the worst president in modern times.  But Carter inherited a growing economy that was coming out of a mild recession and had about 5% growth his first couple of years in office. The country only really slid into recession during his last year.

But, unlike Carter, Obama inherited a recession.  Worse he inherited one that he did not understand.  For Obama, and most Democrats, the recession was the result of the Bush policies, the Bush tax cuts, the Bush deregulation, or all three.  Whatever the cause, it was first and foremost Bush.  In short they saw the problems in political terms not economic.  Since they were not Bush, the solution was easy, just be Democrats, pass the large government programs that Bush and the Republicans had been blocking, and  the economy would come roaring back. Thus 2009 was “Recovery Act Summer.”  When that did not go too well, 2010 was declared “Recovery Summer.”  Now here we are in the middle of the summer of 2011, and the talk is more about a new recession rather than recovery and our debt is so high that for the first time in history the US credit rating has been downgraded.

The problem was not Bush or even Bush policies, but rather it was the normal fallout following the collapse of an economic bubble, in this case the housing bubble.  However there was a different twist this time. In response to the fallout after the collapse of the Internet bubble in 2000 (which likewise was not caused by Clinton), government implemented new laws and rules.  Many have had negative effects, such as Sarbanes-Oxley but one was a huge mistake and its effects particularly nasty.  The Financial Accounting Standards Board (FASB) Rule 157 – Mark to Market – almost derailed the entire economy and was behind the financial panic in Sept 2008. This is why TARP (the Toxic Asset Relief Program) did not work; it did not address the core problem. Markets continued to decline until end March of 2010, to the day that it was announced that Rule 157 would be repealed. (For a more complete discussion of this see Preserving Democracy, Chapter 10).

With the core problem fixed, that should have marked the beginning of the recovery.  But Obama was pretty much oblivious to all this.  Instead he pushed ahead with the second half of TARP, got a huge omnibus spending bill, took over GM and Chrysler, got a $800 billion stimulus program,  a massive increase in government spending, and Obamacare, and those were just  the major items.

Democrats had strenuously complained about deficits under Bush.  Following the collapse of the Internet bubble and 9/11 the deficit grew to $426 billion, but by 2007 the last Republican budget before Democrats won back control of the Congress,  it had dropped to $151 billion.  Under the Democrats, it jumped back up to $422 billion before the current financial problems and is now nearly 10 times higher than the last Republican deficit.   Even after adjusting for inflation, it is not projected to get back down even close to the Bush level highs for many years.  Thus all the uncertainty in the credit markets.

But worse than the deficits has been the class warfare of Obama.  Obama puts everything terms of “the rich” and everyone else.  He portrays himself as standing up to the rich, attacking big business with their corporate jets, and trips to resorts.  He epitomizes the saying, “Democrats like employees, they just don’t like employers.”  He does not seem to realize that getting CEOs to stop flying corporate jets may be an inconvenience  for the CEO, but it is devastating to the pilots  who fly them, the crew who service them, the people who make them, and all the other “average working people” who jobs are tied to them in one way or another.  Thus while CEOs “suffer” at having to fly first class,  many more “average working people” find themselves out of a job as a result of Obama’s blustering.  And this is just one small industry.  When Obama goes after an industry, it is the workers in that and related industries that are the ones who really suffer.

The Obama attack on jobs are not limited to his speeches. Just as the deficit has exploded, so has government, and more importantly government regulation and its negative impact on business.   The 2300 page Dodd/Frank  bill will result in hundreds of new rules and required “26 pages of flow charts merely to illustrate the timeline for implementing the new rules, the last of which will be phased in after a mere 12 years.”  Nancy Pelosi famously said, “You have to pass the bill, so you can know what is in it.”  This is becoming very apparent as the rules for Obamacare are being written and surprises keep being found buried among its pages.  Not only are the rules themselves a burden that stifles economic growth, all this flux makes it virtually impossible for businesses to plan.  They will not know what they will be required to do or pay until the new rules can be written and understood.

Be it directly as with Corporate jets, the resort industry,  or his oil drilling permitorium,  or indirectly through massive increases in new government regulation and control, or just actions such as the NLRB attempt to block Boeing from opening a new plant in South Carolina, the Obama administration has been at best indifferent to business , and more often downright hostile.   They seem oblivious to the harm they are doing to businesses across America.  Yet they are puzzled as to why the economy is stalled and unemployment is so high.

Worse they have no idea what to do. To them this is primarily a political problem where their real goal is to stop Republicans.  Case in point:  the recent debt ceiling talks. While there was a big push to compromise on the debt ceiling, the problem was that we did not need a compromise, Washington has had plenty of those for decades.  What we needed was a solution to the debt problem.   Yet Obama and the Democrats never seemed to understand this, and they still don’t.

For all their faults, and they have many, the Republicans at least had two things that Obama and the Democrats did not:  A budget, and a plan. Actually Republicans put forth a number of plans.  For their part, even though they are required by law to pass a budget each year, it has been over 800 days since the Democrats who controlled the Senate have had one.  And this is not about an inability to pass a budget, since budgets cannot be filibustered.  Democrats in the Senate have not even proposed a budget, and currently have no plans to do so.

With no budget, and no plan to deal with the debt, all Obama had to offer in response to the Republican’s budget and Republican plans were speeches attacking them, calls for tax hikes, and oddly, still more attacks on Corporate Jets, as if taxing corporate jet owner would magically solve our debt problems.    But calls for taxes on the rich are not a plan, particularly when compared to the magnitude of the problem.

Republicans understood that they would not get everything they wanted, and so in the end they compromised and passed the Cut, Cap and Balance plan.  In response, Obama gave more speeches.  After more compromises and with the clock ticking,  in the end the President got what he wanted, the debt ceiling raised enough to get him past next year’s elections while Republicans settled for some very minor reductions in the rate of increase, which in Washington speak are call “major cuts.”  While they had a compromise, without an actual solution, the credit agencies downgraded the country’s credit rating.

So we enter uncharted territory.  We have a President who has no plans other than to run for reelection next year, and who frankly  seems at best clueless as to the impact his polices are having.  The effects of Carter’s policies really began to show up near the end of his Presidency. Before things got too bad, he lost his bid for reelection and within a couple of years Reagan had turned things around.  But we have already been suffering for over 2 years and we still have about 15 months till the next election.  Then there will couple of more months till the next President takes office and can begin to fix things.  Unlike other counties, we do not have the mechanism for a vote of no-confidence, so it is going to be a very long 15 months and it is unclear how much more damage Obama will do.