global economist review

Hope and Change in America: A Path to

Prosperity or Broken Promises?5

Godzilla Sized Economic Problems Still Haunt Japan

Obama ‘New Deal’ Budget Promises More:(Taxes, Spending, Defi cits, Debates)

Page 19

Volumn 1 Issue 3 March 2, 2009

Page 5

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CONTENTSGlobal Economist ReviewGlobal Economist Review

Is published FREE bi-weeklyIs published FREE bi-weekly

Publisher and EditorPublisher and Editor

Timothy LuCarelliTimothy LuCarelli

Associate EditorAssociate Editor

Karen SmithKaren Smith

WebmasterWebmaster

Edgar PatelEdgar Patel

Contributing WritersContributing Writers

Jennifer MatternJennifer Mattern

Greg BaileyGreg Bailey

Frank McGuireFrank McGuire

Steve EvansSteve Evans

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Page 2

Economic HeartBeat

Godzilla Sized Economic Problems Still Haunt

Japanby Greg BaileyA review of Japan’s continued economic woes. Reduced to the world’s third largest economy, Japan has been hit by Godzilla-sized economic problems rampaging across the country. Page 5

Do Theory and Reality Mix: A Look at Economic Theo-

ries for Today’s Economic Timesby Timothy LuCarelliA comparison of economic theories and how they are being applied to today’s real life economic situation.Page 7

Investment Markets

Technician’s Corner

By Frank McGuire

Stocks: Are They a Buy or Sell?With the Dow dropping below 7000 and the S&P below 800, Mr. McGuire examines whether these markets are a buy or a sell from a technical per-spective.

Page 10

Political Infl uences

Hope and Change in America: A Path to Prosperity or

Broken Promises?By Jennifer MatternAn examination of the new administration’s charismatic infl uence on the average person and the transition from campaign to offi ce. Page 15

Obama ‘New Deal’ Budget Promises More: (Taxes,

Spending, Defi cits, Debates)By Steve EvansA look at some of the controversial components of Obama’s $3.6 trillion budget for the new fi scal year and how it sings like an old “New Deal”.Page 19

Editorial

Bailing Out the Losers’ MortgagesPage 21A rebuff to CNBC’s Chicago reporter Rick Santelli’s comment’s made Feb-ruary 16th about the government helping people that cannot pay their mortgages.

Global Economist Review March 2, 2009

From The Editor

Welcome to the latest edition of the Global Economist Review online magazine. In

this issue we continue to expand the diversity of our article content providing diff erent

perspectives for current topics. This is now our third issue and the feedback has been

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Timothy LuCarelli Timothy LuCarelli Editor-In-Chief and Publisher Global Economist Review [email protected]

Page 3 Global Economist Review March 2, 2009

Economic HeartBeat

“Consumption is the sole end and purpose of all production; and the interest of the pro-ducer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. ” Adam Smith

Page 4Global Economist Review March 2, 2009


Godzilla Sized Economic Problems Still Haunt Japan

by Greg Bailey

Sometimes the symbolism is just too easy. Such was the case on Valentines Day at the G7 meeting in Rome when Japanese fi nance minister Shoichi Nagakawa appeared in public barely intelligible, slurring his words, look-ing for all the world like someone at the end of a three day drinking binge. Nagakawa later blamed his intoxication on a reaction to cold medicine. True or not, the incident cost him his cabinet position and symbolized Japan’s stag-gering economy and the government’s inability to make it better. Japan, now the world’s third larg-est economy, has been hit by Godzilla-sized problems rampaging across the country. For the third consecutive quarter GDP fell, falling 3.3 percent during the fourth quarter of 2008. Manufacturing is down an estimated 20 to 40 percent and corporate profi ts fell 89 percent in 2008. In a society where lifetime employment was almost a birthright Japan’s biggest compa-nies have laid off thousands as the world wide recession cut demand for exports, the life blood of a nation with almost no natural resources. A drop in exports to 1987 levels has spiked un-employment to around 4.4 percent with more certain to follow. The after effects of the real estate bubble are still fresh. After a 500 percent increase in prices from 1981 to 1991, the post crash prices in 2007 were still 83 percent below the 1991 peak. As in America, the crisis has stung the working and middle class. In Japan the wounds are deeper because the safety net is thinner. Most Japanese lead lives much smaller

