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Old December 2nd, 2009, 04:35 PM
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Default Is Obama leading us into another depression?



Quote:
PAUL B. FARRELL


Dec. 1, 2009, 12:01 a.m. EST
Obama's 'predictably irrational' economic policies
14 reasons Obama's love of Wall Street will trigger the Great Depression 2

By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- First: Kiss the rally good-bye, says Jeremy Grantham, legendary CEO of the $101 billion GMO money-management firm.

Why? The market is overvalued 25%. A minimum 15% correction is coming in 2010, putting the Dow in the 8,000-9,000 range. The S&P 500? Not at 666 like last spring; maybe 800. Why a top? Black Friday? Dubai? Tiger Woods? All the dark films? The "2012" end of civilization? The post-apocalyptic "The Road?" Stop guessing, timing market turns is irrational.


Deficit headwinds
Stacey Delo talks with Russ Koesterich of Barclays Global about the effect of the deficit on the equity market.

Grantham's shift from bull to bear appears rational. Remember, earlier this year the Dow was near 6,000, banks near bankrupt, and we were praying for the new untested president to change America. In his latest editorial Grantham reminds us why his prediction made sense in the spring: "Regardless of the fundamentals, there would be a sharp rally. After a very large decline and a period of somewhat blind panic, it is simply the nature of the beast." Get it? A rally was predictable, based on the history of cycles.

Trust Grantham? 100%. Back in early 2007, he warned: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it's bubble time. ... Everyone, everywhere is reinforcing one another. ... The bursting of the bubble will be across all countries and all assets ... no similar global event has occurred before."

Grantham was one of a small group of industry leaders who saw a crash coming as early as 2000. But political leaders were ideologically blind: Fed Czar Ben Bernanke said the collapsing markets were "contained." Our devious Treasury Czar Henry Paulson was misleading Fortune and all America: "This is far and away the strongest global economy I've seen in my business lifetime." Worse, former Fed Czar Alan Greenspan was busy writing his memoirs bragging about how he invented a "New World" out of Reaganomics, Ayn Rand's New Age wishful-thinking and an unregulated $670 trillion derivatives market.

Three clueless leaders.

Grantham bearish, short-term correction, long-term disaster

Now Grantham's warning us again: America's irrational nightmare will repeat. First, the short-term correction, 15% to 25%. But then long-term, a deadly warning: Disaster ahead. Why? Because America has "learned nothing," we are "condemning ourselves to another serious financial crisis in the not too-distant future."

Yes, Americans are predictably irrational, doomed to repeat history: Grantham points us to a key chart, his "favorite example of a last hurrah after the first leg of the 1929 crash." The similarity between 1929-30 and today are obvious: "After the sharp decline in the fall of 1929, the S&P 500 rallied 46% from its low in November to the rally high of April 12, 1930, then, of course, fell by over 80%."

Familiar? You bet. We've had our rally. Next, the plunge. Our irrationality plus history guarantees another ... only bigger.

A year ago America came dangerously close to the Great Depression 2. We "learned nothing." When psychologist Daniel Kahneman won the 2002 Nobel Prize in Economic Science for his work on irrationality in 2002, the sense was that behavioral economics would help Main Street become "less irrational," that behavioral sciences would make us all better investors, better consumers, better citizens.

Obama even made a big issue of working with behavioral scientists to minimize irrational behavior in America.

Obama gets failing grade in behavioral economics

But they turned against us. Behavioral scientists, behavioral economists and behavioral-finance experts have become the mortal enemies of Main Street America. Two ways: First, behaviorists consistently put us down by reminding us how irrational (stupid) we are. Second: They're using their minds, tools and technologies against us, helping Wall Street profile us as targets for investing products, bank customer fees, tax propaganda, etc.

They are paid mercenaries helping Wall Street scam Americans out of billions. They cannot be trusted, they have lost their independence and professional integrity. They are failing to expose the most toxic sources of irrationality: Wall Street, Congress, the White House.

And that's why when a guy like Jeremy Grantham comes along focusing us on the toxic irrationality at the top of America's leadership he deserves to be seen as one of America's best behavioral economists. He's one of the few honest behaviorists, exposing the irrationality of America's leaders.

