The End of an Era?

Frank DeMartini

On last Tuesday, America made history. It inaugurated its first black president as the 44th President of the United States. After one week in office, Barack Obama’s approval rating stands at 67% which is higher than any other president in the past 50 years, except John F. Kennedy, who stood at 72% at this point in his presidency. Between this and the election of the new Congress, Republicans are the true minority across the country for the first time since the election of Ronald Reagan 28 years ago. Pundits are saying that the country has swung to the left and the age of conservatism as we know it is over.

I beg to differ. There has definitely been a swing to the left. But, in my opinion this swing is a short term event caused by President Bush’s unpopular polices. I too believe that Bush made many mistakes. The biggest being the amount of spending that went on during his administration. He was the first and hopefully the last tax and spend Republican.

As I have written here before, I believe that Bush’s foreign policy will be looked at much differently in the future. I truly feel the American public will grow to respect his foreign policy decisions and realize that he reacted in the proper manner after the 9/11 attacks. Remember, America was attacked for only the second time by a foreign power in its history. Bush had no choice but to react and he did. He made decisions that were unpopular, but he made them because he believed he was doing the right thing. In time, the American population and maybe even the world population will feel the same way.

However, Nancy Pelosi and her radical liberal partners will never feel that way. In fact, Ms. Pelosi, in her typical fashion has hinted that Congress may investigate potential war crimes of the Bush administration and prosecute if necessary. Obama’s initial response was to oppose this craziness. However, if he needs the support of Pelosi and her cohorts to get his agenda passed, he may have to cave. I, and many Americans, feel that the past is the past and should be left alone. The Bush administration did what was necessary to protect the American people. There have been many allegations of war crimes by the liberal media, but, until now there has been no evidence of any that warrants an investigation.

As for the “Change” that America needs, it is not the “Change” that I believe America wants. In his first week in office, President Obama has issued such a large number of executive orders that they may be more than the last few presidents combined. Among these are lifting the ban on offshore abortion funding and permitting more embryonic stem cell research.

These two orders alone may give the conservative pundits the energy they need to excite their bases. Remember, Obama was elected because he got a substantial amount of Reagan Democrats to vote for him. A large number of these voters are fundamentalist Christians who will have a tough time stomaching these two orders. Further, there are many centrists that also feel that abortion and stem cell research are wrong. These are controversial issues and Obama displayed some guts by dealing with them in his first week. However, this may backfire against him as he risks alienating the borderline voters that put him over the top in Ohio, Pennsylvania, North Carolina, Indiana and Virginia.

Obama also ordered the Guantanamo Bay holding center closed within the next twelve months. I would like to question whether he knows what is going to be done with the prisoners currently being held there. Will he bring them back to the United States and have them tried in the American judicial system, or will he let potential terrorists go free, maybe back to their own countries where they can get back into the profession of terrorism. Many bad things happened at Guantanamo, but closing it is not the answer. Maybe just stopping the controversial interrogation techniques that went on there? I for one do not want terrorists, alleged or otherwise, living on the continental United States.

Even with these Executive Orders, Obama has not even begun his widespread change. This is coming. It will be to convert the Republican free market economy into European style socialism. Three months ago conservative pundits were using this fear almost as a passing reference, but now the reality of it is beginning to set in. Dick Morris, in an article that can be found at: http://thehill.com/dick-morris/, states, “We will shortly become . . . a socialist democracy in which the government dominates the economy, determines private-sector priorities and offers a vastly expanded range of services to many more people at much higher taxes.” I am not going to go into the detail of Mr. Morris’ article, but I highly recommend that you read it. In summation, the free market will cease to exist and our economy will be controlled by the free spending liberal activists.

The proposed economic stimulus package of approximately 750 billion to one trillion dollars is a means to this end. The American government will now be borrowing from lord knows who to pay for welfare in the form of tax cuts for the poor, infrastructure projects to rebuild roads, bridges and highways which traditionally and correctly is an obligation of the states, and various other liberal projects all disguised as a means of ending the recession. The only thing that is guaranteed by this package is that a small portion of it will be paid for by tax increases on the rich. I have no idea who will pay for the rest. Maybe the next ten generations of Americans.

Obama is insisting that this stimulus package be passed by the middle of February. In fact, he has made it his number one priority. As I have stated before in this column, it will not work. You cannot continue to print money to stimulate the economy. Keynesian economics did not work in the 1930’s. It did not work in Japan recently. And, it will not work now. Deficit spending will create just the opposite effect. If you pump what will be inflated money into the system, inflation will run rampant and the buying power of the American populace will be lowered. Once this happens, the recession will deepen thereby causing more layoffs and job losses. You must allow the economic cycle to play itself out.

Further, raising taxes on the rich will not solve the problem. The top one percent of income earners are the people who start businesses, risk money and create jobs for the rest of us. This is basic economics. If you raise their taxes, they will not invest in new businesses and create jobs. In fact, they will take what money they have left and hoard it. This is exactly what happened with the first stimulus package a year ago. Most of the free money that was given away went right into savings accounts because people feared for the pending economic crisis.

Most of the world understands this even though this is a worldwide recession. The dollar has risen to decade highs against both the Euro and the Pound. In fact, except for the Japanese Yen, the dollar is growing in value against all major currencies. Apparently, people around the world are hording dollars because they have confidence in the American economy. However, if we keep printing money with nothing to back it up, this may change as well. The dollar will become grossly inflated and devalued. The only people this will help are people in an export based business. And, other than aerospace and entertainment, there aren’t much of those left in the United States.

So, what is the answer? As I have said before, the only thing that will work is time. Time will allow the people to regain confidence in the economy. Once that is done, people will shop, entrepreneurs will invest and job growth will begin. Until then, you can pump trillions of dollars into the economy and it will do nothing except maybe make matters much worse.