and more expensive than Americans, crowded into dense quarters with fewer material goods, bounded by rigid social and cultural restraints and run by a hidebound hierarchy of business, banking and government. The unemployed in Japan fi nd themselves in greater and more im-mediate physical and emotional diffi culty than their counterparts in the West. As the Tokyo stock market falls and un-employment rises, few have much hope in the government being of much help. Virtual one party rule for decades has tested the patience of the voters. Prime Minister Taro Aso must lead his party to an election victory by September with a current approval rating of 10 percent. His government’s version of the stimulus plan has been widely criticized as ineffective, pumping some $150 billion into the economy with little return. The Japanese are also feeling anxiety about their neighborhood and their place in the world. North Korea is a short missile trajectory from Japan. North Korea’s announced plan to launch a communications satellite roughly the size and weight of an atomic bomb this year, combined with the uncertainty of Dictator Kim Jong-il’s health and the prospect of a struggle to succeed him has hit Japan in its most sensitive spot. The Japanese Self Defense Force’s baby steps back into the world with its limited con-tributions to the war on terror have reopened a wound scabbed over for almost sixty fi ve years. Even after these many decades Japan is still widely disliked and at times hated by other Asians for its aggression in World War II, a fact starkly brought to life when Japanese offi cials


pray at war shrines or issue new history text-books minimizing Japan’s role. With all of its problems Japan has a highly educated workforce, a pop culture truly popular around the world, a reserve of wealth in savings and the capacity to ramp its indus-tries back up when and if the demand resumes.

As bad as the Japanese economy was during the 1990’s it is now even worse. If symbolism counts for anything, no matter how much dam-age he does Godzilla is always pushed back into the sea.

GER

Japan GDPIn 2000 Prices 4th Q2007 1st Q2008 2nd Q 2008 3rd Q 2008 4th Q 2008

D ti D d 0 60 (0 20) (1 00) (0 40) (0 30)Domestic Demand 0.60 (0.20) (1.00) (0.40) (0.30)External Demand 0.50 0.30 - (0.10) (3.00)Private Consumption 0.30 0.70 (0.70) 0.30 (0.40)Housing Investment (10.70) 4.60 (1.90) 4.00 5.70Private Capital Investment 2.20 (0.60) (2.30) (3.40) (5.30)Private Inventories 0.10 (0.40) 0.10 (0.20) 0.40Government Consumption 1 80 (0 20) (0 90) (0 20) 1 20Government Consumption 1.80 (0.20) (0.90) (0.20) 1.20Public Investment (0.90) (4.90) (0.80) 1.00 (0.60)Exports 3.00 3.00 (2.30) 0.60 (13.90)Imports 0.40 1.50 (3.10) 1.70 2.90Final Sales 0.90 0.50 (1.10) (0.30) (3.30)Private Final Sales 0.80 0.90 (1.10) (0.40) (4.40)Nominal GDP 0.50 (0.10) (1.40) (0.70) (1.70)Nominal GDP 0.50 (0.10) (1.40) (0.70) (1.70)GDP Deflator (0.60) (0.30) (0.50) (0.10) 1.70Real GDP 1.10 0.20 (0.90) (0.60) (3.30)Source Data: Cabinet Offi ce, Government of Japan


