Conservative Logic

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Archive for the ‘Obama’ Category

Lowering America’s Guard Will Return To Haunt Obama

Posted by A Hamilton on April 29, 2009

In his first 100 days, President Obama has taken a series of steps that will significantly reduce the security of the United States.

Only a day after North Korea launched its longest range missile to date, Obama announced cuts in missile defense spending totalling $1.4 billion. North Korea’s launch failed, but it’s only a matter of time until they iron out the kinks. Obama’s cuts ensure that when they do, America won’t be ready. Our west coast will be directly in the line of fire — at risk if the North Korean regime is ever destabilized and faces an existential threat from within. Obama’s cuts will halt deployment of Alaskan interceptors, likely end Boeing’s development of airborne laser defense, and impact our ability to defend Europe and Israel from a similar Iranian threat.

Obama has also decided to phase out production of the F-22 by 2011. The F-22 is the most advanced fighter in the world — an aircraft designed and built to achieve total air superiority over the battlefield. Unlike the cheaper F-35 (JSF), the F-22 is so capable it has actually been banned from export.

F-22

Originally, the US expected to build 750 F-22s. The Obama cuts will leave the Air Force with just 180 jets. While the US airforce is currently completely dominant over all threats, that could change quickly. Within the next few years, Russia will start to deploy fifth generation fighters that will likely include stealth technology. While it is unlikely that these aircraft could rival the F-22,  they will compete effectively with the American F-35, and will be available for export. Obama’s decision puts American air dominance – and pilots lives — at risk.

Department of Defense is the only department in the Obama Administration that is being forced to cut back. While other departments wallow in stimulus cash, the military is cutting corners, delaying (or eliminating) programs, and running down inventory. These cuts also come at a time when existing military hardware is increasingly worn out and depreciated by the demands of Iraq and Afghanistan.

Obama has even called for cutting, and eventually eliminating, nuclear weapons. We can assume the latter is probably just rhetoric, rather than incredibly dangerous and destabilizing naivete.

To any good Keynesian, these dramatic military cuts seem seems somewhat counterintuitive. Generally, a Keynesian would increase military spending in times of recession in order to stimulate the economy. Obama clearly believes that increasing government spending is the right formula for the economy. But the easiest, fastest way to increase government spending isn’t “shovel ready” public works, but rather just ramping up military production. Now would ould seem like a perfect time to do so and rebuild  those weapons inventories depleted by Iraq and Afghanistan. But Obama’s reflexive dislike of anything military trumps Keynesian dogma, despite the fact that the job loss (according to his classic Keynesian doctrine) will have a negative effect on the economy, times some multiplier effect.

To make matters worse, Obama has also released classified “torture” documents. Setting aside the debate on whether or not the the three senior Al Qaeda detainees who were waterboarded shortly after 9/11 were, in fact, tortured, these newly released documents simply reveal too much. They teach the enemy our methods and practices, and they instruct the enemy on the limits to which we are willing to go. A savvy enemy (and there is no doubt that Al Qaeda is savvy) will use this information to train its operative in resistance. As a result, it’s unlikely we’ll obtain information this way ever again. Sadly, the information that was obtained from those three detainees proved to be — tremendously important — and actually prevented a 9/11-like attack on Los Angeles.

Moreover, Obama’s waffling on potential investigations of those Bush Administration officials who rationalized the so-called torture policies will have a chilling effect on American intelligence services. Career bureaucrats will be unwilling to put their careers on the line to aggressively pursue and develop sources of information, if a sudden change in political winds could lead to their career being ruined, or even possible criminal penalty.

US intelligence operations under Obama will also be hobbled by new policies, as the Administration reconsiders certain methods and practices of electronic intelligence that were in place even before the Bush Administration — potentially cutting off additional essential sources of information.

To make matters worse, the Obama administration has also released photos of terrorist detainees that are certain to further inflame Islamic fundamentalists.

The cumulative effect of these changes? President Obama has lowered America’s guard. The “War on Terror” is now, in the lexicon of Obama officials, simply a “global contingency operation”, reflective of this reduction in defensive posture.

