Tuesday, February 24, 2009

The Failing Messiah

By Phil Fraietta
Fraietta@Fordham.edu

Secretary of State Hillary Clinton said it best, when talking about President Obama’s image during the campaign season, "The sky will open. The lights will come down. Celestial choirs will be singing and everyone will know we should do the right thing and the world will be perfect!"

The President was able to convince the American public he was the man to save the nation, and the liberal media quickly gave President Obama a Messiah-like image during the 2008 campaign season. But, as President Obama is starting to find out, words of “hope” and “change” may mean something to the American public, but they mean very little to investors.

The Dow Jones Industrial Average and the S&P 500 both hit their lowest marks since 1997 on Monday. This coming just six days after the President signed into law his stimulus bill that was supposed to be the immediate fix to the economy.

Now it is certainly true that fiscal stimulus is not an overnight thing, and the stock market is never the best way to evaluate an economy, but with that said, the collapsing market is a sign that investors are not fooled by President Obama’s rhetoric and are fearful his stimulus package will fail.

Much to the surprise of President Obama, his speeches have been unable to provide confidence for investors. What the President must realize is that investors aren’t your average everyday Americans, amazed at the concept of “hope” and “change,” but rather, they are professionals. They are people with high-level degrees who understand the economy and what it means for the financial sector.

As I’ve said over and over again, if the President wants to turn around the trend on Wall Street, the most effective way to do so would be a cut in the capital gains tax. This would entice investors to put their money into a poor market with the prospect of seeing high returns at a very low taxation rate.

What we can all agree on is the key to turning around this recession is to increase consumer confidence and to do so by correcting the tailspin the stock market has seen over the past few months. What we disagree on, however, is how we can do that. President Obama seems to think he can simply speak and fool investors into believing the Savior will take care of things. In reality, however, investors want to see a sound economic plan, one that includes capital gains tax cuts, rather than more leftist rhetoric.

6 comments:

DSKohn said...

The outright worship of Obama was one of the most frightening things I have ever witnessed.

If anyone out there believes Obama, the angel with dirty wings is anything other than a symptom of legalized corruption in its extreme, I have a used nation to sell you.

ConstantConservative said...

Excellent commentary on what is broken with our economy. We must continue to spread this message to combat the liberal mainstream media and progressive socialists from serving up more KoolAid to the American public!

msebi said...

Absolutely. False.

Stimulus Package = trickle down economics. face it, reaganomics failed. miserably. so when you start giving money to the poor, don't get your panties in a bunch; those poor people are more likely to either spend said stimulus money, thus, well, stimulating the economy, or they will invest it, thereby giving banks the liquidity they need to get rid of said bad debt. so either way you spin it, stimulus packages work.

DSKohn said...

Reaganomics has not failed. It has not been practiced since Reagan. Ronald Reagan did not just cut taxes, he engaged in wholesale tax reform. George Bush cut taxes without reforming the system, leading to massive deficits.

Also, this is whole mess occurred precisely because of a policy of both Clinton and Bush that FORCED banks to lend to people who could not afford it. Reaganomics has nothing to do with it.

Reaganomics was essentially orthodox economics. What people generally do not realize is that tax cuts are stimulus and generally temporary. Reagan pushed through tax cuts and deregulation in 1981, only to raise taxes as the economy began to grow. This allows for money to be available for yet another tax cut when the next recession occurs.

People who received redistributed income are putting in the banks which is only helping marginally. The savings rate would be increasing no matter what as the United States adjusts from a country that spends and consumes to one that saves and produces, and China does the reverse.

Moral of the story, relatively low taxes are good but taxes should be gradually increased during periods of economic growth to take excess liquidity out of the economy and allow for stimulus (in the form of new tax cuts) to be implemented when recession is imminent. That is Reaganomics.

Phil said...

Msebi, I agree that in the short-term, tax cuts to persons of all income-levels have a stimulating effect on the economy. But you seem to believe that only income tax cuts to poor people have a stimulating effect. I would love to know why?

You seem to believe that only a poor person is likely to either spend or invest tax cut dollars thus providing the banks with liquidity, so I ask you what do rich people do with tax cuts? Stuff them under their mattress?

Also, this post did not criticize the President's stimulus package and in fact makes no mention of it. The central idea of this post is that Wall Street is not responding to the President's rhetoric because he has yet to offer investors with a sound economic plan that will provide them with betterment.

John said...

you can't spell messiah without mess