A tug of war between Trump’s capitalist approach and Clinton’s socialist agenda

Posted by Shyam Moondra

In the post-WW II era, the industrial revolution led the western world to a period of high economic growth and prosperity. But then came the period of complacency in which the governments encouraged shorter work weeks, longer paid vacations, liberal benefits, and increased freebies from the governments in the form of subsidized food, education, health care, housing, and child care that made the population increasingly dependent on the government and less self-reliant. The wave of socialism, coupled with higher taxes and higher government expenditures, has contributed to the decline of capitalist system which is making it harder for free-market economies to grow. The slow or negative growth has led to higher budget deficits and record national debts. These trends have been more prevalent and more pronounced in Europe where many countries are now in dire financial situation. In the United States, it has been estimated that during the presidency of Barrack Obama, the welfare programs have increased government expenditures by $1 trillion that could not possibly be sustained in the future. Obama’s legacy is doubling up the national debt to almost $20 trillion.

The global financial crisis of 2008 and subsequent bailouts of banks around the world have created another destabilizing situation in the form of income inequality. The top 10% of the people around the world handsomely benefited from bank bailouts and they became even more rich, while the rest of the people lost ground. Even today, almost a decade later, a majority of people are still struggling. In the United States, stagnant incomes of the middle-class has become an explosive issue in the current election cycle. Globalization of trade has also contributed to stagnant incomes of common people because high-paying manufacturing jobs are being outsourced to emerging economies where the labor cost is much lower than in the western world. In many industrialized cities such as Cleveland, Detroit, and Buffalo, we now see a frighteningly ghostly sight of deserted plants with broken windows and falling roofs, and deteriorating homes and streets.

During the current presidential election, Democratic Party nominee, former Secretary of State Hillary Clinton, has sharply moved to the left to attract the supporters of her primary opponent Senator Bernie Sanders (D-VT), a self-proclaimed socialist. She now promises a minimum wage of $15 an hour, free college education, free health care for all children, and no more trade deals (such as TPP) that have the potential to move high paying jobs from the U.S. to other emerging countries. To pay for all new programs, she proposes to increase the taxes on the rich and corporations that are comparatively already too high. If Clinton wins in the general election, we will see a third Obama term with continuing budget deficits and crushing national debt. The Republican nominee, Donald J. Trump, on the other hand, proposes to increase infrastructure spending and reduce taxes for the middle class and corporations to give economy a big boost. Trump’s overriding focus is on growing economy faster to create more high-paying jobs (Trump also disfavors unfair trade deals such as NAFTA and TPP) and only that will move the recipients of government freebies from welfare rolls to employment rolls. High growth rates will also reduce chronically high unemployment rates among the minorities in the inner cities. The polls consistently show that almost two-third of the electorate thinks that presently the country is moving in the wrong direction which seems to favor Trump’s approach.

If Clinton wins in November, she might keep most of Obama’s policies in place with an emphasis on “tax and spend” philosophy. If Trump wins, his focus would be to cut taxes and spend on infrastructure to stimulate economy, reduce regulations to make it easier for small businesses to thrive, and modify trade deals to discourage migration of high-paying manufacturing jobs to other countries. Only the election will tell where the electorate stands in terms of Republican capitalist approach with reduced government regulations vs Democratic socialist approach to solve the twin problems of stagnated wages and income inequality.

Structural changes in both political parties causing dysfunction – moderate Republicans hold the key

Posted by Shyam Moondra

Dysfunction in the federal government began during the presidency of George W. Bush whose war in Iraq based on false intelligence led to distrust in the government among politicians as well as general public. The money spent on the war in Iraq, bank bailouts necessitated by Bush's lax regulations of the financial industry, and unnecessary tax cuts given to the rich at a time when the country was fighting two wars contributed to the huge budget deficit and national debt. Bush's successor, President Barack Obama, was forced to undertake large-scale stimulus spending to thwart severe recession caused by the financial crisis left behind by Bush, which led to even bigger increases in budget deficit and debt. Obama, at the urging of his liberal supporters, pushed through Affordable Care Act (or what is now termed as Obamacare) in both the House and Senate strictly on partisan basis. That gave birth to the Tea Party movement whose extremism worsened political polarization not just between Democrats and Republicans but also within the Republican Party. In 2011, House Speaker John Boehner, under intense pressure from Tea Party aligned conservatives, led the ugly debate on increasing debt ceiling, which crashed the financial markets, slowed economic recovery, and caused the first ever downgrade of the U.S. government debt from AAA to AA+ by the rating agency Standard & Poor. Subsequently, Republicans paid a price at the ballot box in 2012 when Obama easily won re-election and Republicans lost seats in the House and Senate. One would think that Republicans learned their lesson, but here we are, two years later, with Republicans playing the same game all over again with more serious implications than before - the government is currently shut down for eight days already and we are on the verge of first-ever default by the U.S. government on its debt. The Congress now has an approval rating of only 10%, which is a historic low, but that does not seem to bother Boehner and other Congressional Republicans at all.

In terms of the legislative agenda, the current 113th Congress is termed as the most unproductive Congress of modern times. The extent to which this Congress is polarized is summed up by the statement of Boehner in which he said that the success of the Republican-led House should be judged not based on how many new Bills they pass but based on how many existing Bills they repeal. With the emergence of Tea Party faction as a strong player among the conservative ranks of the Republican Party, Boehner has been forced to adopt their extreme ideologies to keep his job as the Speaker. The extremism propagated by Tea Party has become an obstacle in getting anything done in a split government that by necessity requires compromises. As a result, the Republican Party is badly divided between conservatives and moderates. Republican moderates, who fear reprisal in the form of primary challenges inspired by Tea Party if they oppose Tea Party's extreme ideologies, have chosen to remain silent and on the side-lines while Tea Party leaders such as Sen. Ted Cruz of Texas have taken on an oversize role in shaping the direction of the Republican Party. This has irked such iconic moderates as Sen. John McCain and others who have openly criticized the tactics advocated by Cruz. Nevertheless, to preserve unity, many moderate Republicans in the House and Senate have decided to grudgingly go along with the policies formulated by Cruz and other conservatives. These moderates have clearly been marginalized in this new political shuffle. A fractured Republican Party is not well positioned to win the Senate in 2014 or the White House in 2016. Cruz and others have openly advocated shutting down the government and even defaulting on government obligations as acceptable strategies to get what they want, namely, getting rid of Obamacare, reducing tax rates for businesses, and reforming the entitlement programs to reduce spending. They have gone even further by devising an unorthodox plan to get rid of Obamacare by de-funding it. Obamacare was approved by the Congress, signed into the law by Obama, and subsequently upheld by the U.S. Supreme Court as constitutional. Boehner tried over 40 times to repeal the law but failed. Obamacare was a major issue in the 2012 presidential and Congressional elections, but Obama and Democrats prevailed. Now Boehner, at the urging of Cruz and others, has chosen to shut down the government and is prepared to let the government default on its obligations unless Obama agrees to dismantle Obamacare, his signature program. This is, of course, an extreme tactic of blackmail, which Obama cannot and will not accept. The normal procedure for getting rid of a law is to have a new revised Bill passed by both the chambers and signed into law by the president; but Republicans are trying to kill the program by withholding funding for its implementation. This is certainly a novel approach but ultimately undemocratic and it cannot be allowed to succeed. Today, it's Obamacare, but tomorrow Republicans could try to de-fund other laws that they do not like, defying the checks and balances built into the constitution. Of course, not all Republicans subscribe to this extreme tactic.

On the other side of the isle, since the election of Obama as the president in 2008 and re-election for a second term in 2012, the Democratic Party has moved to the left of the political center. Obama strongly believed that Bush's pro-rich policies, especially his generous tax-cuts to the rich, widened the gap between the rich and poor and the middle class lost a lot of ground. Obama, with the help of ultra-liberal Nancy Pelosi, who was House Speaker at the time, moved the Democratic Party to the left, which was a sharp contrast to the previous Democratic President Bill Clinton, who ruled from the right of the center. Clinton dismantled the welfare programs and moved people from welfare rolls to work rolls, but Obama has consistently favored the poor and the middle class over the rich. Under Obama, there has been a huge growth in the food stamp program, disability benefits, and Medicaid expenditures. The liberal transformation of the Democratic Party under Obama has sidelined Clintonian conservatives and moderates within the Democratic Party that would have preferred to govern from the center on most economic issues. In spite of some disagreements between liberal and conservative Democrats, they have nevertheless steadfastly remained united in their opposition to Republican extremism.

While Republican Party has been radicalized by the Tea Partiers much to the discomfort of Republican moderates, Democratic Party has moved to the left much to the discomfort of Democratic conservatives and moderates. So, what we need is a rebalancing act in which moderate Republicans join forces with conservative and moderate Democrats to form a powerful block whose support would be essential to make progress on any particular issue. At least six moderate Republicans in the Senate would have to switch their Party affiliation and become Democrats; such a move will not only give Democrats a filibuster-proof majority, it will also keep liberal Democrats in check while rendering extremist Republicans such as Cruz powerless. There are many moderate senators such as John McCain, Susan Collins, Kelly Ayotte, Tom Coburn, Jim Inhofe, John Thune, Richard Burr, Ron Johnson, Rob Portman, and Lisa Murkowski, who could possibly become a part of this balancing act with an objective to move the country forward on important issues of tax reforms, entitlement reforms, infrastructure investment, education reforms, immigration, etc. In the House, 17 Republican moderates would need to switch to Democratic Party which would give the control of the House to Democrats while at the same time dilute the power of liberals within the Democratic Party. There are 23-26 House moderate Republicans who are willing to vote for clean CR and debt ceiling bills. Many of them also favor to proceed on immigration bill and some of them are even pro-choice, so they will fit right in within the Democratic Party. Obama and Democratic Congressional Leaders would need to make the case to the target Republicans for the switch by offering them prominent committee assignments and even leadership positions within the Democrat controlled House and Senate. These movements will instantly break the gridlock in Washington, DC and the Congress would finally resume its business of legislating and solving people's problems.