These unprecedented policy changes place American lives at risk. They also put Obama in significant political jeapardy. God forbid that another attack occur on American soil. If it does, people will point fingers. Even if  such an attack were impossible to prevent, partisans will will inevitably point to Obama’s decisions as a contributing factor, kicking off an unproductive and divisive cycle of blame and recrimination. Naturally, the more we learn about the effectiveness of the intelligence methods Obama has chosen to stifle, the more outraged this criticism will be. Propelled by popular outcry, the policy pendulum would inevitably swing back in the other direction, and could potentially lead us down a reactionary path that seriously threatens our domestic civil liberties.

Hopefully, Americans won’t ever experience another terrorist attack. But we will inevitably feel the long term consequences of Obama’s other military cutbacks. This is a problem Obama is creating for his successors to deal with — but he won’t be able to avoid its tarnishing effects on his legacy. Russia will eventually deliver those 5th generation fighters. The United States will lose its current unprecedented military advantages; more American lives will be at risk. North Korea will eventually succeed with its missile technology — making the US west coast a target. Similarly, we’ll be unable to defend our allies in Europe from an unstable regime in Iran.

Obama will be known as the President who allowed America’s military-technological edge to fade. The consequences for his legacy will be inevitable. The consequences for US security — and by extension, the security of the free world — could be disasterous.

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Posted in military, Obama, war on terror | 2 Comments »

What’s In Your Wallet? Uncle Sam.

Posted by A Hamilton on April 24, 2009

It’s looking like Obama is now supporting the idea of adding new regulations for credit card companies.

America’s economically ill-advised populist lurch continued today as Obama met with leaders from major credit card companies and lectured them on the evils of their industry, then threatened them with increased regulation and oversight by the Federal government. 100 days ago, such patronizing interference would have been an unprecedented act for a US President — but it is starting to become a recurring theme in the Obama Administration.

As the economy worsens and consumer credit risk increases, credit card companies have increased interest rates and fees on cardholders. This seems like a fairly logical business reaction to increasing unemployment rates and related nonpayment or default on revolving debt.

Obama wants to place limits on how high rates can go. He also wants to limit how credit card companies can impose and change fee structures for late payments — something he considers an area of abusive practice.

Perhaps Obama hasn’t considered the likely consequences of this move. It will certainly drive credit card companies to further reduce credit lines and become less willing to extend lenders new credit cards. The net effect will be to further reduce the amount of liquidity in the economy. The timing couldn’t be worse, as consumers and small businesses (another major constituency dependent on revolving credit from credit cards) already face significant challenges from banks that are reluctant to lend.

Or, perhaps Obama has considered the consequences of the move.

We’re all aware of the moral hazard created by the Community Reinvestment Act, which essentially drove mortgage lenders to extend credit to borrowers that might not have otherwise qualified for loans. The unintended consequence of this act contributed significantly to the economic havoc of the mortgage crisis.

If the credit card companies react to increased regulation by tightening up on available credit, how long will it be before the government steps in and mandates extension of credit to risky borrowers — a Community Credit Card Act? Ultimately, we could very well be looking at federal guarantees of consumer credit card debt, or even a situation where the federal government itself starts issuing credit cards directly in order to maintain the flow of credit in the economy.

When given the opportunity, Obama has almost always chosen to extend the reach of government into the private sector. This could set him up with another excuse to do just that. We’re on a slippery slope. The idea of government-issued credit cards is a scary one. Setting aside the privacy implications of the government keeping tabs on every purchase you make, do you really want the IRS knocking on your door if you’re late with a payment or two?

These regulations are being introduced at exactly the wrong time. Short term, they will reduce liquidity and slow economic recovery. Longer term, they could lead to a situation where once again, the taxpayers are stuck bailing out the most financially irresponsible members of society. When that happens, it’s future generations that inevitably foot the bill.

Posted in Economy, Obama | 2 Comments »

Does Obama Understand Finance and Economics?

