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“The Economic Mess We Inherited”

Monday, December 14, 2009  |  posted by Hugh Hewitt

The Monday morning column from Clark Judge:

“The economic mess we inherited”
by Clark S. Judge, managing director, White House Writers Group, Inc.

On Sunday, Rasmussen reported amazing nineteen-point negative gap between President Obama’s strong favorable (23%) and strong unfavorable ratings (42%) among likely voters. In polling terms this deficit is almost as big as the trillion-dollar-plus one in his 2010 budget. To it, the president and administration have one response, repeated last night in his interview with Oprah Winfrey and summarized in five words: “The economic mess we inherited.”

But upon assuming office did he and his administration find an economic crisis that needed mending-or one for which everything had already been done that needed to be done to bring about a recovery? And if the latter, have their policies made things better or worse?

In February I argued (see here: http://tiny.cc/N0Cgu <http://tiny.cc/N0Cgu> ) that a few simple calculations derived from Milton Friedman’s quantity theory of money pointed to an economic recovery beginning between May and September, as in fact happened.

The basic argument was that in early 2008 the United States had seen unprecedented destruction of a new kind of base money, that which was incorporated in structured financings rather than bank reserves. We were in the first bank run of the non-bank bank era. Not until September did the Federal Reserve and Treasury respond with adequate vigor. But in the last third of the year their massive injections of funds into the economy and the banking system were sufficient to offset what had been lost in the first third.

As of February, the danger was that the Obama Administration could dampen or reverse this coming upturn. How? By injecting new risk and uncertainty into the economy through, for example, mandating trade protection, increasing tax rates, diverting resources from productive private investment to uneconomical government-sponsored activities, intruding in the management of major industries, or harassing and prosecuting business people to make populist political points.

The measure of when an economy takes on increased risk is simple: lenders will lend fewer dollars for each dollar of reserves.

This is exactly what is happening now-and it will continue to happen for as long as the administration continues to drive the nation towards unimaginable levels of spending and deficits, makes the government debt crisis worse through its health care overhaul including through aggravating the Medicare crisis by adding millions more to the unfunded program’s rolls, piles new regulations and controls onto the economy and financial system, and bludgeons bankers and businesspeople to act against their considered judgment.

The president’s weekend talk about fat cat businessmen and his likely follow up performance when he and his team meet today to beat up bankers to lending more liberally could only make things worse.

It is also a negative when he talks about the immense swings in the economy in the decades before he took office. Economists term those decades the “Great Moderation” because recessions were mild and short-lived and growth was steady. To people making investment judgments based in part on whether Administration policy makes sense or not, such obvious ignorance or dissembling suggests a White House the does not care about economic reality, even enough to get recent history right.

Karl Rove argues that part of what is driving the Administration’s collapse in the polls is their choice of subjects. The president talks about health care and global warming when the American people are worried about jobs, taxes, and economic growth. On one level Rove is surely right. Mr. Obama may win points by saying he inherited a bad economy, but he immediately loses them when he focuses on policies like health overhaul that few believe have anything to do with solving our economic problems. Still, something more is going on.

For a president who ran on forward-looking themes of hope and change, Mr. Obama sounds amazingly stuck in the past, in FDR’s 1930s. Yet, attitudes have changed in seven decades. James Farley’s formulate for winning elections-“tax, tax, tax, spend, spend, spend, elect, elect, elect”-is a nonstarter today. A clue to how much of a nonstarter was in Rasmussen’s Sunday report, which observed, “Among those who consider fiscal policy issues the most important, just 1% Strongly Approve [of how the president is doing his job] and 81% Strongly Disapprove.” It has been clear for several years that Independents are particularly concerned about fiscal issues and that losing Independents is the major reason for Mr. Obama’s fall in the polls.

So “the economic mess he inherited” doesn’t work as an excuse when a large segment of the American people see the Obama policies as making things worse, much worse. And here is the bigger problem for the president: those people are right.

It is an old political adage: if you find yourself in a hole, stop digging. It doesn’t look as though the Obama Administration will heed that advice anytime soon.

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The Latest from “Bear in the Woods”

Sunday, December 13, 2009  |  posted by Hugh Hewitt

First we hear from Banker Guy (see below) and now a missive from our anonymous ad exec, Bear in the Woods. Both are favorites of HughHewitt.com readers, so consider it an end-of-year Christmas reading bonus:

In the midst of my usual end-of-the-year rush, around Thanksgiving, I, as did most of us, started really contemplating what I’m thankful for. As I’ve grown older, and become less concerned with what the Jolly Old Elf will leave for me under the tree, I’ve found this period of reflection and thankfulness makes Christmas and New Year’s that much more special — and I try to hold onto it, and extend it as far into the new year as possible. It makes it further and further every year. So, this year, in addition to being thankful for Grace, health, family and freedom, I want to point out a few other things I’m truly thankful for. Some of them might surprise you.

First and foremost, I’m thankful for the Democrats. Yep, that’s right: The Democrats. Not just any old Democrats, mind you, but the really special ones: Nancy, Harry, Rahm, and most definitely Barack — there are others, too, but I’m just hitting the highlights.

