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Archive for the ‘Economy’ Category

By Dick Morris and Eileen McGann

The data is in for April. Here’s what happened:

1. Household personal income (inflation adjusted) rose but every penny – and then some – went into savings or paying down debts. Consumer spending, on which Obama is betting to stimulate the economy, actually fell. None of the stimulus money was sent. None.

2. Meanwhile, to pay for this stimulus spending that didn’t stimulate, Obama had to borrow so much money that long term interest rates have almost doubled since he took office, forcing postponement of abandonment of business expansion and hiring across the board.

What a record!

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Here are the details. In April, personal household, inflation-adjusted income rose by $122 billion. Of that increase, one-third or $44 billion came from the government’s stimulus program. But while personal income was rising, household savings (which includes paying down credit card balances, mortgages, student loans, car loans, etc) rose by $132 billion — $10 billion more than the rise in income. So personal consumption dropped 0.1%.

The stimulus package was a total and complete failure. As predicted, as happened with Bush’s 2008 tax cut, as happened with the Japanese stimulus packages of the 90s, fearful consumers sat on their money and wouldn’t spend it. Keynesian economics didn’t work. Again.

But the debt sure piled up. The deficit quadrupled and is sending interest rates soaring as the government elbows aside businesses and consumers at the loan window, all in a desperate effort to borrow enough money to spend enough money to stimulate the economy which isn’t happening.

As we describe in our new book (out June 23rd) Catastrophe, Keynesian economics doesn’t work. The theory for rational expectations has taken its place. Consumers are not idiots. They know that when their paycheck is fatter – either because of tax cuts or government spending – that it is not the beginning of nirvana but just a short term, one shot respite from hard times. They know the difference between standing in front on an electric fan and a windy day.

Barack Obama has fatally undermined our currency, our solvency, our financial stability, and – ultimately – our economy all to spend money that has had no economic effect!

Is Obama a failure? Not by his lights. His goal was never to stimulate the economy. His goal was to expand government spending and he used the recession as an excuse to do so. And, by this standard, he is a raging success. With the stimulus spending, the government proportion of GDP will rise from about 35% to about 40% and with health care “reform” it will go soaring into the mid-forties, bringing us to parity with Germany en route to France!

But the results are in: None of Obama’s spending is doing anything to help the economy.

Of course, the process of household savings, designed to pay down debt, is very healthy. Economists call it de-leveraging. By the start of the recession, the debt American households owe had risen from 70% of their annual income in 1995 to 140% (excluding mortgages). Now it is on its way back down again. And, eventually, that will lead to a real recovery — If Obama doesn’t wreck the currency and bring on mega-inflation before then. (But he probably will).

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KANSAS CITY, Missouri (Reuters) – The U.S. housing crisis looks pretty distant when viewed from the cornfields of middle America, although land values pushed up by record commodity prices also evoke past booms that ended in bust.

Farm prices in the corn belt jumped an eye-popping 20-plus percent last year. Economists at the Kansas City Federal Reserve say that so far, the gains seem to be based on anticipated profits from future harvests, not speculation.

If prices suddenly turned lower, the sector could suffer, and it would not be the first time. Farm values collapsed 40 percent between 1982-87, squeezed by higher production costs and lower agricultural earnings.

“If prices stay put we’re somewhat better, but if they don’t, we’re somewhat in trouble … It’s not all roses,” said Dennis Kvatum, a soybean and wheat farmer in Beardsley, Minnesota.

On the other hand, farmers have far fewer debts than in the 1970s and 1980s, giving them a decent cushion.

“Rising farmland values might be a sign of a bright, new, golden age in agriculture — but they are not without risks, noted the Kansas City Fed’s latest Economic Review.

In the meantime, the rest of the regional economy is benefiting from the sector’s strength, albeit with typical Midwestern understatement.

“Our business is really not bad. In fact, it’s pretty good,” said Mike Haverty, chief executive officer of Kansas City Southern railway, whose trains haul cargo like coal and grain for export to ports in Mexico.