So please listen closely to his 14-point analysis of the rampant irrationality at the highest level of American government today, because what he is also predicting is another catastrophic meltdown dead ahead.

1. Obama's shift into 'predictably irrational' economics

If Grantham ever was a fan, he's clearly disillusioned with the president. His 14 points expose the extremely irrational behavior of Obama breaking promises by turning Washington over to Wall Street, a blunder that will trigger the Great Depression 2. Grantham is cynical but subtle. If you want a more brutal attack, read Matt Taibbi's latest Rolling Stone feature: "Obama's Big Sellout," detailing how Obama, same as Bush, turned government over to Wall Street, to the same crooks who created the mess.

2. Bernanke's reappointment, a totally irrational blunder

"The most passionate cheerleader of Greenspan's follies ... completely clueless." A blunder "like reappointing the Titanic's captain" and "a wasted opportunity."

3. Summers, Geithner: Wall Street's newest Trojan Horses

Larry Summers blew "no warning whistles of impending doom back in 2006 and 2007." Earlier as Treasury Secretary he "beat back attempts to regulate" derivatives. Tim Geithner "sat in the very engine room of the USS Disaster and helped steer her onto the rocks" as New York Fed Czar. Still an irrational Obama appointed him, as Wall Street cheered.

4. Idiotic, irrational, greedy mortgage borrowers

"The more misguided or reckless the borrowers, the more determined the efforts to help them out," although "these efforts had limited effect." Short-term politics, bad economics.

5. Reckless, irrational and stupid home builders

They "magnificently overbuilt" for years." Still our irrational president stimulated "even more home building by giving new house buyers $8,000 each."

6. Nation of irrational overspenders and undersavers

Americans have been "dangerously overconsuming for the last 15 years." Still, our irrational politicians "encourage consumption and penalize savers by maintaining artificially low rates" fueling the same irrational speculation that created the meltdown.

7. America's too-Irrational-to-fail' banking system

Our banking "system shows every sign of being out of control." Make it simpler, smaller, "so they can be allowed to fail." Separate the "dangerously risk-seeking hedge fund heart from the banking system." Instead Obama set up a bizarre, irrational policy ... force them to be bigger." Now they're "at extreme tilt to risk-taking: it's practically a cliff!"

8. Wall Street's unconscionable crooked mega-bonuses

"Two-thirds of Goldman's huge profits went for bonuses ... largest ever." Last year the "same guys were on the edge of a run on the bank ... saved only by government." Our irrational president upset "the formerly infallible workings of capitalism."

9. Corporate America's grossly overpaid CEOs

"Galling," says Grantham: When he came to America in 1964 "the ratio of CEO pay to the average worker was ... between 20/1 and 40/1." That had "held for the previous 30 years. By 2006, this ratio had exploded to between 400/1 and 600/1 ... obscene."

10. Our irrationally overleveraged, zombie companies

Wall Street has "so overstimulated the risk-taking environment that junky, weak, marginal companies and zombie banks" outperform, with "junk over the great blue chips." We let losers "live to compete against the companies that actually deserve to be survivors." That's "not healthy for the long-term well-being of the economy."

11. Our irrationally managed U.S. auto industry

"Most short-sighted industry of the last 20 (40?) years, and one of the worst managed."

12. A nation addicted to automobiles, dying for more oil

"We chew up a dangerously large amount of Middle Eastern oil ... ruinous for our global political well-being (and ability to avoid war)" and bad for "an overheating world." Still, our irrational politicians are subsidizing more car purchases.

13. Stock options give CEOs a legal right to steal from shareholders

They're robbing us: Corporate CEOs have a "legalized way to abscond with the stockholders' equity." If management messes up and the stock crashes, they just "rewrite the options at new low prices ... no serious attempt to match stock option ... to the building of long-term franchise value. Instead, the motto is: grab it now and run!"