Do Theory and Reality Mix: A Look at Economic Theories for Today’s

Economic Timesby Timothy LuCarelli

Theories are wonderful at explaining a particular problem or issue. They are built upon research and supposition of static inferences. Therein lies their fault when applied to the real world. The real world is not static and assump-tions built on research are constantly in fl ux. In short, theories fail in the real world because they have to make assumptions based on certain fac-tors being equal or human emotion never chang-ing. In these times of economic turmoil many theories have been tested and many more are being tested. For instance former Chairman of the Federal Reserve Alan Greenspan has been a very big proponent of Austrian economics. Austrian economics’ answer to recession would be little government involvement allowing free market forces to correct itself. As many Austrian School proponents have pointed out, allowing little government intervention (except for laws and rules as guides to good and fair business) lets free market forces dictate corrective forces in the economy. In October 2008, Greenspan provided testimony to Congressional leaders where he acknowledged that he was “partially” wrong for opposing stricter government regulation of the banking industry and stated “Those of us who have looked to the self-interest of lending in-stitutions to protect shareholder’s equity -- my-self especially -- are in a state of shocked disbe-lief.” The current U.S. administration’s eco-

nomic team is mostly Keynesian economists. John Maynard Keynes published in 1935 his thesis “The General Theory of Employment, In-terest and Money”. Mr. Keynes was, by trade, a professor of math. Keynes was like Karl Marx in his absolute values for human beings. Both Keynes and Marx assumed people had all the same values, wants and desires. Keynes Gen-eral Theory was developed during a time of economic extreme, the depression. Keynesians believe that in order to get out of a recession the government would have to spend a lot of money and run a large defi cit. This sort of worked for the U.S in the 1930’s, sort of only because the start of the Second World War helped to expand upon economic activity created by government spending during the New Deal. In the 1990’s Japan spent large sums of Yen and grew their defi cit to pull the country out of the worst reces-sion since the Thirties. This type of process ex-acerbated their problem forgoing recovery for over 10 years. They are now in another reces-sion having never really fully recovered from the 1990’s. Monetarists argue that an expansion of the money supply will cause infl ation no matter what the circumstance. If this was indeed true then Japan should have experienced extreme infl ation in the 1990’s; infl ation in Japan has been benign since the early nineties. Monetary theory was expanded upon by Nobel Prize win-ner Milton Friedman. Milton Friedman and other monetary theorists believed it was mon-etary increases and decreases that were the cul-

Page 7

prit of all economic unrest. There has since been a shift to a more modern view of monetary policy. Currently, unlike Friedman’s beliefs, it is strongly viewed that if the Federal Reserve controls money supply they can in turn control infl ation and GDP. As old theories are applied to the current

state of the economy they too will be ques-tioned for their validity. New theories will be proposed. Old theories will be modifi ed and combined with the new theories only to be test-ed when the next real life opportunity presents itself. GER

Investment Markets

“It’s far better to buy a wonderful compa-ny at a fair price than a fair company at a wonderful price. ”Warren Buffet


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In the last couple of issues I have pre-sented the same monthly chart of S&P 500 pric-es going back 21 years. I am again placing that chart into this issue updated for February 2009 close of business as well as a chart of the Dow Jones Industrial Average for the same time pe-riod. As a technician it would be very hard to buy stocks given these chart patterns. Techni-

cally, there is a large and pronounced double top in the S&P 500 chart. A double top is when prices hit a high, then fall back down to lower trading levels (this lower level becomes a major pricing support level – on the S&P chart it is in the years 2002/2003) and eventually returns to those highs without exceeding them. After hit-ting the second high if the market drops down

Stocks: Are They a Buy or Sell?