Surging energy costs have not dented the railroad man’s enthusiasm because strong demand has helped him to pass along roughly 70 percent of these increases to customers.

A monthly manufacturing survey by the Kansas City Fed of its district declined in June, but it did show that companies’ expectations for future activity remained positive and export activity was solid.

The Kansas City Fed’s seven-state district spans the farming heartland of Oklahoma, Kansas, Nebraska and western Missouri, as well as the Rocky Mountain states of Colorado, Wyoming and northern New Mexico, where energy and ranching, as well as tourism, are economically dominant.

DOING WELL

“The major food exporters, energy and commodity producers of our district are doing well,” Kansas City Fed President Thomas Hoenig told Reuters in an interview earlier this month.

“Our housing industry is under pressure, but by much less than in southern California,” he said, referring to a region of the country at the heart of the subprime mortgage meltdown.

U.S. agricultural exports have skyrocketed more than 40 percent this year due to both higher prices and larger volumes, amid soaring demand from markets like India and China, whose massive emerging middle classes want to eat more and better.

The benefits of this boom have been felt broadly, with retail sales taxes up in neighboring Nebraska, for example, in an indication that consumers have continued to spend and buoy a service sector suffering at a national level.

“Record high commodity prices have lifted farm profitability and that has spilled over into capital spending,” said Jason Henderson, a rural economist and head of the Omaha branch of the Kansas City Fed.

“We’re going to have some solid growth in 2008 and our service sector is holding up well,” he said, adding that west Nebraska may be one of the few places in the country where demand for SUVs has defied $4-plus gasoline.

The Kansas City Fed calculates an index of farm incomes and capital spending based on a survey of agricultural banks.

This gauge soared to around 160 during 2007 from a reading near 100 in the fourth quarter of 2006, with capital spending tracing a similar climb. But the pace of gains for both were expected to slow over the coming months.

“Rising input costs are limiting crop profit margins. Livestock producers are posting huge losses due to higher feed costs,” it noted in its most recent survey of agricultural credit conditions, which covered the first quarter.

On top of margin pressures, higher commodity prices also up the ante for agricultural businesses that have to buy and store produce at the higher prices, and finance these inventories with bank credit.

“Your county grain elevator used to need a credit line of $10 million and now that is more like $40 million,” said Paul DeBruce, chief executive of DeBruce Grain, a huge private grain distributor with $4.6 billion of turnover in fiscal 2008.

Some if his grain elevators customers were negotiating harder on when they would get paid than on price — an indication of their need for cash — and order backlogs for agricultural equipment were lean, in a sign of slowing demand.

“The industry is not in trouble, but it is under strain,” the Kansas City-based DeBruce said.

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Candidate promises her strategy will work better than Obama’s!

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A face that only a mother the blind could…

BRIDGETON, Mo. (BN)  — Sen. Hillary Rodham Clinton conceded Sunday that she “might have been a little exuberant” when she predicted she could bring 200,000 jobs to Western New York as a senator but stressed that she would do a far better job on economic issues than her chief rival for the Democratic presidential nomination, Sen. Barack Obama of Illinois.

In an interview with The Buffalo News after a town hall meeting on economic issues in this St. Louis suburb, the New York senator blamed Republicans for getting in the way of her economic plans and criticized both Obama and the GOP presidential front-runner, Sen. John McCain, for their approach on economic issues.

Asked if she regretted her 2000 campaign pledge, Clinton said: “Well, I might have been a little exuberant, but I thought we could do it.”

She said that if Al Gore had been elected president that year and if the Democratic fiscal policies of the 1990s had been maintained, investments would have been made that would have boosted the upstate economy, which has continued to lose jobs through much of this decade.

“I think it was a defensible claim, but you know, the world changed,” she said. “And we didn’t get the political support from the Republicans and President Bush to do it.”

