The Obama/Geithner solution to high unemployment is to not only print money (de-value currency), but also to raise taxes, a solution that has never worked in the past. I thought it would be interesting to take a look at the opinion of another when it comes to trying to solve the economic crisis that we are currently experiencing.
“It is a paradoxical truth that tax rates are too high today, and tax revenues are too low. And the soundest way to raise the revenue in the long run is to cut the rates now. The experience of a number of European countries in Japan has borne this out. This country’s own experience with tax reduction in 1954 has borne this out also. And the reason is that only full employment can balance the budget. The tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous expanding economy which can bring about budget surplus.”
-President John F. Kennedy (1962)
Unfortunately, President Kennedy was assassinated in November of that year. His successor, Lyndon Johnson, pushed the tax bill through in Kennedy’s name, and signed it into law in February 1964. In 1965, as Kennedy predicted, revenues were flooding into the Treasury. That year, the government was on track to run a $3 billion surplus. Employment rose as the tax cuts led to increased demand for dollars (which supported the dollar’s value), and the recession ended.
Maybe history can teach us something.
Till next time,
Bill
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A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person
Monday, March 30, 2009
Thursday, March 19, 2009
March Madness
For the past month, I have been observing the action of not only the Treasury, Federal Reserve, President of the United Sates, and U.S. Congress, but also our trading partners like China, Japan, and Canada, and their response to said actions. It would appear that all the principle players on the U.S. side have somehow decided to disregard the lessons of history in order to promote an agenda that screams loudly: “Nothing is working. Things are terrible and are getting worse.” The stock market loves short-term fixes. But when viewed in the context of the grander, longer-term scheme, second thoughts could abound.
Last Friday, prior to the G20 meeting, the highest ranking Chinese government official announced his concern for the U.S. dollar, treasuries, and our government’s overall financial policies. This was significant since China now holds more of our treasury paper than any other country in the world. Can you blame them for being concerned? After all, they’ve had significant investments in Fannie Mae, Freddie Mac, Reserve money market fund, and selected bank stocks. I guess $1 trillion dollars in U.S. treasuries is something to be concerned about.
Yesterday, the Fed announced it would buy $300 billion in longer-term treasuries over the next six months. The last ten-year treasury auction went off at 3.04 %. After yesterday’s announcement, they traded down to 2.5%. That sends the following message: If the world will not support our treasuries, we will. Nice shell game. Unfortunately, the reaction to that announcement was swift and decisive. The stock market rose, but more important, gold flew higher, as did oil. Keep in mind, most commodities are purchased in dollars, and since the Fed announcement was an action of de-valuing our currency, both gold and oil just got a lot more expensive. The dollar plummeted and continues to drop. Now we must wait and see how the world will try to de-value their own currencies just to stay even with us. Can you say protectionism?
What is wrong with these people? Historically, de-valuing currencies and raising taxes has been the death knell for every country which has been in trouble. From the U.S. in the 1930’s, to the Asian crisis in the late 1990’s, Russia, China, Mexico, Yugoslavia, and to the Latin American countries, all experienced failures when de-valuing currencies and raising taxes. So what do we do? We go down the same road. Brilliant. Maybe it will be different this time. Don’t bet on it.
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person
Last Friday, prior to the G20 meeting, the highest ranking Chinese government official announced his concern for the U.S. dollar, treasuries, and our government’s overall financial policies. This was significant since China now holds more of our treasury paper than any other country in the world. Can you blame them for being concerned? After all, they’ve had significant investments in Fannie Mae, Freddie Mac, Reserve money market fund, and selected bank stocks. I guess $1 trillion dollars in U.S. treasuries is something to be concerned about.
Yesterday, the Fed announced it would buy $300 billion in longer-term treasuries over the next six months. The last ten-year treasury auction went off at 3.04 %. After yesterday’s announcement, they traded down to 2.5%. That sends the following message: If the world will not support our treasuries, we will. Nice shell game. Unfortunately, the reaction to that announcement was swift and decisive. The stock market rose, but more important, gold flew higher, as did oil. Keep in mind, most commodities are purchased in dollars, and since the Fed announcement was an action of de-valuing our currency, both gold and oil just got a lot more expensive. The dollar plummeted and continues to drop. Now we must wait and see how the world will try to de-value their own currencies just to stay even with us. Can you say protectionism?
What is wrong with these people? Historically, de-valuing currencies and raising taxes has been the death knell for every country which has been in trouble. From the U.S. in the 1930’s, to the Asian crisis in the late 1990’s, Russia, China, Mexico, Yugoslavia, and to the Latin American countries, all experienced failures when de-valuing currencies and raising taxes. So what do we do? We go down the same road. Brilliant. Maybe it will be different this time. Don’t bet on it.
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person
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