S&P 500 Index Monthly Data November 1987 to Present Data Source: Yahoo Finacial Graphed in Excel

Technician’s CornerBy Frank McGuire


below the lows made between the two highs then, it will trade down to its next major support level. Currently the market is trading below these lows established in 2002/2003. Techni-cally, the S&P 500’s next major pricing support is around 450. The Dow Jones Industrial Aver-age pricing chart shows a similar pattern over the same period; however, it made new highs in 2007. I have inserted some angular lines depict-ing past pricing trends; these trend lines have been decisively breached the last few months. The next technical price support level for the Dow Jones is around 4000. These price support levels of approximately 4000 for the Dow Jones and 450 for the S&P respectively are not very signifi cant; they had very little trading activ-ity at these price levels when the markets were advancing. Both markets traded at these price levels back in 1993 and 1994. Ultimately the

Dow and S&P’s major support is at or around their 1988/1989 trading range. Many people are under the impression this could not hap-pen, things are not that bad and would never get that bad. I am a trader and a technician and have heard those words spoken in regards to many markets too many times only to have the technical’s prove them all wrong. If this was a chart of soybeans or some obscure stock then, people would not be so resistant to believe the chart pattern. After 25 years of trading, based on purely technical factors, I cannot ignore the trend; the trend is your friend and the trend is down. These markets have decisively broken the neckline of a double top chart pattern and any trend support pricing; selling any rallies in stocks is the only option.Have something to say about either of these markets click HERE or visit our Blog page.

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Dow Jones Industrial Average Monthly DataSource: Yahoo Financial Graphed in Excel

Page11 Global Economist Review March 2, 2009

http://www.globaleconomistreview.com/wordpress/2009/03/04/stocks-are-they-a-buy-or-sell/

Stocks around the globe for the month of February were for the most part lower. The two positive markets were China and Taiwan, albeit minor increases. Most markets declined about 10% in February as uncertainty about the global banking sector and declining economic activ-ity took center stage. There is an overabundance of negative sentiment around the globe. Profi t warnings and layoffs dominate daily news stories from Japan to Europe. Without new positive information in March, uncertainty will take over and the markets will continue to drift lower.

GER


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Political Influences

“I think if you look at people, whether in business or government, who haven’t had any moral compass, who’ve just changed to say whatever they thought the popular thing was, in the end they’re losers. ”Michael Bloomberg

Global Economist Review March 2, 2009 Page 14

Hope and Change in America: A Path to Prosperity or Broken Promises?

By Jennifer Mattern

Can we fi x the economic crisis we’re facing? “Yes we can!” At least that is the contagious spirit many Americans picked up during Presi-dent Obama’s campaign. The tears fl owing as election results came in were heartfelt and in-spiring. Americans had a reason to hope. We had reason to believe real changes were com-ing from all sides--we would fi x our economic woes, end the war in Iraq, and repair our rela-tions with other countries. That’s just to start! Now that months have gone by since the election and we are well into the Obama admin-istration’s fi rst term, where has that hope and desire for change taken us? Obama issued an executive order that will result in the closure of the Guantánamo Bay detention facilities. Okay. He has vowed that “by August 31, 2010, our combat mission in Iraq will end.” It sounds like he has a plan. He put forth a proposed, and massive, economic stimulus package. Sounds good (or at least it does not sound much worse than the mess we’re in now). Hope and promises of change arguably won the Presidency. Obama is visibly attempt-ing to make good on his promises, yet those who voted for him probably haven’t seen many changes in their own daily lives as a result. Then again, most Americans understand that change doesn’t happen overnight. While we are waiting for economic re-covery to just “happen,” as Americans we still

have bills to pay. We have jobs without security. We have homes we can’t afford. We have less disposable income. What exactly does the ex-citement and hope (or fear in some cases) from the campaign trail translate into now that the hoopla has passed? How is it infl uencing actual behavior--both that of individual citizens and even corporate entities? Is it infl uencing aver-age Americans at all?