Republican self-destruction, Part 2

Posted by Shyam Moondra

On Friday, under the leadership of Speaker John Boehner, the House passed the Continuing Resolution (CR) bill that will fund the government through November but, at the same time, de-fund Obamacare. The vote was largely on party lines. The Senate Majority Leader, Harry Reid, said that this CR bill is "dead, dead" in the Senate. President Barack Obama has said that even if the Senate miraculously passes this bill, he will veto it. So the question is why would House Republicans push this bill, knowing full well that it could never become the law, and unnecessarily risk a possible government shutdown in ten days. Also, the House Republicans are refusing to increase the debt ceiling unless Obama agrees to additional spending cuts, setting the stage for the government to default on its debt. Last time, when Republicans tried this approach in 2011, the government debt got downgraded from AAA to AA+. Now we are on the verge of another downgrade from AA+ to AA, which will dramatically increase the interest payments due on national debt, and thus sharply increase the budget deficit. It is clear that the House Republicans have no strategy beyond passing the CR bill or refusing to increase the debt ceiling; they have not really thought through the consequences of their actions or figured out the endgame.

The Republican approach is so wrong at so many different levels:

• First, they want to reduce the budget deficit, but their actions would actually put upward pressure on interest rates and thus lead to higher deficit because of increased interest payments on debt. 

• Second, de-funding a program, which was approved by the Congress, signed into law by the president, and subsequently upheld by the USSC, is not the proper way to get rid of that program. If they really think that Obamacare is a bad idea, then the correct way to get rid off it is to offer amendments or an alternative health care proposal, get it passed in the House and Senate, and have the president sign it. That's how democracy works. You cannot threaten to shut down the government (which means military personnel fighting in Afghanistan will not get their paychecks and elderly people will be denied their monthly Social Security checks) unless you get what you want. Republicans cannot use blackmail as a tool to achieve their political goals. If this blackmail worked, could Republicans use it again to de-fund other programs such as Medicaid, Medicare, or any other program that they didn't like? What we will have then is not democracy but chaos.

• Third, the Congressional Republicans have an approval rating of only 12% compared with Obama's 45%; so the question is why would Republicans threaten to shut down the government and end up paying a huge price at the ballot box? Last time, when Republicans played this game in 2011, they failed to win the presidency and lost seats in House and Senate in the 2012 election - so why would Republicans play the same game and hope to achieve a different outcome in the 2014 election? The chances are that they will actually lose the control of the House in 2014.

• Fourth, in 2011, Republicans' threat to shut down government crashed the stock markets and reduced business confidence, which led to corporations putting their capital expansion plans on hold. These ramifications led to reduced job prospects and slower economic growth. If Republicans shut down government this time, the people, with their decimated 401(K) and IRA accounts, will again blame the Republicans for their losses.

On the question of increasing the debt ceiling, Obama is right in saying that Congress passed the spending appropriation bills and they alone are responsible for making sure that the United States does not become a dead beat on its debt. The Congress must pass a clean bill increasing the debt ceiling so the government does not default on its debt and become a laughing stock around the world. However, in the long-term, reducing budget deficit and debt is of paramount importance to preserve and enhance our prosperity for the future generations. Therefore, Democrats and Republicans must urgently work together to address the dislocations caused by unwise across-the-board cuts under sequestration and hammer out a balanced plan that would increase revenues via tax reforms and also cut spending through meaningful reforms of the entitlement programs. The voters desperately want the Congress and Obama to work together and reach a compromise on the issues of budget deficit and national debt.

To taper, or not to taper – that is the question

Posted by Shyam Moondra

The biggest uncertainty in the financial markets right now surrounds the question of when would Federal Reserve Board (Fed) start winding down (i.e., taper) the Quantitative Easing (QE) program in which the Fed buys treasuries and mortgage-based securities at a rate of $85 billion a month. This unprecedented monetary program was designed to keep the long-term interest rates low, which, in turn, would stimulate economy, especially the housing sector. The Fed was forced to undertake this aggressive approach because the Congress and President Barack Obama were deadlocked on providing stimulus to economy on the fiscal front. The QE has had some success in giving a boost to economy via housing boom and in bringing down the unemployment rate to 7.4% from the peak of 10% at the height of the 2008-2009 financial crisis. The critics of the QE program have argued that easy money would recreate bubbles (e.g., in the housing and bond markets) and also increase inflationary pressures. While low interest rates have created a bubble in the bond market and boosted interest-sensitive stocks such as utilities, inflation continues to be in check (in fact, some fear that we may be in a prolonged deflationary environment similar to the one that Japan had during the 1990's).

Ben Bernanke, the Fed Chairman, has indicated that the goal of the QE program is to bring down the unemployment rate to 6.5% at which time the program could be terminated. The low interest rates and low inflation have boosted the equity prices; DJIA as well as the broader index, S&P 500, have both set all-time records. However, the key question now is when would the Fed start tapering the QE program. The Fed is expected to first reduce their purchases from the current rate of $85 billion a month and then start selling what they already purchased to bring down their balance sheet to more traditional levels. The whole process of tapering and selling their holdings could take years to complete.

It is generally believed that when tapering begins, interest rates would go up and stock prices would go down. The financial markets are beginning to show increased volatility as the possible tapering moment gets closer. The increase in interest yields on bonds and decline in stock prices in the last week reflect the uncertainty as to exactly when the QE tapering would begin. Bernanke is on record saying that the Fed could begin tapering when the unemployment rate goes down to 7% (currently at 7.4%). Many investors believe that tapering decision could be made as early as next month when the Federal Open Market Committee (FOMC) would meet. However, given that unemployment is still not at the level the Fed desires (next unemployment report is due on September 6, 2013) and inflation continues to be within the Fed's target range, the FOMC may decide to defer the decision on tapering to their next meeting in December. If a decision is not announced after their September meeting, the stock markets could soar to new record high and long-term interest rates could get a reprieve from recent run-up.

Given how sensitive financial markers are to the timing of tapering, it may be better if the Fed pulls back from its recent policy of transparency and not be so open on what their plans are. Below are some principles that the Fed could adhere to:

• Tapering and unwinding of their balance sheet should be done in a very gradual fashion, spread over several years. This would minimize severe volatility in the financial markets.

• The Fed should bring their transparency down a notch and not talk about their plans publicly. They should not pre-announce when they would begin tapering and at what rate. If investors don't know, they wouldn't react and that will help minimize volatility and reduce chances of flash crashes in the financial markets. If the Fed tapers gradually without public fanfare, it's possible that it might have very little negative impact on economy, to the point that people might not even notice that taper has already begun.

• The Fed should give out information on tapering and unwinding of their holdings after the fact and only in less dramatic way (e.g., making a vague reference in their meeting notes rather than Bernanke talking about it prominently at a press conference). The less the information given out in a low-key fashion, the better it would be.

Regardless of what the Fed decides on unwinding QE, the long-term prospects for the stock markets continues to be positive. Yes, the interest rates would increase, but given we are so far down from the normal interest rate levels that existed prior to the financial crisis of 2008, one should exercise caution in not overstating the impact of rising interest rates. In any case, given record cash hoards on the corporate balance sheets, their capital expansion plans may not be negatively affected by higher interest rates. Second, the end of QE would also signify significant improvement in the job market, which means increased consumer spending. Since consumer spending accounts for two-thirds of economy, corporate profits would increase even more from their current record levels. Also, higher interest rates would finally burst the bond bubble and some of that money would end up in stocks. Therefore, the recent decline in the stock prices caused by uncertainty surrounding the timing of tapering, could in fact be a good buying opportunity for the long-term investors.

Boehner sure mastered the art of how to lower business confidence and delay robust economic recovery

Posted by Shyam Moondra

Republican Speaker of the House, John Boehner, never misses an opportunity to say something that would demolish business confidence, which, in return, would blunt economic recovery and prolong the misery of unemployed people.

The latest Wall Street Journal/NBC News opinion poll puts Congressional approval rating at record low of 12%. The Congress has been viewed very negatively by the American people for many years but this seems to have almost no effect on Republicans. It’s as if they consider this level of low rating as a badge of honor. In the last year’s election, Republicans lost seats in the Senate and House, and they also failed to win the presidency. One would then think that this might have taught them a lesson and they would behave differently, but no such luck.

Recently, Boehner said that the success of Congressional Republicans should be judged not based on how many bills they pass but based on how many bills they repeal. Next week, Republicans are planning to repeal Affordable Care Act (referred to as Obamacare by Republicans) the 40th time, but it will again be ignored by Democrat-controlled Senate. Some Republicans are even advocating a new tactic to undo the laws passed by the Congress but not favored by a majority of Republicans and that is to unfund those programs. This is a dangerous approach which amounts to making a mockery of the democratic system and is a form of political terrorism. Given the potential huge backlash from the voters just before the next year's elections, many moderate Republicans are not in favor of such an extreme precedent, which could also be exploited by Democrats when they are in control of the House.

House Republicans marvel on their failure to negotiate with the opponents on averting sequestration, which forced across-the-board spending cuts (some of which even Republicans view as harmful to economy). The Congressional Republicans are resolute in putting their rigid political ideology above what’s prudent or in the best interest of the country. Somehow, in their twisted way of thinking, they believe it’s good for their re-election, even in the face of evidence that suggests otherwise. The House Republicans are holding the country as a hostage and they are putting their countrymen through unnecessary pain and suffering by obstructing economic recovery.

Boehner also said that he would not increase the debt limit unless President Barack Obama and Congressional Democrats agreed to cut spending substantially beyond the multi-year cuts that have already been put in place. Last time, Republicans threatened to use the government shutdown as a political tactic on the question of increasing debt ceiling; that threat led to the downgrade of government bond rating from AAA+ to AAA, the first ever such downgrade in the history of the country. That ugly debate shook up the business confidence and put brakes on economic recovery. Republicans ultimately lost that debate and they were forced to give in on tax increases for the super rich. Republicans’ intransigence, however, led to their poor performance in the 2012 elections. Now they are threatening to make the same mistake again.

Recent reports show that the federal budget deficit will fall to $759 billion for the fiscal year that ends this September, a $214 billion improvement from the projection made just a few months ago. Bi-partisan agreements on spending cuts and tax increases for the rich combined with improving economy are having a positive impact on the budget deficit outlook. If these trends continue, the issue of spending cuts, strongly favored by Republicans, may lose traction among the voters. As Obama correctly articulated in his recent speech on economy, given that corporate profits have surged to the record levels and budget deficit is declining, the government focus should now be on reducing unemployment rate which is still too high. That means the government should formulate policies that foster growth rather than be obsessed with spending cuts.

