Sunday, October 26, 2008

Things I'd like to hear

There is plenty of money out there. This is not a problem of a shortage of money, it's a shortage of buyers. Buyers are lacking because there is a problem of confidence, a lack of trust. To fix that, we need less uncertainty. Accordingly, I'd like to hear the following very soon:

First, Obama should explain to the world that he understands that the financial markets are in great turmoil. He should acknowledge that this poses a threat to the global economy. He should say that he understands that this is therefore not a time to try to "change the world" with higher taxes on anyone, or any kind of radical restructuring of the American economy. He should promise to forego any attempts to raise taxes, especially taxes on capital, and only consider such a move once the economy and the financial markets are back on their feet. We have far bigger problems today than redistributing wealth are likely to solve.

Second, someone in the government should make it clear to the world's financial markets that the $1 trillion outstanding debt of Government Sponsored Entities such as Freddie Mac and Fannie Mae are now 100% backed by the full faith and credit of the US government. This is not a time to mince words (e.g., is the debt of the GSEs is "explicity" or "effectively" guaranteed by the US government?). The world's investors were shocked to learn that shareholders in Freddie and Fannie were wiped out when the government placed these GSEs in conservatorship, so they have reason to wonder whether the debt holders will be wiped out or not. I don't think there's any question: for the US government to not honor GSE debt would be a mistake of disastrous proportions; it would do unthinkable harm to the reputation of our government and undermine the very foundations of global financial markets that rely on US government guaranteed debt as the risk-free gold standard. Could this waffling have anything to do with the elections? Would assuming full responsibility for GSE debt imply adding that debt to the existing national debt? To be sure, adding $1 trillion to our national debt would not be the end of the world, but it certainly wouldn't burnish Bush's legacy. But I sure hope this isn't the reason for the semantics. (What I'm referring to here is the source of the fear that has driven the credit spreads on GSEs to historically wide levels, even as swap spreads have declined.)

Such are the issues that have investors trembling all over the world. And to think these fears could be banished with just the right combination of words....

Anyone have suggestions for other critical issues that need to be clarified?

6 comments:

Ryan said...

Hey Dad! I just wanted to let you know that I love your blog - especially this post - and that I'm so proud of you!

You're the shit!! (This is a good thing)
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Urban Dictionary:
"You're the shit"
It is a compliment towards someone. It roughly translates to, 'You are the coolest." Other adjectives could be in place of coolest, such as, most awesome, best and any other complimentary adjectives.
Bill exclaimed to Joe, "you're the shit!" after Joe took Bill to a party and had enormous amounts of fun.
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Miss you, love you,
Ryan

Martin said...

If you advocate for no tax increases, then let's hear you advocate equally for spending cuts. I can't believe the consistent cries of "we can't ________ because the economy is strong, we can't ________ because the economy is weak."

I agree with your son that you blog is sort of the shit. Your charts are great. I do have a problem with your implicit denial of where we are. Everyone likes to say that we have to increase government spending to avoid a recession. Why? All we have done for the last 8 years is massively increase spending and that has led us to where we are. Now the solution is for us to fix that by increasing spending?!? How about finally allowing a business downcycle to ACTUALLY HAPPEN? Damn Baby Busters always wanting to get all the highs with none of the hangovers. This is why we need to look to solutions from the younger generation. Busters have had their turn, and the whole world is poorer for it. Step aside and let the more frugal and rational generations fix these problems.

Scott Grannis said...

Martin, I wouldn't dream of arguing with you. I hate government spending as much as I do taxes. Government meddling in the economy is also very bad, and bad policies are usually the things that lead to recessions.

The only way to really cut spending, however, is to go after entitlements such as social security, medicare, and welfare. McCain might be up to the task, but I sincerely doubt that would be on Obama's agenda.

If you spot the next great leader of the US among the younger generation, please let me know. That's our best hope at this point.

Donald said...
This comment has been removed by the author.
Martin said...

I guess that is where you lose me, Scott. Obama is the best leader I have seen in my life. The best way to save money on health care and medicare is to modernize the IT of it. He is the only candidate I heard say that. He quotes the studies that I have seen that show that 50% of all diagnostic tests are duplicative or unnecessary based on previous test results.

I agree that his stated tax policies are not what I would choose as I am a fiscal conservative on taxes, but I also do not believe that his stated tax policies are what he will enact. But, you can't get elected to be a Democratic president by saying you will cut taxes. Specifically, I believe he will cut corporate taxes and close loopholes to do it. If you read his statements, you can see he leaves that possibility open. He is very good at framing his statements so that they imply one thing, but can be defended when he "modifies" his stance. Look at his position on NAFTA. He didn't say he was going to back out of NAFTA. He said something that gave that impression to beat Hillary. If you look at what he actually said, it is quite "reversible."

And it cracks me up to hear people say Obama is going to be some high-spending budget buster. I don't think any president could or should avoid a deep recession. It is the best thing that could happen for the long-term health of our country. The Republicans have long chastised foreign countries for the exact policies they are doing now. They have no credibility left on any policies. They have done exactly what they set out to do, pilfer the government coffers with false wars and terrible fiscal policy. They are trying very hard to bankrupt our country and may have succeeded. We will find out early next year.

Martin said...

And I am sorry Donald, but you are a bigger moron than the GILF if you think she should be president. She is the worst nominee, ever.

It shows the sad state of our uneducated masses that she is considered qualified. We have already had one president who can't speak English well, who can't think for themself, and who cannot put together intelligible sentences no matter how many opportunities they are given.

She still cannot accurately describe the duties of the VP as clearly prescribed in the Constitution. I am sick of the use of the word "y'all" as some cure-all for obvious ignorance. Get over it. The world is completely run by lawyers and the interpretation of the written word. Why would you want the leader of your country, your company, or your 4H club, to flaunt their lack of education as some sort of Everyman status. I don't want Everyman in charge of anything.

I usually refrain from flaming stupid comments, but Donald, I would wish the pain of President Palin on you, if there were someway you could experience it without destroying our country.

The only thing she has done in her career is get a windfall tax-like grab from oil company profits to redistribute to Alaskans. She would be a great Democrat.