Immediate Fears vs. Long-Term Recovery Let’s start with the big dogs. Unemploy-ment has surpassed 7%, and we regularly see major corporations announcing even further layoffs. People have a greater fear of losing their jobs, so they spend less and put more away into emergency savings. In a sense, we can look at economic troubles (and their propensity to get worse before getting better) from the top down: the more companies cut their staff, the fewer people will have jobs, and the less spending power consumers will have. Further decreases in consumer spending could further decrease profi ts, leading to even more staff cuts as busi-nesses try to trim costs and improve profi t mar-gins. If we look at it the other way, we could say the opposite: if consumers would just start spending more, companies would have more money, there would be more demand, they could produce more, they would need to hire more employees, and we wouldn’t have a 7% or higher unemployment rate to worry about. Lovely catch-22, isn’t it? Since neither busi-nesses nor consumers seem willing or able to “step up,” it falls on the shoulders of Uncle

Global Economist Review March 2, 2009Page 15

Sam. Despite the apparent need for govern-ment intervention to fi x the mess we’re in, ex-perts say existing corporate behavior isn’t polit-ically-motivated. “Corporations are grappling with the shrinking economy,” says Dr. Rick Kirschner, expert in personal and organization-al development. Kirschner, the international bestselling author, speaker, and coach behind The Art of Change Skills For Life™ (www.TheArtOfChange.com), feels that “no matter how skeptical or cynical [companies’] corpo-rate leadership may be about Obama’s leader-ship, they’ve got to be hoping he succeeds.” It comes down to damage control. No one wants to see the economy continue to tumble, regardless of their political affi liations or disagreements about how to solve the problems at hand. Kirschner also points out that “at the same time, common sense says that expansion and contraction in the economy is cyclic, and that we’ve had a very long expansion, so the contraction will probably last awhile.” In other words, no one in the corporate world is expect-ing this to go away overnight. Here’s the skinny: corporate executives may not expect instant economic recovery, but they do know that recovery is coming. History tells them that. So what are they doing to prepare for the long-term? Probably not much accord-ing to Kirschner. “Decisions about layoffs most likely are made based on current conditions. Big picture and longer view thinking is rare in the corporate environment, and shrinking orga-nizations become leaner and potentially more adaptable and responsive organizations. Fear is the main driver. As the saying goes, hope for the best, plan for the worst. It’s a shame, though. There is so much opportunity for organizations facing the future instead of backing into it.” It truly is a shame. Looking beyond the

immediate economics, the long-term is always worth considering. For example, Gen-Y and millennial workers are already heavily criti-cized for a lack of company loyalty. Some em-ployers look at these generations’ willingness to “job hop” every few years for advancement as a sense of entitlement. On the other hand, those workers haven’t seen long-term loyalty from most employers in their lives (watching their parents’ generation suffer layoffs despite decades with the same companies). Why would they feel company loyalty themselves? One has to wonder how loyal an already alienated generation (or two) will feel towards employers after this rather large economic hic-cup passes. How might the working world look when these young professionals are making the bulk of executive decisions, after seeing how willing companies are to initiate massive lay-offs? Let’s pretend we’re corporate America for now, and leave that pondering for another day. In the end hope, change and fear (polit-ically-speaking) do not seem to be playing a huge role in corporate decisions affecting the economy. Instead it looks like executives are in a reactive mode, focusing on what is happening now rather than longer-term company growth goals. Maybe families have a better grasp on this hope that is supposed to be changing our lives for the better. Maybe they are taking a proactive approach.

Spending and the American Family Let’s face it. The real post-election ex-citement came from individuals, not the cor-porate world. These were the people crying, screaming, smiling, and voting for change. So how has that feeling of hope infl uenced their lives since Obama was sworn into offi ce? In short, people are being thrifty. What