Congressional Republicans should start thinking about positioning themselves for the next election cycle of 2014, which is not that far away. Below is a laundry list of what Republicans should do:

• Reform the tax code. There is sufficient bi-partisan support for simplifying the tax code (by eliminating the special-interest deductions and rebates) and bringing down the overall tax rate for businesses. A lower overall tax rate would be very conducive to economic growth.

• Revisit sequestration and come up with more balanced bi-partisan approaches to spending cuts and individual tax increases. Some of the spending cuts triggered by sequestration (e.g., defense and Head Start program) are actually harmful and should be reversed.

• Given the dire state of our bridges, tunnels, and highways, we need to spend more on infrastructure improvements. A majority of people would have no problem with a special surcharge on gasoline to pay for these infrastructure upgrades.

• Education has been on the decline for a few years now and we need to do more to stay competitive in global trade. We need to provide more funding for pre-school and technical vocational training programs as well as find ways to reduce the rate of increase in the cost of college education.

Republicans need to demonstrate that they can be trusted to govern by becoming a part of the solution rather than being identified as a part of the problem. The Washington, DC gridlock only works against Republicans. If they can work in a bi-partisan way, their position will only become stronger by the time of the 2014 election.

Republicans are digging their own grave

Posted by Shyam Moondra

In 2011, Congressional Republicans led the ugly debate on debt ceiling which resulted in the downgrade of U.S. securities and eventually they ended up losing the 2012 election. One would think that Republicans probably learned their lesson; however, for whatever inexplicable reasons, they are making the same mistakes all over again. In essence, Republicans are continuing to self-destruct.

The country is on the verge of going over the "fiscal cliff" (automatic tax increases and across-the-board spending cuts on January 1, 2013) and voters overwhelmingly blame Republicans for putting the country through unnecessary unpredictable times. Another downgrade of government securities by the rating agencies may very well be inevitable. For a while, negotiations between President Barack Obama and the House Speaker John Boehner on "fiscal cliff" appeared to be headed to a successful conclusion, but then came a strange unilateral move by Boehner to pursue "Plan B" (making the Bush tax cuts for families earning less than $1 million a year permanent while letting the tax cuts for millionaires expire), which, as it turned out to Boehner's embarrassment, didn't even have the support of his own party caucus. The "Plan B" was never brought to a vote but this futile exercise derailed the negotiations between Obama and Boehner. So now what we have is nothing and we are only a few days away from the "fiscal cliff." A few weeks ago, Senate Minority Leader Mitch McConnell (R-KY) introduced a bill to let Obama raise the debt ceiling to demonstrate that even Democrats wouldn't support it. However, when Senate Majority Leader Harry Reid (D-NV) decided to put that bill up for a vote and it appeared that the bill could actually pass, McConnell was forced to filibuster his own bill. The current Republican leaders in the House and Senate seem to be bent on showing off that they can do the weirdest things and look incompetent or as the British would say "nutters."

To be able to govern, a party must first win election, and to win election it must pursue policies that are supported by a majority of the electorate. An overwhelming majority (including the rich people) support higher tax rates for those who make $250,000 or more to help reduce budget deficit. In a democracy, how can a party go against the wishes of the people and still expect to prevail? Republicans can't impose a minority view on a majority and get away with that. The same thing is true on other issues such as abortion, immigration, and gun control, where Republicans are pursuing their extreme policy agenda which is not supported by the majority of the people.

The U.S. demographics are changing; this year, for the first time ever, more non-white babies were born than white babies and that means the Obama coalition (Hispanics, Blacks, Asians, middle class whites, students, women, and veterans) will only get stronger in the future. Therefore, continuing to cling to rigid conservative ideologies that are not supported by the emerging electorate is a sure prescription for losing elections going forward.

Republicans' iron-cast ideology of "no new taxes, ever" is not only impractical but it's also damaging to the economic well-being of the country. President George W. Bush cut taxes for the rich (at a time when we were fighting two wars and spending like crazy) and, as a result, the rich people benefited the most during the last decade (which explains the widening gap between the rich and poor). So there is nothing wrong if rich people are asked to contribute more now to help reduce the deficit and debt.

Republicans will eventually lose on their right-wing ideologies (because of the changing demographics) and thereby become irrelevant. Recent opinion polls clearly show that the people are generally fed up with the Republican intransigence; in 2014, it's very likely that Democrats will win filibuster-proof majority in the Senate and they will also win the House, paving the way for gridlock to finally come to an end.

Republicans are digging their own grave and in 2014 they will finally get to RIP.

“Fiscal Cliff” will push the Republican Party over the cliff

Posted by Shyam Moondra

Since Ben Bernanke, the FED Chairman, first coined the term “fiscal cliff” last February, it has taken its own life and is now being used universally by the media and investors around the world. The term “fiscal cliff” refers to the convergence of the expiration of a variety of tax cuts (e.g., the so-called Bush income tax cuts, temporary payroll tax cuts, estate tax cuts, and investment tax cuts) and across-the-board spending cuts (equally divided between defense and non-defense discretionary expenditures) on January 1, 2013. At that time, additional health care taxes related to the Patient Protection and Affordable Care Act of 2010 would also go into effect. These automatic tax increases and spending cuts (known as “sequestrations” in the Budget Control Act of 2011), if carried out in full, could reduce budget deficit/debt by as much as $7 trillion over ten years. Bernanke has warned that these precipitous tax increases and spending cuts at a time when economy is still recovering at a tepid pace could push us into another nasty recession. The investors are very skittish about the impending catastrophe and they are reacting to every word uttered by Republicans or Democrats on the status of negotiations to save the country from falling off the “fiscal cliff.” Most corporations have put their plans for capital investment and hiring on hold until there is more clarity on if there is political will on the part of Republicans and Democrats to compromise and come up with a more modest deficit reduction plan of the order of $1.2 trillion over ten years (as required by the Budget Control Act to avoid automatic tax increases and spending cuts) before the end of the year (actually, within the next three weeks before the Congress adjourns for the Christmas holidays).

President Barack Obama has proposed a budget plan which would increase taxes by $1.6 trillion (the Bush tax-cuts for the middle class would be made permanent while tax-cuts for the rich would be eliminated along with investment and estate tax cuts) and reduce spending by $600 billion over ten years for Medicare, Medicaid, farm subsidies, and other programs ( these spending cuts are over and above $1 trillion of spending cuts that the president and Congress committed to last year for the coming decade and a reduction of $800 billion in projected war spending, reflecting the winding down of the U.S. combat operations in Afghanistan and Iraq). House Speaker, John Boehner, has called Obama’s plan as not “serious.” Republicans don’t want to increase tax rates for the rich (although they are open to reducing deductions to have a net increase in tax revenues by a smaller amount than what Obama wants); they want to rely primarily on deep spending cuts in the entitlement programs to balance the budget, which is vehemently opposed by Democrats. So, lines have been drawn in sand by both sides; they are miles apart and very little time is left to bridge the gap before the country goes over the “fiscal cliff” in less than a month.

Implications of “fiscal cliff”

Below are some observations on where things stand in the aftermath of the November elections and what “fiscal cliff” means to both Democrats and Republicans:

• Obama fought the election based on his vision of reducing budget deficit/debt by increasing tax rates for the rich (those making at least $250,000 a year) while preserving the lower tax rates for the middle-class. Not only Obama got re-elected, but his policy platform also brought net gains for Democrats in the Senate and House. Democrats view these election results as a mandate on their tax and spending policies. The post-election polls also show that voters overwhelmingly support Obama’s vision of balancing the budget by increasing taxes and closing loopholes for the rich. Republicans are clearly in a much weaker position now than they were before the election.

• Republicans believe that higher taxes on the rich will negatively affect economic growth and hamper job creation. The historical data, however, doesn’t support these assertions. Trickle-down economics was enacted by Republican Presidents Ronald Reagan and George W. Bush, and both times we ended up with recessions and high unemployment rates. On the other hand, when Democratic President Bill Clinton raised the income tax rates for the rich to the highest levels in modern history, he not only achieved a budget surplus but his policies brought sustained prosperity for people from all walks of life for a decade (with unemployment rate falling down to as low as 4.5%, which economists consider as “full employment” level). Therefore, the pro-rich agenda of the Republican Party doesn’t resonant with the electorate.

• Obama wants the top individual tax rate to go up from the present 35% to 39.6%. However, the fact of the matter is that very few rich individuals pay the highest rate because of all kinds of income exclusions and deductions that have been added to the tax code over the years, mostly by Republicans who favor the rich (rich individuals reciprocate by showering Republican candidates with lavish amounts of campaign contributions). The problem is illustrated by Mitt Romney, who earned tens of millions of dollars a year but paid as little as 13% in federal taxes during the last ten years, thanks to his aggressive use of income exclusions and deductions. Increasing the top marginal rate by itself is not going to do much good unless, at the same time, the tax code is simplified and most income exclusions and deductions are weeded out.

• Obama won the election because his vision enabled him to put together a winning coalition consisting of women, Blacks, Hispanics, young voters, veterans, and middle-class white voters. Due to demographic changes, the continuing growth in the Obama coalition will only make it harder for the Republicans to win elections in the future, if they continue to stick to their philosophy of unproven trickle-down economics. That means Republicans are better off to negotiate the best deal they can get now.

• If Republicans choose to let the country fall off the “fiscal cliff” (let all tax cuts expire and automatic spending cuts go in to effect), most economists believe that economic growth will decline, pushing us back into recession with unemployment rate rising again. The automatic tax increases would, however, technically not count as Republicans’ violating their pledge to not increase taxes (because they wouldn’t really vote for tax increases). And then in 2013, when the next Congress convenes, Republicans could vote for a tax cut for the middle-class, which doesn’t violate their tax pledge either. However, higher unemployment rate, crashing financial markets, and possible downgrade of the rating of the U.S. government securities by rating agencies could lead to a backlash against Republicans in the Congressional elections of 2014. The voters could give Democrats a filibuster-proof majority in the Senate and the control of the House. With Democrats in charge of the presidency, Senate, and House, Obama could then swiftly move to implement his agenda in the last two years of his second term. An increasing number of Congressional Republicans are beginning to realize that their firm posture on extending Bush tax-cuts for the rich may not only push the country off the “fiscal cliff,” but it may in fact push the Republican Party off the cliff. In a post-election survey concerning the “fiscal cliff” conducted by Pew Research Center, about half of respondents believed Congress will fail to reach an agreement to reduce the country's budget deficit compared to only 38% who said a deal will be met. If the two sides fail to find common ground on reducing the deficit, 53% said congressional Republicans will be to blame while 29% said the responsibility will fall on Obama.