Posted by A Hamilton on April 1, 2009

I’m increasingly convinced that Obama doesn’t have a firm grasp on the basics of how our economy functions, how corporations do business, and how our banking system works.

Recently, Obama was speaking about the stock market and referred to the “profit and earnings ratio”, which doesn’t exist. Presumably, he was referring to the P/E, or price-to-earnings ratio, which measures relative stock value. It’s one of the first, most fundamental ratios any new investor learns about the stock market.

Obama has also commented on the strong dollar. But the dollar isn’t strong. True, it’s rallied recently, especially versus sick currencies like the GBP, but nobody even marginally familiar with this long term trend would think to call the dollar “strong”:

Weakening Dollar

Obama’s background and experience is politics and law. He’s never run a business, or even held an executive role in government. When he speaks on economic issues (particularly without his teleprompter), he looks about as comfortable as John McCain… In other words, not very comfortable.

It would be easy to assume that Obama was educated on finance and economics basics at Harvard Law School. But as a Harvard Law graduate myself, I know how easy it is to get through HLS without a working knowledge of business essentials. For every graduate who focuses study on contracts, corporations, and tax law, there are other grads (like Obama) who choose to focus on Constitutional law, criminal law, or human rights law. As a result, many Harvard Law alums would struggle to differentiate an income statement and a cash flow statement. I suspect Obama falls right in this category.

Why is this important? Surely Obama has advisors to guide him? Maybe. But at the end of the day, he’s the guy making decisions. He needs to be  able to listen to the self-serving statements of lobbyists, industry insiders, economists, and government bureaucrats, and separate the truth from the BS. Can he do it this effectively without the basic education he needs? Irrationally, he seems to think so. He’s decided to insert himself directly into American business (firing CEOs, setting bonus payouts, backing GM’s transmission quality with a government warranty). So now a guy who probably has a limited understanding of basic capital structure, the proper role of debt, equity, etc., and the functioning of credit markets is creating policy to recapitalize both the automotive and financial services industries!

Perhaps most importantly, I don’t get the feeling that Obama appreciates our corporate and financial institutions. Granted, our banking system is a disaster. And the economy is in bad shape. But a long term perspective is essential. And over the long term, the way that our capitalistic, market-driven system functions has created more good for more people than any other system in human history. Destroy the incentives that make the market work, insert government (aka political) influence into every nook and cranny of the economy, and you break that engine. The long term result is inevitably slower growth and less good for Americans. Does Obama understand that by breaking the American social contract, he ultimately ends up killing the goose that lays the golden eggs that (in turn) pay for the fat government he loves?

In the final analysis, if Obama doesn’t know the basics of economics, finance, and business, he can’t make good decisions when presented with alternative policy choices. He can’t anticipate the long term impact of his choices. He is liable to be susceptible to ideological or populist approaches (like big government bailouts), rather than relying on tried-and-true methods for resolving problems (such as bankruptcy proceedings). So far, this is exactly what has played out in terms of policy from the Obama Administration. Scary times for American capitalism, indeed.

Posted in Credit Crisis, Economy, Obama, Taxes | 1 Comment »

Disaster

Posted by A Hamilton on March 22, 2009

I’m back.

It’s been almost a year since my last post. A lot has changed, personally and politically.

I have a new wife and a new mortgage. And my political philosophy — as documented on this blog — remains unchanged.

These things are good.

Obama is President. He has used the current economic downturn to grow government in historic and unprecedented ways, imposing policies that will inevitably result in greater burdens for the younger generation, and ultimately directly threaten the Amrican dream. I never thought it would get so bad so fast.

These things are bad.

In just over two months, between the TARP, the automotive bailout, the “stimulus” bill, and the bloated federal budget itself, Obama has increased the size of government spending by more than 30%. That’s more than George W. Bush spent in over eight years fighting the war in Iraq.

And there’s more. In addition to spending more, the government has printed money at an unprecedented rate. Here’s a quick look:

 

Money Supply

 

What does it mean? In short, it means that much, much more money is chasing a fixed quantity of goods and services.