is more interesting is that they seem to be tak-ing things remarkably in stride. Yes, they are worried about home foreclosures. Yes, they are worried about unemployment. Yes, they are worried about rising food prices. For the most part though, American families are “bucking up” says Kathy Peel, America’s Family Man-ager and author of The Busy Mom’s Guide to a Happy, Organized Home (www.FamilyManager.com). Peel travels nationwide talking to mothers about the chal-lenges they and their families are facing. Those interactions, along with feedback from her company’s more than 100 family manager coaches throughout the country, have left her optimis-tic and feeling that our current economic troubles actually have “positives for families.” She notes that not only are parents taking this opportunity to teach their children about the value of money (perhaps deterring the next Bernie Madoff?), but that they are also enjoy-ing more quality time together--game nights, movie nights in, and even more meals together at home around the dinner table. Come on. No one really has that fl ow-ery a perspective, do they? People have to be scared, right? They are all supposed to be terri-fi ed of losing their jobs and homes. Family time cannot compensate for that. Or can it? Peel’s observations are that moms across the country are not only taking economic trou-bles in stride. To some degree they are actually enjoying the challenge of it--fi nding deals, sav-ing money, and even trying to do so while being more energy effi cient. Hmmm. That sounds familiar--money,

energy, accepting responsibility, and making positive changes. Isn’t there a certain promi-nent politician who likes to talk about those very things? Peel notes that families across party lines are acting similarly (“everyone wants to make changes”) and that it’s not necessarily a politi-cal issue to them. Yet it’s interesting that heads

of families and Head of State seem to be sharing ideals, even if they may not share opinions. Beyond the challenge on a personal or family level, Peel’s observations show a certain kind of community cohesive-ness many younger Americans may not have witnessed before. Families, and moms in particu-lar, are “in it together” sharing their best budget-savvy tips. No one is looking down on anyone

else for trying to cut costs. Why? Everyone is doing it. In fact Peel says it’s not only accept-able to live on a budget. It’s “chic!” Is there any area where families are not as likely to skimp? Education. Peel observes that families are less willing to cut back on private education, private lessons outside of school, camps, and other educational opportunities just to save a buck. Parents would rather cut back elsewhere to preserve those educational outlets for children. In other words, unlike their corpo-rate counterparts, parents are keeping their eyes more on their long-term “investments.” They are not only hoping for the best, but working hard now to improve the chances of success for future generations.

Change in America: Hope’s Real Role Experts seem to say that families and corporations share one thing in common: how

So how has

that feeling of

hope infl uenced

their lives since

Obama was

sworn into

offi ce?


they are dealing with current economic troubles isn’t directly political. That said, we are wit-nessing an interesting distinction between hope and fear. Executives appear to react to fear of what is happening around them now, prob-ably because they have stockholders to answer to fi nancially. In a sense, they cannot afford to think about the long-term. Families, on the other hand, are reacting to existing economic troubles less from a place of fear and more with the hope that things will get better (although they know it will not happen in weeks or even months). Most importantly, families are acting proactively with the feeling that they can make a difference, even if it means saving a few cents at a time. Families are not acting hopeful in a bla-

tant “Obama’s going to save us,” shout it from the rooftop, kind of way. Instead it is refl ected in the positive spin they are able to put on a nega-tive situation. It is refl ected in their attitude. It is refl ected in the constructive efforts individuals, families and communities are making to help each other and help themselves. Maybe Obama is not to thank for all of that. Then again, per-haps rousing even a fraction of that hope or posi-tive attitude is more than we should expect from one man. No man can change the country, or the economy, on his own. But perhaps by inspiring others to do their part and take responsibility for their own lives, Obama becomes more than one man--he becomes a voice that empowers and (hopefully) unites a nation working towards the economic recovery we all desire. GER


Obama ‘New Deal’ Budget Promises More:(Taxes, Spending, Defi cits, Debates)

By Steve Evans

President Barack Obama unveiled a controversial $3.6 trillion budget last week that would levy higher taxes on the nation’s wealth-iest individuals while subsidizing guaranteed health care for all Americans, and continuing to fuel federal stimulus and bailout efforts to get the U.S. economy back on its feet. The pro-posal was a clear sign the administration plans a new era of government activism and aggres-sive involvement in the fi scal oversight of banks and fi nancial services companies. Dismissed by Congressional Republicans almost the mo-ment the budget was released, the Administra-tion’s proposed spending would trigger a $1.75 trillion federal defi cit – almost four times the highest in history and representing more than 12 percent of the entire U.S. economy. Tax increases in the Obama plan are tar-geted at those he says profi ted from “an era of profound irresponsibility.” Pointing a fi nger at the previous admin-istration, the President said, “Large sums have been left off the books, including the true cost of fi ghting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home. It’s not how your government should run its budgets ei-ther.” He added, “We cannot lose sight of the long-run challenges that our country faces and that threaten our economic health — specifi -cally, the trillions of dollars of debt that we in-herited, the rising costs of health care and the growing obligations of Social Security.”

