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Thursday, March 5, 2009

Is Obama Causing the Current Economic Problems?

The Wall Street Journal published an article which blames President Obama for the current economic problems. Now, even one of his ardent supporters, Jim Cramer, is saying Obama is to blame.

I couldn't blame Pres. Obama for the current economic crisis, because he simply isn’t to blame for the existing problem. However, he is exacerbating the problem.

The problem was that there was a bubble in real estate values and a lot of bad lending; due to artificially low interest rates and lax lending standards-exacerbated by high tax rates. The banks are being punished for their part in this by the market - by losing money and going bankrupt.

The fact is, this crisis is not the problem, it is the solution - just like punishing a child is a solution to bad behavior. The market is cleaning itself out by removing these bad borrowers and bringing real estate prices down to market values.

Instead of letting this happen, Obama clearly wants to go back to the bubble and get a bunch of Democrat pork in while he's at it. Even the Congressional Budget Office agrees - there will be a short-term stimulus, and long term economic loss because he is burdening U.S. assets with severe liabilities.

The economy was hurt by the mortgage crisis, as described above, then Pres. Bush made it worse with his "bailout" package (which Sen. Obama supported). When Obama got elected, the economy was going to take a hit anyway, which always happens with a new President - because markets crave predictability. The market does not know what to expect with a new President. Predictability is how you make money! People in the market care about this more than anything, because even if the system is bad, if they understand the system and how it will function, people will make money.

Now Obama enacts massive liabilities and a completely different kind of economy. The market has no idea what to expect. This is destroying predictability - except in regards to the fact that we know to expect enormous pressure on taxes and inflation due to our new liabilities. Obama just basically sent an $11,000 bill to every person in America, on top of our current liabilities, which amounted to over $70,000 per person.

Obama's philosophy is that the government can handle our taxes so well, that we will essentially grow our way out of the problem. As his plans come into effect, the economy will recover because the market will adjust to Obama’s new economy. It will become predictable at some point…probably. However, the massive liabilities will burden value and wealth creation for at least three generations.

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