• In a strange way, if there is no compromise between the Democrats and Republicans over the “fiscal cliff” before the end of the year, some investors might think of this as a positive development. While “fiscal cliff” would cause reduced consumer spending and economic slowdown in the near-term, the budget deficit and debt situation would be greatly improved in the long-term. If the automatic tax increases and spending cuts of January 1, 2013 are carried out in full, they will reduce deficit (or avoid debt) by $7 trillion over ten years. This will go a long way towards putting our national financial house in order, which will be very positive for the long-term economic growth. Therefore, in the short-term, the stock market may decline, but the chances are that it will bounce back rather quickly. In 2013, Republicans and Democrats may hammer out a $4.5 trillion plan, as originally envisioned by Obama and Boehner last year, which incorporates higher taxes for the rich and lower taxes for the middle-class and meaningful reforms of the entitlement programs. Such a breakthrough plan could push the financial markets to record high levels.

Possible Comprehensive Deficit/Debt Reduction Plan

The following could form a basis on which to work out a comprehensive plan to reduce deficit and debt:

1. Taxes:

o Make Bush tax cuts for the middle-class (family income less than $250,000 per year) and small businesses permanent.

o For high-income earners, let the Bush tax-cuts expire and also limit income exclusions and deductions to $35,000 (as suggested by Romney). As an alternative, impose AMT of say 25% of gross income, so all rich people will pay a minimum of 25% in taxes. When Romney pays only 13% or Warren Buffett pays only 20% in federal taxes, it's just morally wrong.

o Capital Gains/Dividend Taxes: These Bush tax breaks encourage saving and investment, and they also benefit the middle-class. Therefore, they must be made permanent.

o Estate Taxes: These taxes should be increased, but not by as much as what liberals want. Republicans and Democrats should find a compromise.

o Corporate tax loopholes must be closed. It's wrong when GE pays 0% and Google and Goldman Sachs pay only 10% in federal taxes. Our corporate tax rate may be high, but the reality is that most companies don't pay anywhere near the top rate. We need a plan that would make corporations pay a lot more in taxes than they are paying now - we need to close down all the loopholes that companies use to reduce their tax liabilities.

2. Health Care: Revisit the Obamacare and make some adjustments to provide relief to small businesses.

3. Entitlements:

o Medicaid: Medicaid is the worst program ever created by the federal government. There is so much potential for fraud that this program, in its current form, can't be sustained by the taxpayers. Many poor people are using Medicaid fraudulently to put some cash in their pockets. They visit doctors and undergo unnecessary treatments and, in return, some doctors and other service providers share part of their fee paid by Medicaid with the patients. Medicaid was intended to provide health care for the poor people, but some of them are using it as a cash-cow. No amount of enforcement will ever catch this kind of fraud. As the health care costs continue to go up and health care becomes unaffordable, more and more people would end up in Medicaid. Therefore, there is simply no way this program can be viable in its current form for the long-term. The federal government should give a fixed grant to the States (increased over time to keep up with the general inflation rate) and let individual States administer health care for the poor.

o Medicare: There should be no change in retirement age. We could increase the deductible and the Medicare tax rate and make benefits a function of income (rich people get minimum Medicare benefits or no benefits at all). There should be increased funding for fraud prevention. There is no support for the Republican idea to convert Medicare into a voucher program.

o Social Security: There should be no change in the age requirement or COLA calculations. We could increase the income limit which is subject to social security tax and we could make benefits a function of income (rich people get reduced benefits or no benefits at all). There is zero support for Republican idea to privatize Social Security.

4. Provide increased funding for Education. The U.S. students are sliding down fast in test scores compared to other countries which will negatively affect our competitiveness in the future.

5. Our infrastructures are crumbling (bridges, highways, roads) - during the recent Hurricane Sandy, we saw how antiquated our power grid and telephone infrastructure are. The government and corporations need to step up and modernize the infrastructure. We could impose a special tax on gasoline to pay for increased investment in our infrastructure.

Time of reckoning has come for Republicans – either do what the electorate wants or become irrelevant

Posted by Shyam Moondra

Republicans campaigned based on trickle-down economics and lost. Not only they failed to win the presidency, they also lost seats in the Senate and House of Representatives. Republicans pursued a policy agenda that defied voter preferences (e.g., voters overwhelmingly want rich people to pay higher taxes) and they paid a price. Now the “fiscal cliff” is looming on the horizon, which has the potential to crash the financial markets and decimate people’s 401(K) and IRA savings a second time in less than five years. If Republicans don’t change their strategy, they would lose big time in the 2014 Congressional elections. In 2014, Democrats will most likely control both the Senate and House, and President Barack Obama will be free to execute his agenda on taxes, deficit/debt, education, immigration, energy, health care, and entitlement programs in the final two years of his second-term. In a nutshell, Republican Party will become irrelevant. That means, Republicans are better off to negotiate the best deal they can get now. Obama won, so he deserves to have some leeway in executing his policies; that's what the voters said loudly in the election.

Republicans’ trickle-down economics favoring the rich is inconsistent with the evolving mix of the electorate in which non-whites, most of whom are low-income and middle-class families, are growing the fastest and have a big say in the final outcomes of democratic elections. Clearly, the Republicans need to be more inclusive, if they want to win elections; and that means, they need to modify their agenda and move away from the unproven assertions that what’s good for the rich is good for the country or that rich people are the job creators. The Republicans need to start becoming part of solutions rather than continue to boil the pot based on extreme ideologies that are not supported by the electorate. House Speaker John Boehner must work with Obama and Congressional Democrats to form a winning coalition of moderate Republicans and Democrats - that's the only viable way forward.

Effective January 1, 2013, all Bush tax cuts will expire, so will temporary payroll tax cuts that were advocated by Obama as a stimulus to the sagging economy, and there will be significant across-the-board spending cuts. These tax increases and spending cuts at a time when the economy is still trying to recover from the 2008 recession would decimate the economy and push it back into recession with unemployment rising to double-digits, again. This, so-called “fiscal cliff,” will crash the financial markets, wiping out the wealth created in the last few years. Also, if the country is pushed over the cliff, the debt rating of the U.S. government securities will be downgraded for the second time in a short period of two years, which will put the upward pressure on interest rates. Higher interest rates will increase the interest expense for the government, thereby widening the budget deficit even more. The costs of a “fiscal cliff” are too high to contemplate and both Republicans and Democrats owe it to the people to reach a compromise and avoid the catastrophe. Given that Republicans lost the election, they have the primary responsibility for reaching out to the Democrats and making the necessary compromises (especially on increasing revenues by making rich people pay higher taxes) well before the end of the year. The Democrats also bear the responsibility for reaching out to the Republicans in carving out compromises on reforming the entitlement programs.

The continuation of the present gridlock in Washington, DC would be very damaging to the people and to the national security. Obama and Congressional leaders need to resurrect Obama-Boehner’s grand plan of reducing the deficit by $4.5 trillion over ten years; they could use that as a starting point and make the necessary modifications to reflect today's political reality in the aftermath of the 2012 elections and get it passed by the Congress as soon as possible, preferably before the end of the year.

2012 election results show voters’ repudiation of Republican trickle-down economics

Posted by Shyam Moondra

President Barack Obama handily beat Republican opponent Gov. Mitt Romney and won a second four-year term as the 44th President of the United States. The long grueling campaign, which often involved nasty personal attacks from both sides, ended up with a divided government, again, but with a clear message from the electorate that they expect the opposing politicians to compromise and make the government work for the people. In modern history, no incumbent president has won a second-term with unemployment rate as high as the current 7.9%. Obama’s victory means that the voters have rejected Republicans’ trickle-down economics favoring the rich.

The following observations about the election results are worth noting:

• Obama methodically assembled the winning coalition consisting of white middle-class, women, blacks, Hispanics, young voters, and veterans. Obama used the power of incumbency in pushing through targeted policy agenda. For example, he issued a unilateral executive order suspending deportation procedures against undocumented young Hispanics. Obama’s unequivocal support for equal pay and abortion rights for women, tax cuts for the middle-class, student loan reforms, and various programs for veterans returning from combat duty in Afghanistan and Iraq was designed to put together the winning coalition.

• Romney suffered from his constant flip-flopping on a variety of issues (which made it difficult for the people to trust him), lack of a detailed plan on how he would create millions of new jobs, his perceived pro-rich positions (his comment that 47% of the low-income people were “victims” and “dependent” proved that he didn’t care much about the poor people), his changing views on immigration (which turned off many Hispanics), his hedging on saying affirmatively that he supported equal pay for equal work (which turned off many female voters), and his lack of well thought out positions on international issues (his such comments as “Russia is number one enemy,” “on day one, will declare China as currency manipulator,” and “Palestinians don’t want peace,” showed he was not ready for the top job). Romney’s comments on getting involved militarily in Syria and attacking Iran scared off many voters who are tired of fighting perpetual wars in Iraq and Afghanistan and have no appetite for starting new wars at a time when we are burdened with a huge pile of debt.

• Young voters, accounting for 18% of the electorate, seem to have actively participated in this election cycle as is evident from the large crowds of young voters that gathered at Times Square, New York and Lafayette Square across from the White House, as well as at the victory rally in Chicago to cheer Obama’s victory. The participation of young people, many of whom voted for the first time in their lives, in the democratic process is a positive development for the future.

• Hispanic voters, accounting for 15% of the electorate, played a decisive role in Obama’s victory in several battleground states. They soundly rejected Republicans’ conservative immigration policies. Given that Hispanics represent the fastest growing minority in the United States, Republicans must now re-calibrate their immigration policies to win the support of this powerful block of voters in the future.