Obama’s budget sketch relies on tax hikes and borrowing to fuel what he called in-vestments in education, energy and healthcare. Critics said the package as-is would bankrupt the country. Economists reviewing the Obama bud-get caught a whiff of New Deal social plans and massive spending initiatives, such as $634 billion to resuscitate a universal healthcare pro-gram. About $318 billion of the funding need-ed for the Obama health-care plan during the next 10 years would come from higher taxes on the wealthy, who would see reductions in their ability to claim tax credits on mortgage interest payments, state and local taxes, and charitable contributions. Cuts in Medicare and Medic-aid would produce an additional $316 billion for healthcare coverage, but such a move faces near-certain opposition in Congress. In addition, Obama proposes to double federal spending on cancer research and foreign aid over the next several years. Other plans sure to meet Congressional resistance include an ef-fort to curb global warming that would require substantial increases in consumer utility bills. Tax revenue for the Obama spending package relies on the administration’s forecast of a 3.2 percent increase in the economy next year, a growth rate far greater than most private-sector economists now predict. A key compo-nent of the plan involves hefty tax increases on the wealthiest Americans, while cutting taxes on the middle class and boosting funds for fed-eral programs that primarily benefi t the poor



and the middle class. The budget requires nearly $1 trillion in tax hikes over the next decade on individu-als making over $200,000 and couples earn-ing more than $250,000. Another $350 billion would be raised through other levies, including higher corporate income earned abroad. Obama plans to shift the tax structure by extending a $400 credit for individuals and $800 for cou-ples. Former President George W. Bush’s tax cuts for couples making more than $250,000 a year would end under the Obama plan. Shifting priorities are evident in pro-posed spending cuts for the Pentagon budget, which would see a 4 percent boost to $534 bil-lion in 2010, falling to annual increases of no more than 2 percent after that. By contrast, the Obama plan calls for an average increase of 7 percent in social programs long favored by Democrats.“We will, each and every one of us, have to compromise on certain things we care about but which we simply cannot afford right now,” Obama said. Republicans ridiculed the Administra-tion’s claim that sacrifi ce would be needed to set the nation’s fi nancial house in order. GOP lead-ers pointed to the mammoth budget increases proposed for many federal agencies, including one line item for “green cars” for agency ex-ecutives. Obama’s budget defi cits and mammoth spending initiatives pose “serious problems,” said Sen. Judd Gregg, R-NH, the senior Repub-lican on the Budget Committee. “I don’t think (Obama) was elected to bankrupt the country. The real problem is that…not only does it in-crease spending in taxes, but it passes on to our children a government that can’t be afforded, and that’s a big problem.” Gregg said the Obama budget would not

only triple the national defi cit in 10 years, but does nothing to resolve the fundamental prob-lems driving the massive spending increases – primarily entitlement programs to satisfy the retiring baby boom generation. He also noted that small businesses create 70 percent of new jobs, yet the individuals who run those compa-nies are being asked to shoulder an increasing share of the nation’s tax burden. “We can’t tax and spend our way to pros-perity,” House Republican leader John Boehner, OH, told reporters after reviewing the Obama budget. “The era of big government is back, and Democrats are asking you to pay for it.” But Democrats’ reaction to the Obama budget shows there is no clean divide along party lines. Many Democrats indicated they are more than willing to break with the adminis-tration if it comes down to supporting almost unilateral funding increases for government agencies, while cutting back on the pork their constituents are accustomed to receiving from Washington. Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee, said he believes Congress would approve the Obama plan with signifi cant revisions. Still, as a representative of a largely agricultural state, Conrad told report-ers he opposes the president’s plan to curb fed-eral payouts, such as price supports, to farms posting sales of more than $500,000 per year. Other pork being pulled from the pipeline – or diverted elsewhere – is sure to come under fi re as federal lawmakers continue digesting the president’s budget proposals. The administration will release a more comprehensive budget to Congress in April.

