A panel commissioned by the President to look at ways to cut the U.S. deficit delivered its plan on Wednesday. While we must remember that these are just suggestions, and I doubt most of the recommendations will ever get passed, you need to laugh at some of these ideas.
In italics below, you will see what the panel proposed, followed by my opinion:
Get rid of the capital gains exemption and child care. Michael’s opinion: This won’t fly. Take away capital gains and what incentive do investors have to buy stocks or invest? There would be an outcry over cutting child-care expenses.
Cut defense spending and health-care costs. Michael’s opinion: This won’t fly. The big defense contractors and big pharma companies, and their army of lobbyists, will not let it happen.
Cut the federal workforce by 10%. Michael’s opinion: It might fly, but the government will not save money from this action. You cut 10% of the government’s workforce and you just put those people on unemployment benefits. They also stop spending, which impacts the economy. It’s one of those “six-of-one, half-a-dozen of the other” situations.
Raise the age by which a citizen can qualify for social security to 68. Michael’s opinion: Yes, this will happen. Work all your life. Pay all your taxes. Entrust the government to take care of you. And what happens in the end? They want you to keep working until 68 before you can collect any social security. The government has a great way of taking care of its people.
Michael’s Personal Notes:
I’m following the latest useless G-20 Summit in Seoul, South Korea. I don’t know if I should cry or laugh on this one.
The U.S. is coming under stark criticism from China, Germany, Russia and Brazil, because these countries say that Quantitative Easing part II is just a vehicle whereby the U.S. can lower the value of the U.S. dollar to help American exporters. (Only Canada is backing QE2.)
What will China, Germany, Russia and Brazil say when the Fed announces QE3 and QE4? It is in the best interest of any country to lower the value of their currency so domestic growth is stimulated via exports, which results in domestic jobs.
In the case of the U.S., because the country is so deep in debt, the devaluation of the greenback via expansive monetary policy could actually come back to bite the U.S. in terms of sharply higher inflation and interest rates.
Where the Market Stands, Where it’s Headed:
Investors are getting a little worried out there. Could the 14% rally stocks have enjoyed since late August of this year have dissipated? I have no fear, the Fed is here.
Let’s face the facts. The Fed is doing everything in its power to get the economy going. The stock market loves a lower U.S. dollar (the Fed is working on that) and higher corporate earnings (which surprised on the upside in the latest quarter.)
I’ve been writing, saying I’m worried going into 2011, but for the remainder of 2010, I still like stocks. My mind hasn’t changed.
What He Said:
“Over the past few weeks, I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market. There’s no escaping the carnage headed our way, because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in PROFIT CONFIDENTIAL, March 22, 2007. At the same time that Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying “…the worst is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”