If Obama insists on this rampant Keynesian approach to economics, there w
ill be change. Only it won’t be the change he wants. It will be a change in 2010 to another Republican controlled Congress. All of the borderline voters that were willing to give the Democrats a chance will return to their Republican roots.

Of course, Obama is doing his best to avoid this scenario. He is telling people that it will take time to solve this economic crisis. Even he knows that the stimulus package will not work. He knows it is time that will solve the problem and that is what his constant comments about patience are really all about. The reality is that he knows the proposed stimulus package is only a means of converting the American free market economy to European styled socialism.

I invite your comments as I sit in my hotel room in Thailand ready to begin another week of pre-production. We begin filming two weeks from Monday. Until my next column, I wish you all the best.

© 2009 by Frank T. DeMartini. All rights reserved. Permission to copy and use excerpts will be freely granted.

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5 Responses to The End of an Era?

  1. Anonymous on January 25, 2009 at 8:43 am

    God help us all!

  2. Gary A and Gabby A on January 25, 2009 at 4:12 pm

    Frank, the economy is heading off a cliff and action is better then no action. No policy is perfect, but you have to try and stop the rising unemployment and the millions who are loosing their houses (one out of every 10 are now deliquent on their mortgage). We are way past the subprime mess. We need action. This president has surounded himself with very smart people and unlike Bush he is open to taking expert advise. I also think this president is more open to working with the republicans than the Bush administartion was with the democrats.

  3. Frank T. DeMartini on January 25, 2009 at 4:53 pm

    I thought that was actually going to happen too, except that the bipartisanship has already started and Nancy Pelosi is walking around saying, “we won the election, we can do anything we want. We don’t need you to the Republicans.” The bipartisanship lasted all of two days and it started when Obama insulted Bush in his inaugural address. Read the news reports on this.

  4. Evlovesfashion on January 25, 2009 at 7:08 pm

    I think you’ll be right – A few years from now we’re going to miss Bush’s foreign policy and see it from a different angle! – I hope I’ll be wrong about it (As a matter of fact I’ll be glad to be wrong, but only time will tell)

  5. From the KING on January 31, 2009 at 11:45 pm

    FROM ARTHUR .
    Attali Warns of Worldwide Weimar as Governments Print Money

    Interview by Farah Nayeri

    Jan. 30 (Bloomberg) — Imagine a country so ravaged by inflation that $1 will buy you 630 billion in the local currency, where a loaf of bread costs tens of billions, and where wheelbarrows are the new wallets.
    That was the Weimar Republic in November 1923. A similar prospect may now await the world economy, says French economist Jacques Attali in La Crise, et Apres? (The Crisis, and Then?), a stinging new critique of the financial meltdown.
    Attali, 65, served as a special adviser to French President Francois Mitterrand in the 1980s and later became the first head of the European Bank for Reconstruction and Development. He went on to found microfinance agency PlaNet Finance. In 2007, he steered a panel on economic growth that made recommendations to Nicolas Sarkozy, the current president.
    In a telephone interview, Attali traced the roots of the current economic quagmire to what he considers a flawed ideology that warped the financial system.
    Attali: There was this ideology of a positive attitude: If youre not positive, if you dont believe that anything can be solved by going faster, youre not a member of the club anymore. People were, in a totalitarian way, censoring themselves to avoid being expelled from the club. Because they made a lot of money by being in the club, they said, OK.
    We cant criticize people for being greedy if they made a lot of money within the rule of law. The problem was that there was no rule of law. We could have avoided this crisis if our understanding of the dangers linked to too much leveraging and securitization had led to better regulation and control.
    Greenspans Waterloo
    Nayeri: How much is former Federal Reserve Chairman Alan Greenspan to blame?
    Attali: We should avoid blaming anyone as a person. We should blame the system as a whole.
    Whoever was part of the system was, as we say in French, just a soldier at Waterloo — not responsible for anything, more of an actor. Even Greenspan was only a soldier at Waterloo, not the general in charge. There was no general in charge.
    Nayeri: Is U.S. President Barack Obama the right man to have in the White House?
    Attali: Hes the best and the brightest, with the best and the brightest advisers around him. I dont see anyone who could do better. The problem is that hes facing a situation that can rapidly get out of control, even for an American government.
    Depression, Weimar
    Nayeri: What is the probability of a global depression?
    Attali: A 5 percent drop in gross domestic product is already in the pipeline for the U.S. That means a 20 to 25 percent drop in industrial production. We only have about 6 percent growth for China, which is quite low. So we are already in a depression.
    The question is how to avoid having a large one, and how to avoid solving the depression through inflation. Because the real threat is a Weimar situation — a worldwide Weimar.
    Nayeri: Is that likely?
    Attali: Who would have said six months ago that the nationalization of American International Group and the Royal Bank of Scotland was likely?
    Nayeri: What do you mean, exactly, by Weimar?
    Attali: Depression, unemployment and inflation. What happens if the markets dont finance the governments? The governments will finance themselves by creating money. This is a clear recipe for inflation — both depression and inflation.
    I dont say thats likely. The risk is less than 10 percent. But the nationalizations of AIG and RBS were only 10 percent probabilities when they happened.
    Nayeri: Based on your experience, how does President Sarkozy compare with President Mitterrand?
    Attali: All I can say is that two-thirds of the proposals in our report are in the process of being implemented, which is a huge achievement. It shows the capacity of the French president to implement reforms.
    La Crise, et Apres? is published by Fayard (213 pages, 14 euros).
    To contact the reporter on the story: Farah Nayeri in London at farahn@bloomberg.net.
    Last Updated: January 29, 2009 19:00 EST

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