Saturday, November 6, 2010

Gridlock's not enough

From Charles Gasparino at The New York Post:

The conventional wisdom among the Wall Street wise men is that gridlock in Washington -- the kind that Tuesday's election results promise to produce -- is good for the economy and great for the markets. But actual businessmen aren't so sure -- and for good reason.
Yes, divided government gave us the '90s economic boom, and Wall Street obviously thinks that magic will work again. The Dow Jones Industrial Average has risen steadily since the summer (it's up around 18 percent with yesterday's near-200-point rally), as a GOP takeover of the House became more likely.
More trouble ahead: With Republicans lacking the power to undo President Obama's damage of the last two years, expect to see more grim faces like these traders on the New York Stock Exchange floor.
More trouble ahead: With Republicans lacking the power to undo President Obama's damage of the last two years, expect to see more grim faces like these traders on the New York Stock Exchange floor.
The Fed's policy of zero interest rates helped, too -- but traders and investors were also looking forward to the derailing of President Obama's plans to spend the country into oblivion.
But conventional wisdom on Wall Street is often wrong -- and disastrously so. (As you may remember, the whole financial industry nearly collapsed two years ago.) And the traders are wrong on this one as well.
The problem is that Obamanomics has placed the US economy in a hole so deep that it will take more than easy money coupled with political gridlock to fix. To lower unemployment in a meaningful way, Washington needs to unwind the trillions of new debt, higher taxes and new mandates that it's given us over the last two years. The GOP's gains this week aren't enough to make that happen.
How do I know this? It's the assessment made by just about every businessman I spoke to before and after Tuesday's voting. (Almost no one speaks on the record these days, for fear of political retribution. But that's another column.)
Unlike traders, people who run businesses actually have a sense of history. They know the Reagan boom wasn't produced by the former president warring with congressional leaders, but by the tax cuts that passed with bipartisan support.
And they know that the '90s boom came after President Bill Clinton and Republicans found ways to work together. After the GOP took Congress in 1994, Clinton moved from the center-left to the center-right, and we got welfare reform, tax cuts for businesses and investing and lower deficits.
But no one expects the guy wielding the veto pen this time around to make the same shift. Clinton took office as a moderate Democrat -- a former governor who'd needed to balance his budgets and learned early on how to moderate his liberal leanings, if only to attract businesses and investment to his state. Obama's background is a much more rigid and left-wing.
Only an ideologue would entertain the idea of raising taxes when the economy remains frighteningly weak -- even if, after the GOP's landslide, he now says he's open to extending the Bush-era tax rates for even highest-income people.
More important, Clinton's first two years did nothing like the damage of Obama's $800 billion stimulus (massive debt with little if any job creation), to say nothing of ObamaCare.
Republicans in Congress tell me they know they'll have an uphill agenda reversing Obamanomics, and have set out on a course of merely slowing things down. They also mean to soften the job-killing, anti-business impact of the new health-care and financial-oversight laws.
But that's about where their clout stops. The president, with his (albeit thinner) majority in the Senate, will thwart any serious attempt to roll back ObamaCare or the myriad of new regulations and tax hikes that businesses point to when you ask them why they're not hiring.
The Federal Reserve's new $600 billion "quantitative easing" won't save us, either. Fed Chairman Ben Bernanke can print money -- but that only gets you so far when banks are still fearful to lend to businesses and consumers. In fact, I think Bernanke's move for "monetary stimulus" is the ultimate sign of desperation that the end of Obamanomics isn't coming anytime soon.
Bernanke is risking massive inflation and a further devaluation of the dollar in order to save the country from a double-dip recession because he knows without a clear governing majority -- and that includes a new president -- undoing what was done over the past two years will be nearly impossible. Businesses will remain reluctant to spend and hire; unemployment won't budge much from its current levels.
For that reason, you might want to get used to 9.5 percent unemployment, no matter how much money Bernanke pumps into the banks. It's probably going to be around as long as the president.

Charles Gasparino is a Fox Business Network senior corre spondent; his latest book is "Bought and Paid For."

No comments:

Post a Comment