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1/25/11

Economic, Social and Geopolitical

My State of the Union...

We have too much debt and printing more money is now beyond counter-productive; the government can't fund any more programs or do more bailouts.

While being cautiously optimistic, I am hoping that Obama's move more to the center, will make the next two years far better than his first two years as President. There is clearly trouble on the horizon in the form of a potentially hard hitting Double Dip to this long term economic crisis recession, which has the potential to make this another great depression. Perhaps he really has learned some things on the job. My desire is that he has also studied some history and drawn reasonable conclusions but I'm holding back judgment on that. Actions speak louder than words and we already know he is excellent at the latter.

My concern is that the economic State of the Union is tenuous and there is relatively recent history to be our guide, beginning with the post-WWI twenties and the Great Depression of the thirties, of the previous century. What we can learn from the 1920s is what led up to the Depression has striking similarities to what led up to this economic crisis. We can also learn that the actions Franklin Roosevelt took in the 1930s have been partially undertaken already and did not work, meanwhile more are being proposed. What America needs to know is that before the 1929 crash the government was less than two percent of the economy and Roosevelt drove it up over thirty three percent. Whereas Coolidge was the last President who believed the government was the "invisible hand" in the nations business and economy, his successor, Hoover started the idea of government as the "benevolent hand" and Roosevelt took it to the extreme of the "controlling hand."

His famous statement, repeatedly reinforced, was "The country needs, and unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: if it fails admit it frankly and try another. But above all try something."

In other words, do something even if it's not well thought out, untested and wrong. We can't afford that.

The problem was that he also coupled this with massive regulation and micro-management of every aspect of business, small to large. The private sector held onto cash and wouldn't invest to build new or keep open all types of industries and hire people because they neither knew what to expect next from FDR and the regulatory rules were so voluminous they were difficult to interpret. This included agriculture and farming. The result was production was low and unemployment remained high. The myth we were all taught that Roosevelt saved us from the Depression by creating public sector jobs, in reality was because his increased interference had failed and it was a method to enlarge the government as an employer. What ended the Depression was not the CCC or WPA or regulatory agencies but the entry of the US into WWII in 1941.

Do we want to repeat the same mistakes?

Today President Obama, according to his State of the Union Preview Video and press statements, is going to propose ways to job creation through open markets. What I hope he also proposes is scaling back the huge regulatory expansion that has occurred in his first two years. His administration has created more red tape and interference than any President since Carter and this is what killed productivity and job growth in the private sector during the last depression. If you need an example, look towards the FCC and the Health Care Reform legislation. On another front, the Republicans are wasting precious time trying to repeal HCR, when what they should be doing is coming up with viable alternatives to modify and improve that legislation, to make it less onerous. They also need to recognize that military and defense spending is Republican welfare they are hooked on, just as much as the welfare they castigate Democrats for. It's all government growth and spending.

The bottom line is this: the last Quantitative Easing (QE2) that Obama went along with Bernanke doing is not working. It is creating inflation and worse, putting us in danger of hyper-inflation, we cannot spend our way out of this problem. It's fair to say we have avoided deflation, which would have been devastating. We cannot print anymore money, bail out any businesses or segments of the private sector, state or local governments, nor go on any public works and job programs. We do not have the money and we owe too much already.

Obama and Democrats need to back off government intervention that is counterproductive; Republicans need to be productive and propose realistic alternative solutions.

If Obama proposes any more projects for infrastructure, job creation, etc. it will never get through Congress. If he chooses to go further centrist for the larger good of the country, by backing off spending programs and regulation, allowing the fear to go out of the private sector, we will see more investment and albeit slowly, real job creation.

For their part the Republicans need to stop focusing on all the wrong things and start proposing some original ideas of their own as alternatives if they don't like what they see. Currently they are whining and sniping, adding fuel to fire, which is just as counterproductive as government interference. Democrats need to recognize that in many ways they have failed to solve our economic problems and their anger should be directed back to themselves. They must stop pandering to their constituent unions, since that has done more harm than good.

This country has taken a huge fall and so have economies all around the globe. Everyone has too much debt, not enough income due to high unemployment, along with a currency crisis from printing too much money and bailouts. These problems will not be resolved quickly, there is pain involved, hard work and sacrifice is required and all Americans need to reconcile themselves to that.