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EDITORIALBailing Out the Losers’ MortgagesComments by Tim LuCarelli Editor-In-Chief and Publisher, Global Economist Review

As a student of economics for over 30 years and after applying economics to the trad-ing of currencies and interest rates for many years, I must take issue with Rick Santelli’s comments. On Thursday February 19th CNBC’s Chicago reporter, Rick Santelli, expressed his anger and drew resounding cheers from fellow traders on the Floor of the Chicago Mercan-tile Exchange when he verbally criticized the Obama Administration’s stimulus package (you can view the clip HERE). He echoed the senti-ment of many people in the U.S. that hate the idea of paying for their neighbors’ mortgages. Many people share the opinion that they work hard and pay all of their bills on time and did not buy something they could not afford, so why should they bail out those that did. Right now these people are in the majority, they represent about 95% of the population. Currently it is estimated that there are between 4 to 5 million homes in some state of default. The Bureau of Labor Statistics for January reported unemploy-ment of 7.6%; people that have accepted a pay cut are not part of this statistic. However, as more people become unemployed or have to take pay cuts the default rate will rise. Many people seem to assume that all the people defaulting on their mortgages either ob-tained non-conforming ARM’s, or bought more house than they could afford. This might have been true when the housing bubble started to unravel and there may still be some of those situations; however, now foreclosure is more mainstream. There are many people out there

that did not overextend themselves; they have 30-year fi xed mortgages that at the time they took out those mortgages were only 20 to 25% of their monthly income – far below the usual FHA required 30% and well below the 38 to 50% accepted by the sub-prime mortgage com-panies. Many of these people have either lost their jobs and cannot fi nd a new one or they have had to take pay cuts to keep their jobs. When these people have used up their savings they too could be in foreclosure. Are these people los-ers? Is it fair to punish these people? Mr. Santelli has obviously never been hungry and if he was at one time he has for-gotten what it feels like. What if one of his family members, good friends or neighbors lost their job, could not fi nd a new job for a year or two, ended up using all of their savings and then came to their good friend Mr. Santelli for some money to buy food and shelter; what would Mr. Santelli tell them? You’re a loser, I don’t help losers. There are plenty of homeless shel-ters that my tax money pays for, go use one of those. I would have to ask Mr. Santelli if he can see the big picture. Let’s say that the government does nothing to help homeowners from losing their homes. The banks would have more fore-closed homes that they would try to sell but can-not because there are not enough buyers. The banks would then continue to lower the price of the homes which defl ates pricing of all homes in the area. As the value of peoples’ homes drop they tend to spend less. As everyone spends less, more companies will most likely lay off


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more workers. Then those “losers” cannot pay their mortgages and the banks will repossess their homes and resell them for whatever they can, lowering the prices of houses still further. This is already happening in many parts of California, Florida, Arizona and Nevada. Eventually, more assets will defl ate and then even opinionated people like Rick Santelli could fi nd themselves with-out a job and with a portfolio of defl ated assets. Would Mr. Santelli then criticize Mr. Obama for not providing suffi cient help to stave off the decrease of his assets? I must say I am very disappointed in Rick Santelli’s comments, I thought he was smarter.To post your comments about this editorial please click HERE or go to our Blog page.


http://www.globaleconomistreview.com/wordpress/2009/03/04/bailing-out-the-losers%e2%80%99-mortgages/

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