Just as Clinton made economic issues a centerpiece of her 2000 Senate race, the current economic slowdown and her proposed response to it stand at the center of her campaign for president.

She has proposed a detailed stimulus package to deal with the nation’s short-term economic struggles and a series of larger measures meant to spur long-term growth. And in the interview, she said her plans are better than Obama’s for several reasons.

“As part of the stimulus plan, I address the mortgage crisis,” she said. “And I think if we fail to take on this mortgage crisis and do more than Bush has agreed to do, we’re not going to get the impact from the stimulus that everybody’s hoping for.”

While Obama has proposed a multibillion-dollar fund to deal with the mortgage crisis, Clinton has offered a more detailed plan that also includes a 90-day moratorium on foreclosures and a five-year freeze in interest rates for subprime loans.

Obama has criticized the Clinton proposal, however, saying that freezing subprime loan rates would inevitably mean higher mortgage rates for everyone else.

But Clinton disputed that notion, saying higher mortgage rates are unlikely when the Federal Reserve is working to push interest rates lower. She said an increased federal involvement in housing, including an increase in the loan limit for Federal Housing Administration mortgages, also would help keep mortgage rates down.

Money for jobs

Clinton also said the extended unemployment insurance and expanded home heating assistance included in her stimulus plan made it superior to what Obama was proposing.

“We do need more direct spending on important programs like unemployment compensation and the direct assistance for low income heating,” she said. “We need to start now to do that because that is direct money that will really circulate in the economy.”

Clinton stressed that her plan also includes $5 billion for investment in so-called “green collar” jobs that are aimed at expanding alternative energy sources.

“I think green collar jobs, infrastructure repair and construction are big ticket items that would make a big difference,” she said.

Obama has criticized Clinton’s stimulus plan because at first she did not call for an immediate tax rebate, but the New York senator said her rival was misleading voters in criticizing that aspect of her plan.

“He misrepresents it,” she said. “He sends out mailers and things and it’s just not true.”

She said she originally suggested the tax rebate “be held in reserve as part of the same plan” and not immediately implemented because she was concerned that any tax rebate proposal would encourage Republicans to try to make the Bush tax cuts of the early part of the decade permanent.

The New York senator also looked to the long term in the interview, criticizing McCain, R-Ariz., for his recent comments in Michigan, where he said auto industry jobs that had already been lost would never come back.

“He’s not right and here’s why,” Clinton said. “If we have the right package of incentives for the auto industry combined with raising gas mileage, we can keep a lot of jobs here. But we have to make investments and the federal government has to be a partner in making investments in new cutting-edge technology.”

Clinton has made the greencollar jobs proposal and the idea of investing in the auto industry staples of her stump speech for months. And in the interview, she stressed that those plans have great potential for reinventing the American economy.

“We have an opportunity if we do this right to make it the equivalent of the space race — to have a federal partnership with industry that really unleashes a whole new era of innovation and new jobs,” she said.

‘I will never forget’

Earlier, at the town hall meeting, Clinton — whose husband, President Bill Clinton, forged the North American Free Trade Agreement — explained why she had called for a trade “time-out” and tougher enforcement of U.S. trade law.

She said plenty of New York companies had trouble getting their products into Canada.

“It’s supposed to be a twoway street, but there are all these hidden barriers that prevent our products from getting out,” she said.

In the interview, Clinton also noted that her office is “on top of the wind storm” in Buffalo and that she was thrilled that she had succeeded in persuading the Federal Emergency Management Agency to pay for tree stump removal in Buffalo.

“I think it’s kind of a metaphor really for what I’ll do as president,” she said. “You know I will never forget Buffalo. I will never give up on trying to improve the economy there. I will pay attention to the agricultural economy of Western New York. I will come up with new ideas, and I will be a great partner for Western New York.”

If any of you believe in Hillary’s plans ‘for a better world’ then you seriously need to take an introductory course on Economics – an excellent primer on this subject is Thomas Sowell’s ‘Economic Facts and Fallacies’.

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