According to the Wall Street Journal, there have been 11 recessions in the United States since World War II. These recessions lasted between 8 months and 2 years, the longest being the Carter-Reagan recession. This Bush-Obama recession has a potential for lasting longer than that. I believe this because the Obama Administration appears to be in a state of chaos. It is sending mixed messages and appears to be playing it by ear, making adjustments as it stumbles along. If Obama is having problems dealing with the economic crisis, I shudder to think how he could deal with an international crisis if one develops.
If Obama allocated the bulk of the $800 billion stimulus package to tax cuts and in rebuilding infrastructure and schools, as I thought he would, consumer confidence would have gone up. Instead, a big chunk of the stimulus package is going towards pork barrel spending. To make matters worse, the Obama Administration is talking about taxing the rich, those making over $250,000 by removing the taxable income limit for Medicare Tax and limiting the mortgage and charitable contribution deductions. Geithner does not even have a deputy secretary yet. He appears to be working alone, formulating policy and making anti free market suggestions that the Administration will increase taxes on capital gains, corporate profits and foreign investments. There is no doubt in my mind that the stock market plunge of over 3,000 points in the Dow since the election is a direct result of investors’ lack of confidence in the Obama Administration. When retirement accounts lose 50% of their value, consumers get scared and postpone spending. It so ironic that China, a communist country has no capital gains tax which must be the primary reason their stock market has recorded the highest gains this year.
When will the left wing radicals learn that taxing the rich will hurt the poor people more? The rich are the ones who eat at expensive restaurants, go on vacations, buy luxury items and employ people. I am not rich but I do not envy the rich because my goal is to get rich myself. We all have an equal opportunity to acquire wealth in this country provided the government does not stand in our way.
Our free market economy will recover despite Obama. Recessions are part of a normal economic cycle. Soon consumers will come back and resume buying necessities such as refrigerators, TVs, computers, cell phones, furniture and cars. 42% of stocks in the S&P 500 gained since the beginning of the year. Energy costs have only increased a little bit since sinking to their lowest level last December. According to the Los Angeles Times, the highest concentration of foreclosures and decline in property value are in 5 states; California, Nevada, Florida, Michigan and Ohio. 90% of homeowners are still paying their mortgages on time. The dollar has recovered nicely against major foreign currencies which means anything we import is costing us less. Still, stumbling and uninspiring Obama can prolong this recession by talking down the economy.
If Obama and his cabinet members are listening, I have a sure fire way of ending this recession immediately. Geithner has no plan yet on how to use the $300 billion allocated to fix the banking system. So these are my suggestions. 1) Announce the formation of RTC2 (Resolution Trust Corporation) to take over toxic assets from ailing banks. This move is similar to what solved the Savings and Loan crisis of the early 90s. This will restore confidence in our banking system. 2) Announce the reduction of the capital gains tax from 28% to 7%. This will attract local and foreign capital back into the stock market which would increase the value of stocks. 3) Announce the reduction of corporate tax from 34% to 10%. This will stimulate business activity and companies will start hiring again.
What are the chances that the Obama Administration will follow my advice? I will not hold my breath. They are a group of ideological left wing intellectuals who have their own agenda of equal wealth distribution and of government intrusion into our lives. Therefore let us prepare ourselves for more pain and say hello to the Obama Recession.