• Obama won in Massachusetts/Michigan (home states of Romney), Ohio (home state of House Speaker John Boehner), Virginia (home state of House Majority Leader Eric Cantor), and Wisconsin (home state of Paul Ryan). The voters in these states seem to be sending an unmistakable message to Republican leaders that their refusal to compromise on the issues of deficit/debt and taxes is not appreciated.

• Many Tea Party candidates were defeated, demonstrating voters’ disapproval of their extreme tactics. The absence of Tea Party inspired extremism in the Congress would now make political compromises on deficit/debt and tax issues more likely.

• The Republican senatorial candidates, Todd Akin (Missouri) and Richard Mourdock (Indiana), who used offensive remarks such as "legitimate rape" and “rape is Gold’s will" to justify their anti-abortion position even in case of rape, were rejected by their respective constituents in conservative states.

• Republicans lost seats in Senate and House, which reflects the unhappiness of the voters over how Republicans behaved during the debt ceiling debate that resulted in rating agencies’ downgrading of  government securities from AAA to AA+, the first ever in the history of the U.S.

The larger message in the election results is that the people still favor a divided government (White House and Senate controlled by Democrats and House controlled by Republicans) but at the same time they want the Republicans and Democrats to work together and find common ground on the issues of budget deficit/debt, tax reforms, immigration, health care, energy, and education. Since Democrats had a net gain in the Congressional seats, it shows that voters blame Republicans for the gridlock in Washington, DC and they want Republicans to be more forthcoming in making compromises and solving problems. Clearly, Republicans find themselves in a weaker position. If they continue to take the “Do nothing” approach in the next Congress, they will be punished severely in the next mid-term Congressional elections to be held in November of 2014.

Conservative Republicans are better off with Obama than Romney – here is why

Posted by Shyam Moondra

Gov. Mitt Romney won almost unanimous praise for his slick performance in the debate against President Barack Obama in Denver last Wednesday. As a result, Romney got an expected bump in the opinion polls, especially in the closely contested states. For a change, many Republicans are now understandably excited about Romney’s improved chances of winning the White House. But, the real question is if they really want Romney to win.

Immediately prior to and during the Denver debate, Romney re-branded himself as a moderate. He agreed with Obama on many points. Yes, Romney now favors Obama’s policy of letting young illegal immigrants stay in the country. Romney agrees that we need to have regulations for the Wall Street. Now, Romney even likes parts of the Obamacare. Romney is taking back his tax plan and he doesn’t talk about reducing taxes for the rich anymore (he uses the term tax-neutral). Hell, Romney even takes back his comment to conservative campaign donors that 47% of the people are “dependent” and “victims." Obama in a post-debate campaign speech correctly observed that at the debate he saw a Romney-look alike who was saying things that were just the opposite of what real Romney was saying before the debate.

Romney’s changed positions at the debate were clearly designed to appeal to the middle-class whose support is paramount for his victory in November. But what if Romney is indeed a moderate (his record as Governor of Massachusetts speaks for itself) and what if he was all along pretending to be a conservative just to win the Republican nomination? Can Republican conservatives really trust him? What if Romney has similar views as Obama does on abortion, gay marriage, regulations, health care, and taxes?

If Obama wins, he will soon become a lame duck president and nothing much will happen in terms of his "liberal" agenda. On the other hand, if Romney wins, Republicans will have to live with a moderate in the White House for as long as eight years with conservative values taking a back seat. Romney might reach out to the Congressional Democrats and God knows he might even compromise on budget deficit and debt issues. Romney might even appoint moderate justices on the U.S. Supreme Court. Romney could very well prove to be a nail in the coffin of conservatism as we know it. So, what should smart conservative Republicans do? Well, they should vote for Obama and help him get re-elected. Then nominate a real conservative to win the presidency in 2016 and begin the golden era of conservatism for at least eight years. Speaker John Boehner and Sen. Mitch McConnell - you go ahead and give interviews to the media to let everybody know for the record that you strongly support Romney, but in the voting booth do the right thing and vote for Obama to protect your conservative ideology for the long-term.

Obama wins the convention contest – Romney faces make-or-break moment in presidential debates

Posted by Shyam Moondra

Both Republicans and Democrats just finished their back-to-back conventions that seem to give President Barack Obama an edge over the Republican challenger Gov. Mitt Romney. The political party conventions provide a staged platform for introducing their respective candidates, highlighting their visions, and energizing their respective party faithfuls. The Republican Convention was held in Tampa, Florida followed by the Democratic Convention in Charlotte, North Carolina. In 2008, Obama narrowly won both of these states when he ran against Republican candidate Sen. John McCain; this time, Florida is a must-win state for Obama to prevail in November.

The Republican convention, partially disrupted by the tropical storm Isaac, turned out to be a missed opportunity for Romney and his running mate, Rep. Paul Ryan. The convention organizers used most of the convention time focusing on reasons for not re-electing Obama as opposed to articulating why people should vote for Romney. The convention was a perfect setting for Republicans to present what the undecided voters were craving for – Romney/Ryan’s vision for the future, especially how they would speed up the economic recovery and create lots of jobs. Romney and his wife, Ann Romney, did a good job in telling the audience who they are, what values they live by, and what role their Mormon faith plays in their lives. However, Romney said nothing about his core convictions and his positions on various issues that seem to have evolved over time. Ryan, supposedly an “idea man,” turned into an “attack dog.” Ryan used up all of his speech to criticize Obama; since then there has been extensive reporting on many of the things he said that turned out to be untrue (more recently, Ryan even lied about his time of marathon that he ran when he was younger).

The Republican convention was the least forward looking convention in recent history. Basically, Romney’s message was “elect me first and then I will tell you what I would do.” This was an important opportunity for Romney and Ryan, with tens of millions of people watching on televisions at homes, to clearly explain what they would do to create jobs or what their policies would be on Medicare, tax cuts, and spending cuts. Given that the U.S. armed forces are still fighting a war in Afghanistan, it was stunning that both Romney and Ryan neglected to acknowledge the sacrifices of men and women in uniform (very odd for Republican Party known to be strong on defense and security). And then there was Hollywood legend Clint Eastwood who gave a bizarre stand-up comedy performance that seemed so out of place at a serious forum. After the convention ended, people were still talking about the Eastwood episode and Romney’s message got lost in the noise.

Recent polls have shown that Romney is running behind Obama among female voters; therefore, most convention speakers talked about women issues. However, that focus seemed kind of forced and unauthentic. Several speakers talked about repealing Obamacare but without explaining what they would replace it with. The speakers aroused the enthusiasm of the delegates by repeating President Ronald Reagan’s line “Are you better off today than four years ago?” which he used against then Democratic incumbent President Jimmy Carter. Judging from the response of the audience, the convention appeared to have succeeded in energizing the Republican base. However, to win the election, they needed to impress the independents and moderates; it appears that they utterly failed to do so. Republicans made the case why people shouldn’t vote for Obama but they didn’t make the case why they should vote for Romney. Given the lackluster Republican convention, it’s not surprising that Romney got no lift in the polls from the convention, as is normally the case. Romney’s flip-flopping and Ryan’s tendency to lie make Romney and Ryan as the least trustworthy candidates of modern times.

In a recent post-convention speech, Romney used the word “God” several times, suggesting that he doesn’t believe he solidified the support of conservative Republican evangelicals, as yet. Also, Romney conceded that certain parts of Obamacare are desirable and he would like to keep them in his new health care plan that would replace Obamacare. Romney also said that Congressional Republicans made a mistake by agreeing to mandatory $1.5 trillion worth of across-the-board spending cuts. Romney's recent comments seem to suggest that he is trying to move to the center to gain support of the independents and moderates.

Democrats, on the other hand, did a much better job in putting up a good show at their convention. They had several good speakers, notably First Lady Michelle Obama, who delivered one of the most effective convention speeches ever, and former President Bill Clinton, who delivered another remarkable speech in which he explained complicated policy issues in a way that people could easily understand. Clinton said that the relevant question is “are you better off today than two-and-a-half years ago?” (and not “are you better off today than four years ago”). The reason being, as Clinton argued, Obama’s first one-and-a-half years were used up to deal with the worsening recession caused by the severe financial crisis left behind by Obama’s predecessor, President George W. Bush. During the Bush’s final year, we lost 2.6 million jobs. In the last two-and-a-half years, Obama has created 4.5 million new jobs. In recent months, the data seems to suggest that the housing market has finally started to recover and the average housing prices are beginning to rise. So the Democrats’ message was that we are on the right track and Obama should be given four more years to finish the job.

Bill Clinton has been at odds with Obama since Obama defeated Hillary Clinton in the Democratic Primary elections of 2008. Recently, Bill Clinton made some comments that seemed to support Romney (Romney campaign even used Bill Clinton in their political ads); although later Bill Clinton backtracked on those comments. The theory behind Bill Clinton’s strong support for Obama at the convention seems to be that Hillary Clinton would fare better in the presidential election in 2016 against a new Republican candidate rather than running against incumbent President Romney; so Bill Clinton is doing everything he can to get Obama re-elected.

Sen. John Kerry, in one of the best speeches he has ever delivered, outlined Obama’s foreign policy successes and he painted Romney as utterly inexperienced and naive in foreign affairs. Romney’s following statements were cited as examples to show that he is not ready for the job he is seeking: On Day 1 he will declare China as the currency manipulator, Russia is our enemy number one, he will order the U.S.  military involvement in Syria and Iran (the American people have no appetite to get involved in more large scale wars and by the way how would Romney pay for these new wars?), and that on Day 1 he will move the U.S. embassy from Tel Aviv to Jerusalem.

Obama’s speech was good but not as effective and inspiring as in 2008. To his credit, he touched upon his vision going forward that Romney neglected to do. Vice President Joe Biden stayed out of trouble which is good enough for him; although he did come up with a catchy sound bite “Osama bin Laden is dead and GM is alive.” Democrats did a good job in pointing out that Romney has a record of his constantly changing positions on issues, so it is hard to pinpoint his core beliefs, if he has any. Obama’s main problem is economy and the recent jobs report, which showed that only 96,000 new jobs were created last month (although unemployment rate went down from 8.3% to 8.1%), crystallizes that problem.

