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Doom and Gloom

The Obama administration has been a real disappointment.  Unlike most politicians Obama kept on seeking Republican support for his bills despite them never, ever supporting his agenda.  In fact, this had led the American government to pass some of the most long winded and poorly drafted laws in the land – 2,000 page health care law is just insane (a normal bill in Canada will run 75 - 100 pages).

November is coming up, and the right has fomented its troops into a frenzy of lies and half truths about Obama.  The economy is a complete disaster and far worse than even the most pessimistic analyst ever anticipated – you can bitch about Goldman’s behavior in arranging sub-prime securitization, but the reality is that all securitization structures failed.  They picked the worse, but it would not have mattered.

Obama has failed to pass any social legislation, or even try to pass social legislation.  Had Obama forced the hand of congress on iImmigration reform, he would have lost, but the failure could have been set at the door of the Republicans.

Up here in Canada we’ve had a number of “street fighters” as prime minister; these bare knuckle guys were tough SOBs and were able to make a mark, Obama has spent too little time on that!  It now looks like November will be a route for the Democrats, their supporters are depressed and sulking and the Republicans are mad and ready to get some. 

Should the Democrats loose control over both houses, the impact on the U.S. (and Canada) economy will be serious.  Unlike the 1995 period went the U.S. economy was in faire shape the U.S. economy is in a dire condition.

The Republicans’ plan appears to be:

(a)                Make the Bush tax cuts permanent
(b)               Add new tax cuts to the rich (more than $200k) – Boehner announce 31/08
(c)                Reduce eliminate Medicare/Medicaid and scale back Social Security
(d)               Stall the White House with investigations
(e)                “Defund” all Obama initiatives (not sure Defund is a real word)

Needless to say that adding more tax cut will make the deficit even worse, but it will make the Republicans paymaster happy.  However, even if the Republicans have a majority it doesn’t mean that they will be able to impose their will, Obama has the ability to veto laws and will probably do so.  The net impact will probably be:

(a)                The Bush tax cuts will be repealed (GDP cost 2%)
(b)               Healthcare reform is dead (no cost yet 2012 implementation)
(c)                No new stimulus package
(d)               No TARP II (should the banking system get into trouble)

In a nutshell the systemic risk is rising in the U.S., and this has grave consequences for the Canadian economy (70% of Canada’s exports are to the U.S.).  The RNC is being outflanked on the right by various organizations vying for “blood”:  the Tea Party have a very different view of America than do the old school, Regan conservative and Democrats.  They ability or willingness to compromise is minuscule – they may overplay their hand and America ends up with a worse case scenario.

My guess is that a Republican congress will be look more towards military adventurism (get Iran etc), and harder at home.  The States (with the support of Congress) will assume greater power and a meaner and more radical America will emerge.

An interesting aside this morning on CNBC there was a discussion about the difference between Germany and the U.S.  Bottom line, German companies have worked hard are minimizing layoffs by reducing working hours (thereby reducing productivity), whereas in America – CEO are very well compensated for reducing operating expenses (revenues not so important).  Bottom line, aside from one participant (A.R. Sorkin), everyone on the show was for the American version – fire everything that moves, and deemed the German version of dealing with economic slowdown as “Un-American”, which turns out not to be such an insult since they were talking about Germany.  A country that “suffers” from: (a) lower unemployment, (b) lower budget deficits, (c) growing GDP.  That is all bad in the world of the talking heads!.  

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