Now, add this to the fact that the “stimulus” bill (plus, stimulus bill #2, coming soon!) — really a pork barrel of incredible proportions — will primarily start to impact the economy in 2010-2011, and we’re in for some serious problems. By that time, the economy will be on the upswing. The impact of additional government spending is likely to overheat the economy. Couple that to the money supply growth and we’re looking at the potential for extraordinary inflation, like we haven’t seen since the 1970s.

Welcome back, Carter years.

And by the way –guess who is paying for all this extra spending?

Not your parents. Not your grandparents. Not the 30%+ of the country that doesn’t pay taxes.

Yes — you guessed it. You are. Specifically, younger Americans. Because right now, we’re borrowing the money for all this government growth (primarily from the Chinese). Eventually, we’re going to have to pay it back. This won’t happen for years…. And by that time, the political leadership and the generation that incurred the debt will be comfortably retired, paying minimal taxes (actually, paying ZERO taxes, if Obama fulfills his campaign promises). The burden will fall on you. And it’s going to be crushing.

How do I know this?

You see, we’re racking up so much debt that even the “rich” won’t be able to cover the costs of paying it back. Right now, the top 5% of income earners in the US pay about 60% of all US income taxes. Even if we tax 100% of their income, at some point they can’t pay enough to fund the government. Then the tax man comes for you.

And by the way, taxing 100% of income over, say, $250,000 (Obama’s typical “rich” bogey) will basically shut down small business — and shut down the economy in turn. Why? Because most small businesses are set up as S-corps. If you raise individual income taxes, you effectively raise taxes on small business, which generates most of the growth (and employment) in our economy. Eliminate their profits, you eliminate their ability to invest in growing their businesses. Which effectively rips the heart out of our economy.

This is an epic economic disaster in the making, unfolding before our eyes.

Add to that Obama’s moves to increase protectionism, to add another effective tax on industry by imposing cap-and-trade (which incidentally, will also increase inflationary pressure), not to mention Congress’ apparent willingness to legislate bills of attainder to target high earners (bonus earners at companies that have accepted TARP money) and you have a situation where government is basically declaring war on business. Seriously.

But what about my “American Dream”?

Think about it for a second. Some day, you want to become rich, don’t you? But to grow your wealth, you’re going to need to make over $250,000 at some point. But how can you do this if the government is taxing away everything you earn above that level? Marginal taxes for people making north of $250,000 can already be well over 60% when factoring in state, local, city, federal, and other government taxes and fees. They’ll continue to rise as the need to repay the debt becomes more urgent, and as the size of government continues to swell as entitlement programs grow and metastasize.

What we’re looking at here is the end of the American dream. And above it all hovers the threat of inflation, which (if you’re not smart) will destroy what little wealth you’ve managed to create.

Tactical solutions

So, what can you do about it?

From a purely tactical standpoint, if you have any wealth or savings, don’t leave it exposed to inflation. Invest in assets that have constant real value if inflation hits.

It’s also a great time to borrow big, believe it or not. Interest rates are at an historic low. So now is a actually a good time to get a mortgage, assuming you’re in for the long term and can wait out any short term depreciation in property value. Borrowing at 5% when inflation is running rampant is a great trade if you can make it.

More later

More on all of these things later. There is a lot going on…. Too much for a single blog post. But keep one thing in mind:

Our government wants us to be afraid right now. That’s how they are selling their tonic of unprecedented govenment growth and intervention in the private sector. But if economic history tells us anything, it’s that recovery happens quickly after markets fail. That’s the entire economic history of the 19th century, and most of the 20th. Most economic collapses correct themselves within a year or two. That’s the dynamism of capitalism. The exception, of course, is the Great Depression — where government intervention prolonged the economic downturn.

Despite govenment policies that have the effect of undermining confidence in markets, creating uncertainty around the future role and burden of government on business, not to mention rewarding failure by sustaining business models that don’t work, I suspect we’ll be coming out of this economic downturn within twelve months. But we need to be concerned about what comes next.

Posted in Obama, Taxes | Leave a Comment »