14. Finally, Grantham's irrational 'old nemesis, Greenspan'

He gets "the title of Maestro in the U.S. and is knighted by the Queen ... for thoroughly demolishing the integrity of the U.S. financial system. He overtly ignored the great threat of bubbles in asset classes and, in fact, encouraged them. He Ayn Rand-ishly facilitated the progressive dismantling of governmental restrictions on financial behavior, he deliberately kept real interest rates at zero for years, etc., etc., etc. You have heard it before. ... In the good old days, he would have been set in the village stocks, and not the kind you buy and sell. And I would have been right there, Alan, with very ripe tomatoes."

In the end Grantham encourages everyone to read a John Kay article in the Financial Times. Kay's title says it all: "Our banks are beyond the control of mere mortals." He advises investors to "follow an aphorism of Warren Buffett's: 'Invest only in businesses that an idiot can run, because sooner or later an idiot will.'"

Rereading Buffett's wisdom I wonder: Perhaps America really is a "business" that nobody can run? Not the best and brightest. Nor an idiot. And certainly not our too-clever behavioral scientists.

Moreover, "people" are not the problem. The 1982 classic "In Search of Excellence" tells us that 85% of organizational failures were systemic, not people caused. "It's the system stupid." That means America, our economy, our markets, our capitalist system have become too big, too complex, too out-of-control, too unmanageable.

Our wealthy elite already know that and are grabbing what's left. The "idiot" masses could regain control, but only in a 1776-style revolution, except they're too docile, too irrational to revolt.
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Old December 3rd, 2009, 06:34 AM
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Default Re: Is Obama leading us into another depression?

Many will argue that a deficit already existed. I believe his outrageous spending will further our national debt. However, our economy has been due for a downturn for sometime. All economic systems have rises and falls. It is impossible for a nation to try to live above their means for to long a period of time when the government is bleeding money. Eventually the government will bleed the people to make up for it's own bureaucracy. So it really comes down to potato vs patato.... Each party will blame the other. I think it is ridiculous to try to spend money to get out of a recession and that the choices Obama is making will further our debt, but I don't think that he alone is responsible for the economic climate.
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Old December 3rd, 2009, 02:13 PM
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Default Re: Is Obama leading us into another depression?

The banking problems existed long before Obama came into office. We've been in a recession for over 2 years, even though republicans were denying it for over a year. They were trying to deny it all the way through to the next presidency after Bush so it would look like it was the following president's responsibility. And it was Bush who started bailing out the banks and lowering interest rates.

Obama is continuing with the status quo though. The speed of finding ourselves in a depression was halted, so its more like death by paper cuts with an endless recession.

But the other problem with America and presidents is that whether its Bush or Obama both seem to view war as a way to boost the economy. I think thats why we are in Afghanistan. Kucinich says that "Afghanistan doesn't want us there to save them, they want to be saved from us." And I agree. We've spent a trillion dollars on warring, and every soldier in Afghanistan costs a million dollars a year. Russia tried warring in Afghanistan and they gave up, it was fruitless waste of time, money, and lives.

It's time to get our priorities straight, and clean up our own house here. The focus should be on our own country, our own deregulation problems in the banking sector that led to the economic disaster we are in.
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Old December 3rd, 2009, 07:36 PM
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Default Re: Is Obama leading us into another depression?

Quote:
Originally Posted by Trotsky's horse View Post
The banking problems existed long before Obama came into office. We've been in a recession for over 2 years, even though republicans were denying it for over a year. They were trying to deny it all the way through to the next presidency after Bush so it would look like it was the following president's responsibility. And it was Bush who started bailing out the banks and lowering interest rates.

Obama is continuing with the status quo though. The speed of finding ourselves in a depression was halted, so its more like death by paper cuts with an endless recession.

But the other problem with America and presidents is that whether its Bush or Obama both seem to view war as a way to boost the economy. I think thats why we are in Afghanistan. Kucinich says that "Afghanistan doesn't want us there to save them, they want to be saved from us." And I agree. We've spent a trillion dollars on warring, and every soldier in Afghanistan costs a million dollars a year. Russia tried warring in Afghanistan and they gave up, it was fruitless waste of time, money, and lives.

