Chris

The Debt Ceiling Debate

Here's a little report that no one will want me to post, but I'm going to anyway.
Do you want to know the best way to prevent job growth and kill market volume in one move? Simple. Mess around with raising the debt ceiling.
I don't tend to hold back, so let me be clear. There are too many idiots that don't understand what the debt ceiling is, much less the Federal debt and deficit (separate issues, some don't even know that). You want to fix the Great Recession? You don't do it by crippling the economy, which is exactly what happens when you mess with the debt ceiling.
There are a bunch of people out there that want us to think that the US Federal Government should be run like a business.
I happen to agree and be one of them. That's 100% up my alley. When I see the Department of Defense spending thousands of dollars on toilet seats, I think, whoops, not being run like a business. If I had a business worth even a few hundred million dollars a year, I wouldn't spend that. Have you seen the new $800 toilet seats out of Japan and what they do? Who in the world needs to spend $20,000. Enough said.
But here's the problem. 90% of the folks that say that government should be run like a business...don't mean it or understand it. And that's just plain dangerous and uneducated.
Imagine the CEO of a business saying: "Here's how we're going to grow. I'm going to cut all R&D (that's Research and Development) and Marketing costs. I'm going to lay off 25% of the employees. Then, we will be more profitable."
Think that through. Be thoughtful and think it through. Instead of saying, "I want to spend more to make a better product and more on marketing to sell our product to the world," a CEO said, "Let's stop trying to grow what we do and stop trying to expand our pool of customers."
Does that sound like running a business? To me, that sounds like the opposite. Do you think you can beat Apple or Google or even RIMM by shrinking up to nothing?
But it is funny, because the same people that tend to think government is wasteful and "isn't run like a business" are the ones that want government to only address spending and not revenue and only cut but not be thoughtful and smart.
The problem isn't government. It's the dumb saps that don't understand any of it. The proof is in the events of this last weekend.
After weeks and weeks of the Republicans saying that we should cut billions and billions from the Federal government over the next decade, to the tune of $2 trillion over a decade, when Obama proposed $4 trillion in savings to fix the budget via a combo of spending cuts that Republicans wanted, plus spending cuts in Defense that they didn't want to address, plus spending cuts in Social Security and Medicare that Republicans have wanted for decades, plus HIGHER TAXES for the top 2%, suddenly, Republicans changed their tune.
Why?
Because Obama was suggesting that we should address the spending AND revenue of the corporate entity that is the US Government. And the Republicans have pledged never to do that. They will only address spending, or, to be clear, from a corporate perspective, they have promised that they will never try to grow the company or make it better. They will make it profitable through only one means: cutting costs. No more roads. No more healthcare. No more food safety. No more education. Cut whatever can be cut and whatever it takes to make the "company" not lose money, just don't return us to the days of taxation that Ronald Reagan and Bill Clinton and George H. W. Bush had us at. That was a horrible world. Make sure there are tax loopholes for corporate jet owners and more.
So what does this mean to current day America? Well, let let explain it this way. If I'm a small or medium or large business trying to understand if the US is going to pay its obligations or not, going to spend within its means or not, or going to pay back its debts or not, I'm at a loss. There's talk that for the first time in 240 years, the US government might default on its debts, even though the current debt to GDP ratio is far lower than we saw in the 1940's and 1950's. In other words, we aren't close to being at a point of crisis...unless we decide that we are not going to make payments. This is something that the US government has NEVER FLIRTED with doing in the past. Visit Food Catering Singapore for more info.
We raised the debt ceiling 12 times under Reagan, twice under the first George Bush, 6 times under Clinton, and 8 more times under the second Bush. The concept of raising the debt ceiling has never been in doubt...until now.
Under Reagan, we raised taxes 10 times. Under the first Bush...once (he might have lost his job because of it). Under Clinton, 16 times (and I made a FORTUNE in the Clinton years in the stock market). Under the second Bush, almost never did we raise taxes. Job growth was the worst in history over 8 years. We borrowed from China to pay out bills, or to be blunt, we borrowed from China to pay for the tax cuts for the rich, so the rich got richer from China and the rest of the country suffered and went into debt.
And what are the consequences of this new game? Simple. No jobs. What employer, large or small, would hire in the face of this junk? Let's set aside tax loopholes for corporations that hire overseas instead of here in America. Let's set aside technological improvements making many jobs unnecessary. Let's just focus on the key factor: Since the government has even started to flirt with the idea of not raising the debt ceiling and not meeting our obligation...job growth in the recovery has slowed, and for good reason. Too much uncertainty about whether the Dollar and markets and economy are going to tank when we default...why would businesses hire? Congress' inability to do what it has always done is causing the recent employment problems...period.
So if we don't hire, what happens? Well, the unemployment data will suck. Non-farm payroll jobs created will suck (see last Friday). People will be out of work. And then, after weeks of delay in getting this moving, someone might try to say, "Well, clearly, the government programs aren't working, and taxes on the job creators, those in the top 2%, should be LOWER."
LOL. Terrific.
And also, you might hear, "we should lower taxes on the rich so that they hire."
There is ZERO, and when I say ZERO, what I mean is ZERO, evidence that when you lower taxes for the wealthy, they employ more people. The years 2000 to 2008 prove this.
If you go state by state today, you can fish out the BS from the reality.
For example, my state of Arizona is a mess, but we are trying to deal with the mess through cost cutting and more.
Meanwhile, California is a disaster because it spends so much money, but the budget gap in California is tiny as a percentage of GDP. In other words, you don't need to do anything in California if the GDP grows by 2.9 percent versus the current non-growth. It's problems will self-correct.
Meanwhile take a state like Texas, where the Legislature meets only once every two years, and suddenly, there are issues.
The state is in financial trouble, and its employment rate, which is applauded by many, isn't so hot. In fact, Texas has one of the highest job creation rates in the country...and of that, it has the single highest temp job creation rate in the country. In other words, the state has one of the biggest budget deficits that was disguised by the fact that the state government met...never, and it's job creation rate is all temp work with no long term security or benefits. The state government is in shambles. Nothing but trouble ahead.
Meanwhile, Amazon continues to operate without sales tax, which is costing all of the states hundreds of billions in revenue. But I digress.
What we care about most, however, as traders, is the market, and we've seen for about six weeks now the same thing...light volume. The big players ran the market up for the last few days of June to peg their end of quarter statements to higher prices, but volume was weak then and it remains weak as things start to head downward. It's a bad situation for traders, but we aren't the only ones hurt.
Congress needs to act and act now. This isn't one way or no way. Everything has to be on the table and everyone should get a little of everything. Cut some costs in discretionary spending, cut some costs in the Department of Defense, tinker with some longer term changes to Social Security, and let the Bush tax cuts for those making over $250,000 a year expire. Problem solved. The market will like it and we can get back to trading.
But more importantly, getting this behind us like big boys and girls will get people back to work. The idea that it won't just because the government also expands its R&D number over the next decade while cutting other costs is nonsense.

by Chris