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.

President Obama's speech on health care was effective – the ball is now in the Congress' court

Posted by Shyam Moondra

President Obama did a good job in outlining his health care plan in an address to the joint session of the Congress last night. The speech was well crafted and effectively delivered. Now the ball is in the court of the Congress that must deliver the legislation by the end of the year.

Prior to this address to the Congress, Obama was steadily losing ground in terms of public opinion because of his aloofness from the legislative process that many viewed as exhibiting lack of leadership. Also, his inadequate engagement with the Congress led to a lot of misinformation propagated by those, primarily conservative Republicans, who wanted to kill the initiative altogether.

This is what I liked in Obama's speech:
1. He articulated clearly that something had to be done on health care this year or else the whole economy will suffer in the long-term.
2. For the first time, he talked about tort reform that is essential to stop over-prescription of tests and treatments. The doctors and hospitals tend to order excessive tests and treatments just to protect themselves from potential malpractice lawsuits. These excessive tests and treatments significantly add to the cost of health care. The trial lawyers, who contribute heavily to the Democratic Party, generally oppose any changes in the malpractice laws; therefore, it was significant that Obama brought it up in his speech.
3. His three examples of how the late Sen. Ted Kennedy partnered with the prominent Republican senators to pass health care laws for children were particularly effective. Those examples will sway the attitude of many moderate Republicans who will now work harder to pass the health care legislation this year.
4. He successfully laid to rest misunderstandings about "death panels," government plan coverage for abortions, and the government plan driving insurance companies out of business - conservative Republicans had been using these misunderstandings to drive the public opinion against the health care reforms.
5. The government option will be started in a limited way, accounting for less than 5% of the total population.
6. The reasons for making health care coverage mandatory (just as most states require all drivers to buy no-fault car insurance) were explained better than before.
7. The proposed plan will be paid for without adding to the budget deficit.
8. He stated that he was open to adopting any new innovative ideas, Republican or Democrat, to make his proposed plan better.

This is what I didn't like in Obama's speech:
1. He listed three main goals of his plan: reduce the ranks of uninsureds, stop insurance abuses, and reduce costs. During the campaign, he always emphasized reducing costs as the primary goal of reforms, which I thought was right on the mark. If health care costs are brought down, many uninsureds will be able to afford to buy insurance and thus the problem of uninsureds will go away over time.
2. His price tag for the plan, $900 billions over ten years, will continue to turn off conservative Republicans and Democrats, especially at a time when federal budget deficit is running at record levels. Most Americans think that any tax increases should be used to reduce budget deficit and not for starting a new entitlement program.

Overall, Obama's speech was very helpful to Americans in understanding clearly what he was proposing and why. I am very optimistic that his speech will prod Democrats and Republicans to work together and hammer out a health care reform bill before the end of this year. Should Congress fail to pass a health care bill this year, Republicans will be blamed for this failure and they will pay a price in the mid-term elections of 2010.

Is Dow Jones Industrial Average headed to 10,000?

Posted by Shyam Moondra

The stock markets around the world are going through turmoil. The markets in China, India, and elsewhere are down 30-40 percent from their respective records set last year. Inflation is heating up everywhere, thanks to the high oil and commodity prices. Many countries in Europe and Asia have been increasing interest rates to fight inflation. These actions, combined with consumer's reduced capacity to spend, will slow down the global economy. Many of these countries are also experiencing reduced demand for their products and services from the U.S. because of the weakening economy here.

The U.S. has its own special set of problems. The credit crisis, which the government officials declared was under control not long ago, seems to be in the forefront again. After the government bailout of Fannie Mae and Freddie Mac, the investors are now fixated at who is next. It has become a guessing game for the economy watchers about which bank will go under. It has been said that around 150 banks, mostly regional banks, could file for bankruptcy. It’s like Savings & Loan fiasco all over again. These credit problems will have negative impact on the economy. Because of sustained high oil and commodity prices, inflation is creeping through the economic system and we will see awful inflation numbers over the next few months. Just today, it was reported that the PPI increased in June by 1.8 percent, the largest increase in 27 years. Those kinds of headlines will persist for a while. The housing industry was hit hard because of the mortgage mess and now it looks like the auto industry is on the ropes. The consumer-driven U.S. economy is sliding down because consumers are busy trying to cope with the high gasoline, heating oil, natural gas, and food prices. They cut-down their discretionary spending and leisure travel, putting airlines and Las Vegas and Atlantic City casinos in dire situation.

The only segment of the U.S. economy that was doing well was the exports business helped by weak dollar, but even that's slowing down because of the shrinking economic growth around the world.

Unfortunately, the large federal budget deficit precludes any dramatic stimulus effort by the Bush administration. The FRB has already reduced interest rates as much as they could. So there is nothing any one can do right now to turn things around. We may very well be headed for a prolonged recession, like the one we had during 1970-1975. The tougher times are still ahead in terms of high inflation, high unemployment, meager or negative economic growth, and continuing bank failures – all of these will eventually affect the corporate profits. While the U.S. stock market has declined over 20% from the peak of 2007, the extent of the economic problems around the world suggests that the worst may not be over. A stream of bad news about inflation, unemployment, and corporate profits over the next few months is likely to sink the DJIA to 10,000.