Democrats had many more interesting and effective speakers than Republicans did. All in all, Democrats won and Obama came out of the convention season with a slight edge over Romney.

The next critical phase of the 2012 presidential election consists of a series of one-on-one debates in October, the first of which is scheduled for Oct 3rd in Denver, Colorado to be moderated by PBS’ Jim Lehrer. Obama is currently ahead in the polls by a few points in terms of popular votes and comfortably ahead in terms of electoral votes; therefore, the burden is on Romney to demonstrate in the first debate that he is ready for the highest office in the land. If Romney stumbles in the Denver debate, it would be awfully hard for him to recover.

Outrageous ideas for speeding up economic recovery and job creation

Posted by Shyam Moondra

This Thursday, the Federal Reserve Board (FED) is likely to announce a new Quantitative Easing program (QE3) through which they will infuse liquidity into the monetary system, inducing investors to go after more risky assets rather than park their money in fixed-income instruments that they consider as safe haven in the present uncertain environment. The earlier similar programs (QE1 and QE2) have had some positive effect on economy but they provided only a temporary lift. What if the FED takes a different approach this time?

Here is a recap of where things stand right now:

• The stock prices are historically low with S&P 500 PE hovering at around little over 15. At the last market peak, it was over 30. When the market goes up, the investors feel wealthy and more secured about the future. That leads to their increased spending which fuels the economy.

• The housing prices are improving, but they are still very depressed from their historic averages. Higher housing prices have the same wealth effect as higher stock prices; homeowners start borrowing against home equity which leads to increased spending that boosts the economy.

• The corporations have the best balance sheets in a generation, hoarding cash of the order of $3 trillion. They are ready to invest in capital projects and hire more workers, but two things are holding them back: gridlock in the Congress that creates uncertainty (and corporations hate uncertainty) and tepid consumer spending.

• Having lost tons of money in the 2008-2009 market crash, the investors have parked their cash in government securities that pay almost no interest and corporate bonds that are barely keeping up with inflation. So what we have is a fixed-income bubble that would eventually burst, as all bubbles do.

Given the above facts, this is what we can do to increase the rate of economic recovery and speed up job creation:

• The voters need to take a decisive action in November and give control of all three government entities, the White House, the Senate, and the House of Representatives, to the same party so we can finally get rid of gridlock. Under Obama, we have made progress in terms of job creation from the depth of severe recession left by the former President George W. Bush (4.5 million new jobs created in the last 30 months compared with 2.6 million jobs lost in the final year of the Bush presidency). Obama has demonstrated that he is the absolute champion of the middle-class (that accounts for 70% of consumer spending) and protector of Medicare and Social Security safety-net programs. Therefore, the voters should put Democrats in charge of all three parts of the government. In the past, the voters preferred a divided government to have checks-and-balances and to avoid ideological domination by any single political party. However, in the current circumstances, getting rid of gridlock is much more important than worrying about ideological domination. In the absence of gridlock, the government will be able to swiftly move on tax reforms and adopt a long-term balanced plan to reduce federal budget deficit and debt.

• The FED has been buying treasuries and mortgage-based securities to infuse more liquidity into the system with the hope that investors would go for more risky assets such as equities. The FED actions have had limited success in achieving their goals and these actions have largely benefited the financial sector which is in much better shape today than it was in 2008. Therefore, may be the FED should buy equities instead of treasuries and mortgage-based securities to encourage the investors to move their money from less risky instruments to more risky equities. The previous government investment in equities by the Treasury Department under the bailout program TARP (e.g., in auto companies and financial companies) has produced good returns for the taxpayers; FED’s equity purchases now when the market prices are relatively low should prove to be profitable for the taxpayers as well as beneficial for the overall economy. The FED purchases of equities (they could buy the stocks in various indices such as Dow Jones, S&P 500, NASDAQ) will move the stock market up and create wealth. By the same token, the FED should snap up foreclosed properties (rather than buy mortgage-based securities that benefit only the banks) to reduce supply of homes and thus give a boost to the housing prices, thereby creating the wealth factor on that front as well. The Congress would have to revise the Federal Reserve Act authorizing the FED to buy equities and foreclosed properties and also increase funding for the FED so that it will have the necessary resources to effectively execute the plan of investing in equities and foreclosed properties.

• The FED has stated that it will keep interest rates close to zero at least through 2015. The idea was to nudge investors away from fixed-income securities and towards more risky assets and encourage corporations and consumers to borrow and spend. Unfortunately, the low interest rates are not having an appreciable stimulative effect on economy; corporations don't need to borrow much because of their huge cash pile and consumers are reluctant to borrow because they don't feel secured in the current economic environment with high unemployment rate. Also, the potential home buyers are putting off their real estate purchases thinking that interest rates will remain low for some time so it's better to just wait for lower real estate prices. Therefore, the FED’s low interest rate policy is actually having unintended negative impact on economy. May be the time has come for the FED to try a different tack and start increasing interest rates and force these waiting potential homeowners to start buying homes now which will have a big impact on job growth. Higher interest rates will also increase the spreads for banks that will allow them to make fatter profits and thus become financially more stronger than they are now.

Since the 2008 recession, we have had the slowest recovery on record. It’s time the voters and FED try different approaches to improve economy and create lots of jobs faster.

Obama-Clinton ticket could lock-in the presidency for twelve years

Posted by Shyam Moondra

The latest polls indicate that President Barack Obama would win over Republican challenger, Gov. Mitt Romney, by a small margin. Given that Obama was handed a severe recession and a major financial crisis by his predecessor President George W. Bush, two presidential terms may not be enough to fully recover from the recession and put in place policies that would help achieve long-term prosperity. That means, Obama must not only win the second-term with a comfortable margin but his victory must also be decisive enough to generate the coattail effect to help Democrats win the House of Representatives. Also, he must not be reduced to a lame duck president in his second term and he must leave a succession plan to continue his policies beyond his second term. And what that means is that Democrats need the Obama-Clinton ticket to face the Republican Romney-Ryan ticket.

Hillary Clinton, who has done a tremendous job as the First Lady, Senator, and currently as the Secretary of State, would instantaneously fire-up half of the voters, the women, whose overwhelming support could easily hand a grand victory to Democrats in November. Clinton showed extraordinary campaigning skills in 2008 when she ran against Obama in the primaries. Not only Clinton could help Obama win the second term, her female supporters could prove to be instrumental in Democrats’ winning the House as well. With Democrats controlling the White House, Senate, and House, Obama could then move forward on his balanced approach to reducing deficit/debt, education, energy independence, immigration, and infrastructure improvements.

Clinton, who tends to be at a little right to the center in terms of her political philosophy (less than, of course, former President Bill Clinton, who ruled from the right more than most other Democratic Presidents), would provide a perfect balance to Obama who has a tendency to rule from the left of the center (and that is his biggest weakness in the current political environment).

After Obama’s second term, Clinton would be a shoe-in to run for the office of the president in 2016 and win. Clinton could then continue with the Democratic agenda and finish the job in her two terms. While Vice President Joe Biden is a good man, Clinton’s popularity, her leadership skills, and political acumen are far more superior to those of Biden. Biden’s tenure as the Vice President has not been as remarkable as that of Clinton as the Secretary of State.

At their Party Convention, Democrats have to find a way to make the switch in the vice presidential candidate. In fact, Biden could remove himself as a candidate and then nominate Clinton instead. Of course, if Obama-Clinton ticket wins, Biden could be given a choice assignment, perhaps a cabinet position (e.g., as Secretary of State, given his expertise and interest in foreign affairs) or he could be named as personal emissary of Obama, a sort of world trouble shooter, to accomplish big things such as orchestrating a settlement between Israel and Palestinians or engaging with North Korea, the kind of job that Biden might in fact enjoy. Another possibility for Biden would be to become the President of World Bank.

The most important issue for the next president would be to come up with a long-term deficit reduction plan which will bring down deficit by $5-6 trillion over ten years with a fair mix of tax increases and spending cuts. This important job couldn’t be done without first getting rid of gridlock in Washington, DC. An Obama-Clinton ticket would go a long way to accomplish that.

Romney and Ryan – Retrofit and Rack

Posted by Shyam Moondra

In 2008, Republican presumptive presidential nominee Sen. John McCain was running behind Democrat Barack Obama and McCain was looking for a game-changer to energize his uninspiring campaign. McCain found it in Sarah Palin, then Governor of Alaska, whom he chose as his running mate. However, Palin turned out to be a disastrous choice which ultimately led to McCain’s humiliating defeat in the election. Now, four years later, it is déjà vu all over again. Republican presumptive nominee Mitt Romney is running behind Democrat President Obama and Romney needed a game-changer, so he picked as his running mate Rep. Paul Ryan, an ultra conservative from Wisconsin where Obama is presently ahead in the polls.

Romney’s announcement of Ryan being his running mate has indeed energized the Republican base, judging from the size of the crowds that are showing up at their joint appearances since the announcement. The same thing happened when Palin was chosen by McCain as his running mate; her colorful speeches (that included such lines as “pig with lipstick”) did arouse the crowds especially the conservatives, but that initial excitement didn’t last for long and eventually it became clear that Palin was not a wise choice after all. Ryan would probably meet the same fate. Once Ryan's budget plan is dissected more fully and his positions on Medicare and Social Security programs, tax cuts for the rich, abortion, and gay marriage start sinking in the hearts and minds of various constituents, the initial excitement would fade and reality set in.

Romney has been a moderate Republican all his life, which is evident from his record as the Governor of Massachusetts, where he reformed health care that later became the blueprint for Obamacare. Romney’s policies there on many social issues such as abortion and gay marriage were too similar to those of Obama and too moderate for right-wing ideologues. Those may be the reasons why Romney rarely talks about his accomplishments as the Governor of Massachusetts on the campaign trail. Of course, since Romney started running for the president of the United States in 2008 (when he lost the nomination to McCain), Romney has tried rather unsuccessfully to re-brand himself as a conservative. He flip-flopped on many issues just to appeal to the conservatives many of whom deeply distrust him. In Ryan, a multi-term Representative from Wisconsin, Romney found an ultra conservative, who could possibly help Romney solidify his support within his own Party. The Ryan pick, however, is a retro move, Romney’s desperate attempt to retrofit his credentials to make him look like an authentic conservative, which he is not.