It's time to get our priorities straight, and clean up our own house here. The focus should be on our own country, our own deregulation problems in the banking sector that led to the economic disaster we are in.

Amen brutha!
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Old December 3rd, 2009, 07:51 PM
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Default Re: Is Obama leading us into another depression?

Well, I do like Obama the man. But this was my greatest fear of him as president. We could easily fall right back into a depression. We are close. If you think things are bad now - you haven't seen anything. Neither have I. And I don't want to.

I do not entirely agree with grantham, but he does make a few good points. Overall - I could give a shit who is to blame. But Obama has the commander chair now, and I expect him to act.

this especially good point:

Quote:
2. Bernanke's reappointment, a totally irrational blunder

"The most passionate cheerleader of Greenspan's follies ... completely clueless." A blunder "like reappointing the Titanic's captain" and "a wasted opportunity."
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Old December 3rd, 2009, 08:38 PM
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Default Re: Is Obama leading us into another depression?

Paul Volker would be a good replacement.
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Old December 3rd, 2009, 08:50 PM
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Default Re: Is Obama leading us into another depression?

Quote:
Originally Posted by waiting View Post
Paul Volker would be a good replacement.
agreed.


I would rather see someone who would be happier to see the fed made impotent. Like Warren Buffet.

But thats just crazy.
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Old December 3rd, 2009, 08:57 PM
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Default Re: Is Obama leading us into another depression?

Not really. The only problem with doing away with the Fed, is that then it would be the Congress' job. And that isn't a comforting idea at all.
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Old December 4th, 2009, 09:02 PM
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Default Re: Is Obama leading us into another depression?

Quote:
Originally Posted by Aunt Sam View Post
Many will argue that a deficit already existed. I believe his outrageous spending will further our national debt. However, our economy has been due for a downturn for sometime. All economic systems have rises and falls. It is impossible for a nation to try to live above their means for to long a period of time when the government is bleeding money. Eventually the government will bleed the people to make up for it's own bureaucracy. So it really comes down to potato vs patato.... Each party will blame the other. I think it is ridiculous to try to spend money to get out of a recession and that the choices Obama is making will further our debt, but I don't think that he alone is responsible for the economic climate.
I agree Sam. Both parties are too blame - Both became parties of big spending and spending our way out of this is not gonna work. Obama is simply making it worse.

I grew up in Japan in the 1990's (moved back to America in 2003) where they had an economic crisis and our situation is similar. It all started with bad loans and they tried to spend their way out of it and unemployment was high. Guess what, spending their way out of it didn't work. It took for ever for Japan to get back on track.

It doesn't make sense to spend more money when you don't have any.
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Old December 4th, 2009, 09:53 PM
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Default Re: Is Obama leading us into another depression?

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Originally Posted by Alostrockstar View Post
I agree Sam. Both parties are too blame - Both became parties of big spending and spending our way out of this is not gonna work. Obama is simply making it worse.

I grew up in Japan in the 1990's (moved back to America in 2003) where they had an economic crisis and our situation is similar. It all started with bad loans and they tried to spend their way out of it and unemployment was high. Guess what, spending their way out of it didn't work. It took for ever for Japan to get back on track.

It doesn't make sense to spend more money when you don't have any.
I am sorry if I implied that this was Obama's fault (or Bush's fault). Its both their faults. But going forward is the only thing worth discussing.

Your comparison to Japan is 100% correct. Our real estate bubble was a mirror image of theirs, and so is the subsequent recession.

But I disagree with your explanation of why they remained in a 10 year recession. It had nothing to do with their gov deficit spending - it had to do with the refusal of Japanese banks to write off the bad debt. They kept believing the bad loans would turn around - year after year. Our accounting rules and central bank prevented that here.

As for deficit spending not being a solution. Just look at America in the 1930's Our depression grew worse and worse as the gov tried to put people to work. That is a proven way to fail. Why did the depression end? Because the US suddenly had a need for tanks, warplanes, battle ships, and bullets. We took money we did not have - by borrowing - and gave it to US companies in exchange for goods.

It worked. When the gov deficit spends on the right thing it moves the economy forward. Don't confuse the economics of a household with that of a country.
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