Here’s the way I see it: It’s human nature to take the things you have, and cherish, for granted — until those things are threatened. I think conservatives did that. I know Republicans did. But thanks to the Democrats — conservatives, independents, and even most Republicans, have ignited with passion to defend the basic liberties we cherish in this country, and the constitutionally-mandated limitations on government that are being threatened. It’s not that we couldn’t have ignited without the Democrats. It’s that we wouldn’t have. Liberty is precious, but it requires vigilance. The Democrats reawakened our vigilance, and for that, and for them, I’m thankful.

The second thing I’m thankful for is the citizen army that has raised its voice loud and clear — at Tea Parties and townhalls, on Twitter and Facebook, on blogs and talk radio, with bumper stickers and t-shirts and homemade signs. You knew that Republican and conservative leadership was in the mode of passive pontification, and nuanced DC-speak. So you shouted. And you kept shouting. And I pray you will continue to shout, because the fight isn’t even close to over. For you, and for your voice, I’m thankful.

Finally, I’m thankful that the GOP has at least begun to take baby steps toward recognizing both the power of conservatives, and the potential of decent communications. I say baby steps, because that’s all I see at the moment, and some of those baby steps have been a forced march. But still, steps have been taken. The redesign of gop.org is exactly as RedState commented: Neither as good as the GOP thinks it is, nor as bad as the tech-marketing world thinks it is. Regardless, it’s better than what was there. It’s going to live or die based on the content it was created to hold, and whether credibility can be built for the site as a go-to for important conservative content and action that’s not available, better, elsewhere. Reversethevote.org is a good baby step. It could have used a stronger push. They’re learning.

They seem to be hearing, too. One has to believe they heard the vote in upstate New York (the forced march I spoke of.) One has to believe they’ve heard townhallers and Tea Partiers who care about principles and conviction, rather than affiliation. One has to believe they read polls. One can only pray they know it’s not them. Because it’s not. It’s all of us. Shouting.

Conservatives are speaking, but the nature of all grassroots movements, whether in marketing or politics, is that in order to be sustained, they need leadership and focus. New media teaches us that leadership, however, doesn’t work as well from the top down, and messaging’s focus resonates when it comes up the ranks. Not like we used to think. I truly believe that the GOP, as dense as they have proven themselves to be, is beginning to get the idea that they cannot claim leadership of this movement without overhauling an antiquated battle plan, and listening — at least a little — to the voices that are shouting, all around them. They’re beginning to get the idea. I’m thankful for that. Now, all I want for Christmas is to believe they’ll truly get it — before it gets away from them.

Merry Christmas. bearinthewoods84@gmail.com

An Assessment From Banker Guy

Saturday, December 12, 2009  |  posted by Hugh Hewitt

“Banker Guy” is the anonymous CEO of a mid-sized bank in a major city who occasionally lets us know what he thinks of the financial crisis and the response of Congress. Here’s his latest:

The Third Worst Law Passed by the House Ever

Dear Hugh,

After PelosiCare and Cap ‘n Tax the worst piece of legislation ever is H.R. 4173 or as I call it – Barney’s Barf. The bill passed Friday by a vote of 223 to 202 with only Democrats supporting it.

H.R. 4173 creates the Consumer Financial Protection Agency (CFPA). The Director of this agency is appointed by the President and confirmed by Congress for a five year term. The Director has no oversight and broad power and rule-making authority over about one fifth of our economy. The Director can make rules without regard to the safety or soundness of financial institutions. The Director can ban consumer financial products, determine how they are to be delivered, and regulate compensation of people who deliver those products. The Director has subpoena power, can demand documents and oral testimony and issue cease and desist orders.

Further this law enables states to enact even tougher rules that must be obeyed by all banks doing business in that state. So a multi-state institution will be forced to adhere to the most restrictive rules everywhere it does business or become extremely inefficient.

I believe this law will hurt consumers. Meredith Whitney, a noted bank analyst, made this point on CNBC this week. Given the regulation by the CFPA, many providers will reduce their offerings rather incur losses. Reasonably priced credit and deposit products will be less available to many people. It will be more costly to everyone, as overdrafts will not be paid and consumers will be charged by merchants and banks. When overdrafts occur they are reported to credit bureaus and consumers will see their credit scores decline. That will drive up credit costs and reduce credit availability.

I know it is easy to dump on “greedy” bankers and some deserve the scorn, but the thousands of banks in local communities across America are honestly trying to help consumers and small businesses recover from the recession and create jobs. The addition of these populist constraints to the existing pressure from regulators to reduce commercial real estate lending and increase capital, which also reduces lending, will further slow any recovery.

If I sound like I am frustrated, I am. Most bankers I know are also very frustrated. It is difficult to deal with the effects of the recession on so many of our customers, but to have the regulators and the politicians in Washington trouncing on also is no fun!

Hugh, please keep up the good work on defeating ObamaCare and Cap and Trade, but the Consumer Financial Protection Agency, a similar pox on business and our economy, also needs to be defeated in the Senate.

I can be contacted at BankerGuy2009@gmail.com.

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