Ryan is a decent family man with impeccable personal qualities. His humble beginning is very appealing to many voters, which contrasts to Romney’s inability to connect with the ordinary folks given Romney’s enormous wealth and affluent background. Ryan has shown a great deal of courage in proposing his budget plan that would end Medicare as we know it, knowing full well that even some fellow Republicans would find it too extreme and that it would be ripped apart by many of his own senior constituents. His staunch support of conservative ideology (small government, low taxes for the rich and corporations, anti-abortion, anti-gay marriage, anti-welfare programs, anti-entitlement programs, pro-gun, pro-personal freedoms, and pro-business) makes him a darling of the conservatives within the Republican Party, especially the Tea Partiers. However, this pick will ultimately prove to be a rack for Romney’s campaign because it will make it impossible for Romney to put together a winning coalition.

Here is a rap sheet on Ryan:

Positives:

• A decent family man with integrity and strong personal convictions.

• He is a self-made man with humble beginning, in sharp contrast to the affluent background of Romney.

• He is a policy wonk with good understanding of the budget issues. As the Chairman of House Budget Committee, he is well respected in and out of the Congress.

Negatives:

• Recently, former Vice President Dick Cheney said that the number one requirement for a VP pick is that he/she must be ready to become President on a moment's notice. Palin was not, nor is Ryan. Ryan is too young and has almost no foreign affairs experience.

• Ryan’s budget plan relies heavily on gutting Medicare and Social Security programs (that didn’t cause the current deficit) and giving tax cuts to the rich (as part of unproven “trickle-down” economics).

• Ryan’s proposal to privatize Medicare will shift the burden on to the senior citizens while creating a huge profit potential for the insurance companies. Given that Ryan received around $1 million in campaign contributions from the insurance industry, his proposals are tainted with potential conflict-of-interest.

• Ryan is way too conservative (almost to the point of being extreme) when it comes to issues like abortion, gay marriage, women pay equality, and civil rights.

• Ryan is part of the House Republican leadership team that is damaged because of its misbehavior during the debt ceiling debate that eventually led to the downgrade of government securities from AAA to AA+ by Standard & Poor, the first ever in our history. Their extreme tactics were overwhelmingly disapproved by the people.

Ryan lost no time in making federal budget as the number one issue and criticizing Obama for $1 trillion deficit and $15 trillion debt (never mind if Obama inherited from the former President George W. Bush severe recession, $1 trillion deficit, $10 trillion debt, and 2.6 million jobs lost in Bush’s final year in office). In fact, Ryan supported Bush’s $1 trillion worth of unnecessary tax cuts to the rich and tax subsidies to oil companies and farmers, $1 trillion spent on unnecessary wars in Iraq and Afghanistan, and $700 billion worth of bank bailouts that became necessary after Bush reduced bank regulations which precipitated the 2008 financial crisis. Ryan was part of the problem but now he wants to fix the problems he helped create. Obama agrees that we need to reduce deficit; in fact, Obama negotiated with Republican House Speaker John Boehner a grand plan that would have reduced deficit by $4.5 trillion over ten years but that plan was torpedoed by Tea Partiers within the Republican Party because it included tax increases for the rich. Ryan is wrong when he says that Obama is not concerned about the deficit and debt; Obama wants to reduce deficit through a balanced approach (that combines tax increases and spending cuts) while Ryan wants to do it by gutting the Medicare and Social Security programs that didn’t cause the current deficit and make the middle-class bear the main burden of dealing with the deficit problem.

Ryan's selection would only solidify the support of women and senior citizens for Obama, supplementing Obama’s already strong lead among the Blacks, Hispanics, and young college students. The presence of Ryan on the Republican ticket may also push Independents to favor Obama. A powerful coalition of voters coming together like this is a sure prescription for a landslide victory for Obama in November. It’s now more likely that Obama would win the critical states of Florida, Pennsylvania, Ohio, and Virginia, thereby accumulating far more than 270 electoral votes that he needs to prevail. A coattail effect of Obama’s victory may also mean that now there is more than 50% chance that Democrats may even end up winning the House of Representatives as well. It wouldn't be a surprise if Romney soon starts thinking about replacing Ryan on the ticket - well, that's what flip-floppers do.

A clean sweep by Democrats (controlling the White House, Senate, and House) would finally end the gridlock in Washington, DC and pave the way for a balanced approach to reforming the tax code and reducing budget deficit (by combining spending cuts and revenue increases in a 4:1 ratio) and making progress on the issues of immigration, education, and energy. In January, 2013, it’s very likely that the old grand plan of reducing deficit by $4.5 trillion over ten years, hammered out by Obama and Boehner, might finally get a second chance.

Imperfect presidential candidates and disastrous Congressional leaders – would voters seize the moment and end gridlock?

Posted by Shyam Moondra We are witnessing a unique period in history which is full of political anomalies. Recent opinion polls show that President Barack Obama may win re-election in November by a whisker, which is extraordinary because in modern times an incumbent president with an approval rating of under 50% and with unemployment rate hovering over 8% has never been re-elected. We have a Congress with an approval rating of just 9%, the lowest on record, and yet the voters keep sending their incumbent Senators and Representatives back to the “Do nothing” Congress. Finally, we have the voters who seem to be conflicted between their desires to not give an absolute power to any single Party, which invariably leads to corruption and ideological domination, and to avoid a divided government that can’t seem to get any thing done. The 2012 presidential and congressional elections would be pivotal for determining whether we continue to have a political stalemate or we have a government which is capable of addressing the critical issues of jobs and economy. The Shakespeare quote “We know what we are, but not what we may be” seems to adequately describe the current uncertain political situation.

Imperfect Presidential Candidates

President Barack Obama, the Democrat incumbent, has many good qualities but he is somewhat handicapped by the slow economic recovery. Governor Mitt Romney, the Republican challenger, seems to suffer from a wide range of negatives that far outnumber his positives. Below is a cheat sheet on how the two candidates fare in terms of their strengths and weaknesses.

Positives for Obama:

Obama is likable, honest, intelligent, excellent communicator, and a decent family man. First Lady Michelle Obama, a very popular figure in her own right, is Obama’s strong asset. Obama understands public policy issues well and he tends to think strategically. He has strong convictions about protecting the interests of low-income and middle-class families that he believes lost ground during the last decade. His staunch support for the people at the lower economic strata, that account for 70% of all consumer-spending and thus are the backbone of our economy, earns him overwhelming grass-root support.

In spite of slow economic recovery, Obama has an impressive overall record. He inherited a troubled economy from former President George W. Bush, who left a national debt of $10 trillion, budget deficit of over $1 trillion, two on-going unpopular and expensive wars, a major financial crisis, and severe recession (2.6 million jobs lost during the final year of the Bush presidency). Bush gave away unnecessary income tax cuts to the rich and tax breaks to oil companies and rich farmers, authorized to spend $700 billion for bank bailouts, and spent $1 trillion on two wars. That was a plateful for the incoming new president. Obama methodically wound down the war in Iraq and is in the process of doing the same in Afghanistan. He pushed for bank and auto industry bailouts and stimulus spending on infrastructure that helped save or create over four million jobs and revitalize economy. Obama persistently pushed for rescinding the Bush tax cuts for the rich who haven’t paid their fair share of taxes in the last ten years. Obama managed to get his universal health care plan passed by the Democrat controlled Congress, a feat that no other president could achieve before him.

Obama brilliantly used high-tech weapons (such as unmanned drones and stealth helicopters) and Special Forces to kill or capture high-value targets of Al Qaeda including Osama bin Laden, who eluded Bush for years. Obama ordered initial bombing in Libya and then let allies finish the job and shine in glory in helping Libyans achieve freedom from tyranny. Obama leveraged our close military-to-military relationship with Egypt to help Egyptians achieve their freedom without bloodshed. Obama’s persistent diplomacy (backed up by cyber warfare and threat of military action) led to crippling sanctions on Iran on the issue of Iran’s nuclear program that brought Iran to the negotiating table. Obama’s low-key approach to foreign policy, impressively executed by Secretary of State Hillary Clinton, helped repair the U.S. image around the world which was badly damaged during the Bush years.

Negatives for Obama:

On the negative side, Obama is often perceived as anti-business and he seems to have socialist tendencies. Obama has been tirelessly pushing to help poor people in these tough times (per recent Census report, the percentage of Americans living below the poverty line of $22,314 is now 15.1 percent or 45 million, the highest since 1993) through increased food stamp and other welfare programs. However, in the process, he may be unwittingly resurrecting a welfare state that President Bill Clinton methodically dismantled during his two terms. If extended to the extreme, this transformation towards a welfare state may ultimately lead us to the same situation as Greece is in today, albeit in slow motion. Obama’s emphasis on using tax dollars to solve social ills, as opposed to letting the free-market economy do it, poses a big danger for the long-term because it creates a population that heavily relies on the government help rather than become self-sufficient and self-reliant. Also, Obama suffers from a personality flaw – he is unable to forge partnerships with the opposition in Congress in the mode of President Ronald Reagan, who was able to use his charm on Democratic Speaker of the House Tip O’Neil to push through his agenda. Obama wanted to do a few things that would have helped the economy (e.g., more stimulus spending and aid to the states), but he simply couldn’t break through the gridlock in the Congress. While the people blame mostly Republicans for causing the gridlock, they also partially blame Obama for not being able to develop close working relationships with the Republican leaders in the Congress. Obama tends to be aloof and his lack of solid hands-on leadership skills makes him somewhat ineffective in managing the national affairs.

Positives for Romney:

Romney is a decent family man, articulate, and wealthy. He has good business connections, here and abroad, that are helping him raise huge campaign contributions, but he lacks grass-root support. By all accounts, he is a competent and effective manager. His experience as the Governor of Massachusetts could also be viewed as positive, even though Romney has largely abstained from talking about it on the campaign trail perhaps because many of his policies there had more similarities rather than dissimilarities with those of Obama, especially in the area of health care.

Negatives for Romney:

Romney’s biggest liability is that he is unable to connect with the ordinary people. His mannerism and attitudes make him look out of touch. During one of the Republican primary debates, he offered Governor Rick Perry a wager of $10,000 on a political point, which shows that he is far removed from the day-to-day struggles of the common people. Romney lacks convictions and vision. It’s as if he wants to become president just to see his family name go in the history books, something that his father couldn’t do. He hasn’t shown passion or strong conviction for any particular issue that would propel him to enter the presidential race, in the mode of Reagan, who strongly believed that big government was bad and the former Soviet Union was an evil empire. Romney’s tendency to change his positions on issues is so legendary that he has rightfully earned the nick-name “flip-flopper.” His constant flip-flopping proves that he has no personal convictions on issues that matter so deeply to his supporters (e.g., abortion). This also makes it difficult for the people to trust him.

Lack of detailed plans on how he would create jobs makes him not at all credible. Romney’s slogan “reduce taxes and cut spending” is a familiar Republican mantra – Bush tried this “trickle down economics” but it didn’t work. In any case, if he won and if after the November elections the Congress were still divided, he would have the same difficulty in getting his tax plan through the Congress as Obama does. Romney says he would cut taxes and to recover the lost revenues he will eliminate certain deductions and tax subsidies without specifying which ones. That’s like walking through a minefield; it’s easier said than done. The independent think-tank, Tax Policy Center, did a detailed analysis of Romney’s tax proposals and concluded that his proposed tax cuts would boost after-tax income by an average of 4.1 percent for those earning more than $1 million a year, while reducing after-tax income by an average of 1.2 percent for individuals earning less than $200,000 (or about 95% of the taxpayers). It’s clear that Romney is more concerned about the rich rather than the distressed low-income and middle-class families whose support is critical for him to prevail in November. Romney says that he would repeal Obamacare but he has said nothing about what he will replace it with. In a nutshell, Romney has not really spelled out exactly how he will make things better for the ordinary folks and, therefore, he presents no compelling reasons for these 98% of the disadvantaged people to vote for him.

Romney’s murky personal finances are a major liability; for ordinary people, it’s hard to understand his secret overseas bank accounts and $100 million IRA. His refusal to release his past tax returns raises the suspicion that he probably paid no or very little income taxes. Senate Majority Leader Harry Reid (D) has said that someone who worked at Bain Capital (without naming his source) told him that Romney paid no taxes for ten years. This is a thorny issue for most voters. How can anyone vote for a tax dodger and put him in the White House? Romney must release his tax returns for the last ten years and explain his murky finances including his secret bank accounts in tax havens. In modern times, all presidential candidates have released their past tax returns for at least ten years, so Romney’s refusal to do so is very irritating to millions of voters. His role at the private equity firm Bain Capital, where he made his fortune by outsourcing jobs to China, India, and Mexico, is another nagging issue for the voters, especially for the Independents.

Romney’s comments on China and Russia seem naive and dangerous. His inexperience in foreign affairs was also evident during his recent visit to London where he publicly expressed doubts if London was ready for Olympic Games, which led to a direct rebuke from Prime Minister David Cameron and which produced nasty headlines in the U.K. press. He quickly flipped and tried to calm the waters by saying that Games would be successful. His public disclosure that he met with the top spy of MI-6 raised eyebrows in the intelligence circles. During his recent trip to Israel, his negative comments about Palestinians drew sharp condemnation from the Arab leaders and some countries even expressed fears that if Romney won, he would destabilize the region and make the world less peaceful. Romney's statement that if he became president, he will move the U.S. embassy from Tel Aviv to Jerusalem was provocative; he was clearly angling to win some Jewish votes in November. This statement, however, directly contradicted the long-standing policy of the U.S. under Republican and Democrat presidents that stipulates that the final status of Jerusalem were to be negotiated by Israelis and Palestinians. Romney proved beyond doubt that he is not ready to occupy the most powerful office in the world.

Romney was the Governor of Massachusetts, but he rarely talks about his tenure there. This makes one wonder if his record in Massachusetts was too liberal for hard-core conservative Republicans or if his policies there were too similar to those of Obama, especially in the area of health care. Romney pioneered health care reforms in Massachusetts that became a blueprint for Obama’s health care bill, and yet Romney has been very critical of Obamacare that he wants to repeal if he is elected as the president.

For many conservatives, Romney is not conservative enough. Also, Romney’s Mormon faith is a big turn off for some evangelicals. This shows that, within the Republican rank-and-file, the support for Romney’s candidacy is not enthusiastic enough to prompt a huge turnout on the election day. Romney is unlikely to get much support from large minority voter blocks such as Blacks and Hispanics. At a recent NAACP gathering, Romney was booed by the audience. His tough talk on immigration has neither pleased conservative Republicans nor helped him gain any support among the Hispanics. Romney's support among yet another influential group of voters, the women, is lagging far behind that of Obama.

The negatives for Romney are so many and so troubling, it’s like a miracle how well he is doing in the polls so far (losing to Obama by only 4-6%). All in all, Romney is an unattractive and unexciting candidate who is unlikely to win in November.

Disastrous Congressional Leaders

The current 112th U.S. Congress has an approval rating of only 9%, which is the lowest ever. This Congress has been often referred to as “Do nothing” Congress because of its failure to address the major issues related to economy and jobs. In other countries, this level of approval rating would amount to no-confidence in the government and the leaders would resign, forcing new elections. However, the American people are stuck with the present Congressional leadership at least until the November elections.

The current Congressional leaders, especially on the Republican side, are staunchly partisan and they are primarily responsible for the gridlock which has made it impossible for the Congress to compromise and move forward. There are many serious problems that need to be addressed, e.g., economy and jobs, tax reforms, debt/deficit, immigration reforms, campaign contribution and corruption, and declining education, and yet Republicans, influenced by their Tea Party comrades, are making it impossible to solve any of these problems. Their “my way or highway” attitude is incompatible with the basic underlying principle of democracy which is to find common ground. For example, Obama and House Speaker John Boehner (R) hammered out a grand plan for reducing deficit by $4.5 trillion over ten years, which was thrilling and well received by the financial markets, but it was torpedoed by the Tea Party extremists within the Republican Party.

The American people agree wholeheartedly with Obama on many key issues and yet the Congressional Republicans are creating obstacles in moving forward on those issues. For example, a vast majority of Americans believe, like Obama does, that the rich people and corporations are not paying their fair share of taxes and yet Republicans are pushing for more tax cuts for them. It’s very wrong when rich people like Romney and Warren Buffett pay so little in taxes or when companies like GE, Google and Goldman Sachs pay only 0 to 10% in taxes. Clearly, the tax code has too many loopholes that make it possible for the rich people and multinational companies to not pay their fair share of taxes.

On the issue of increasing the debt ceiling, the people were shocked to see how badly Republicans behaved in the Congress. Some of them even openly advocated that the federal government should default on its debt. Those kinds of extreme tactics were not well received by the people and the financial markets. The voters largely blame Republicans for the U.S. securities being downgraded by Standard & Poor from AAA to AA+ rating, the first ever in our history. It’s very likely that the voters would punish Republicans, especially the Tea Partiers, for their bad behavior and throw them out of office in November. There is a slight chance Democrats may re-capture the House, paving the way for a more normal functioning Congress.

A 9% approval rating for the Congress makes it the weakest link in the government and it diminishes the Congress as an institution. A small minority of extremists are holding the country as a hostage, violating their commitment to fight for the well being of their constituents. It would be in the best interest of the country and its people, if Harry Reid, Mitch McConnell, John Boehner, Erick Cantor, and Nancy Pelosi would accept responsibility for poor rating and resign on moral ground to preserve the integrity of the institution. We desperately need new leaders, who would be more willing to compromise and put the country’s interests ahead of their own and their Party’s interests.

What would voters do in November?

Most opinion polls indicate that the upcoming election will be close. While Obama may have a slight edge at the moment, the voter sentiment is still evolving. They feel that Obama will do more for the middle class and Romney would be good for the rich people. While voters understand that Obama was handed a plateful of problems by his predecessor Bush and that the divided Congress made it difficult for Obama to do what needed to be done for growth and job creation (e.g., more stimulus spending), they are nevertheless disappointed at the results with unemployment remaining chronically high at 8.3%. By and large, voters agree with Obama on increasing taxes for the rich and closing the tax loopholes. The voters are, in general, skeptical of Romney’s proposed cuts in taxes and spending. Just as Obama failed to deal with the divided Congress, the voters doubt Romney will fare any better in pushing through his conservative agenda. In the end, the voters might just go with Obama, a known quantity, rather than try an untested Romney, who during his recent foreign trip committed several gaffes and seemed not ready for the top job. Obama, who is currently ahead in the polls by a slim margin, is likely to gain strength as November approaches, especially after the presidential debates in October, and would eventually win the election by a comfortable margin.

As to the Congressional elections, the voters, who overwhelmingly disapprove the job the present Congress is doing, are likely to play a more decisive role this time around. Democrats would likely strengthen their position in both houses of Congress. The voters dislike gridlock and they mostly blame Republicans for causing it. While they give very low marks to Congress as an institution, paradoxically, in the past they have continued to re-elect their incumbent Senators and district Representatives. But that might change in November. Having seen the disastrous results from the divided government they elected last time, this time they could be more decisive and send a clear message to Republicans and their Tea Party partners that a normal functioning government is much more important than worrying about ideological domination. Some of the extreme Tea Party members may not come back in the next Congress, which will help partially restore bi-partisanship and move the country forward in a cooperative way. The Democrats are expected to keep the control of the Senate; they might even increase their majority by a few seats. There is a slight chance that Democrats might regain the control of the House as well; at a minimum, Democrats could gain enough seats to make Republicans in the House more amenable to compromise and take constructive actions on jobs, tax reforms, and budget deficit. The voters are mindful of the fact that a status quo on the political scene will be a big negative for the financial markets and economy. It will not inspire confidence in the corporate world, which will hamper capital investment and job creation. We could also see a long-term damage to our global economic power and declining living standard for years to come.

If there is a clean sweep (taking over all three, the White House, Senate, and House of Representatives) by either Democrats (slightly likely) or Republicans (very unlikely), the country will move in some direction, right or wrong. It’s a trial-and-error thing; we always have the next election cycle to make any adjustments. Hopefully, we will get it right eventually.