Obama's Donut Economics

The stock market is rallying. The economy will recover by year-end, and strong profits among big players like Goldman Sachs (GS), IBM (IBM) and Google (GOOG) will spread to other big corporations. However, many small businesses and working Americans won’t be cheering.

Since December 2007, the private sector has shed 6.6 million jobs—half in manufacturing and construction. Lousy banking practices and a surge in imports, mostly from China, are the main culprits but are not getting fixed.

President Obama’s bank reforms will fix many abusive lending practices. However his reforms hardly touch Wall Street’s increasing aversion to the ordinary business of making sound loans, and its obsession with abusive derivatives trading and the big bonuses that creates.

The Federal Reserve and FDIC have poured $2 trillion in cheap credit into the banks and financial houses, mostly benefiting the biggest players. Hence, Goldman Sachs and J.P. Morgan (JPM) post record profits and Citigroup (C) and Bank of America (BAC) survive when they should simply be dismembered in bankruptcy court. Meanwhile, regional banks that rely on Wall Street for credit simply can’t get enough money to make loans or they end up like CIT Financial (CIT) and others—broke and bankrupt.

Small and medium sized manufacturers, builders and retailers rely on those disenfranchised regional banks and can’t borrow enough money to sustain operations as the economy recovers. New opportunities in President Obama’s new green economy will go to big players like GM and to businesses in China, where the government understands global commerce is played by rules of prison football.

China has more than 100 million rural underemployed workers, who if moved into factories could replace every manufacturing job in the United States, Western Europe and Japan. China lacks the technology to capture all those jobs but Beijing recognizes its huge, growing market provides leverage to impose teach-to-sell conditions on the likes of GM and GE (GE).

Beijing maintains high barriers to imports, requires Western companies to transfer technology to sell in China and subsidizes exports to the tune of at least $500 billion a year.

Beijing requires 70 percent of all green energy hardware sold in China to be manufactured there. Buick is a top-selling brand, but GM can’t export from Michigan but must produce and source parts in China.

Any suggestion to get tough with Chinese mercantilism is naively labeled protectionism by President Obama and his aides.

Hence, the $789 billion stimulus will create some jobs but those will be mostly low-paying government jobs.

The economy will stage a moderate recovery but few jobs will be created that adequately replace lost high paying manufacturing and construction jobs.

Nevertheless, large companies like GE, GM and IBM are well poised to profit, having downsized domestic operations to service a smaller U.S. market and aggressively expanded in China.

President Obama is serving donuts. The big guys will get the cake and working Americans the hole inside.

Comments

[John Cordes:]

So?

Jul 19 08:20 AM

[CaptainJJack:]

You can add tax policy to the list of ineffective job creation ideas.

The tax cuts under Bush helped low wage workers buy more Chinese goods at WalMart and high wage workers buy more BMWs from Germany.

You factor out the purchases financed by home equity loans, and the US GDP did not grow at all under Bush lower taxes.

Obama's tax cuts are no better and are about as effective as the tax cuts last year. What people didn't save, they bought from China.

Jul 19 09:09 AM

[fireball:]

the ultra wealth and communist china are pleased with bho. his owners and his statist allies are happy. the middle class keeps getting squeezed. the parasites, the environmental extremists and the leftists will keep blaming bush as they take their subsidies, stipends and grants. bush should get some blame. he performed like a statist. obama makes the progressive bush look conservative.
statistics are disturbing when comparing numbers that prefer socialism to the constitutional republic. it appears we are close to an even division between those that want the liberty to succeed and those that want the security of the nanny state. the government schools and media seem to be doing a "good" job programming and conditioning and converting the young to the socialist welfare state.
socialism always produces a tyranical elite but by the time the bleating sheeple realise it is to late.
our rights are God-given. the state wishes to cast the illusion that they are government given. the deception seems to be working. if you choose to be a ward of the state then you surrender and the state becomes your parent.
be careful what you wish for.

Jul 19 09:56 AM

[Prudent Man...:]

Morici is an anomaly in academia. He challenges the statist, elitist effete view of economics.
A realist in academia! No Keynesian so he will never get hired at the WH or in a self-acclaimed "prestigious" degree mill.

You won't find any "greet shoots" until we clear away the "dead leaves". (I haven't copyrighted that, yet.)

Jul 19 11:47 AM

[gtmcduffy@g...:]

How about China and TCK, or-

seekingalpha.com/artic...

Made In America-
seekingalpha.com/artic...

Jul 19 12:41 PM

[W.E. Heasley:]

Summers, Romer, Bernstein, and Goolsbee are stuck in a 1975 Keynesian Classroom. They have managed to develop a Quasi Stimulus plan, with the help of Congress, based on Political-Political rather than Political-Economy. It’s a disaster. It is so bad it has given rise to the ridiculous non-statistic statistic of “Jobs Saved” (ultimate CYA Political-Speak).

Take the Quasi-Stimulus Plan, introduce Social Engineering, Ideology, Cap and Trade, Socialized Medicine, the specter of rising taxes and you get: Barack Millhouse O’Carternomics.

Jul 19 01:24 PM

[The Geoffster:]

"They who would give up an essential liberty for temporary security, deserve neither liberty or security."
-Benjamin Franklin

Jul 19 04:32 PM

[jziehr:]

Your commentary on the Larry Kudlow show is significantly different from your writings. I enjoy your writings an awful lot more.

We have gotten our economy into a real mess and it is going to take time and patience to get out of it.

Jul 19 06:26 PM

[Gregman2:]

"Beijing maintains high barriers to imports, requires Western companies to transfer technology to sell in China and subsidizes exports to the tune of at least $500 billion a year. Beijing requires 70 percent of all green energy hardware sold in China to be manufactured there." Isn't WTO wonderful?;-)

Jul 19 08:43 PM

[kaoo:]

has buick any thing to do with green industry?

Jul 19 09:58 PM

[kaoo:]

ask your congress to sell some high-tech products to us! then the US trade deficit would go down.

we don't need any high-cost but low-end manufacturing goods! you see, those are what we really want.

forget the cold war thinking, show us some good things, please!

Jul 19 10:04 PM

[User 452961:]

Yessss! Thank you capn jack for hitting then nail right on the
F%$@#!% head! Any tax break needs to be aimed in the right direction to be effective, such as tax credits for certain large item purchases that are sourced in the U.S.A.

Jul 19 11:27 PM

[ebworthen:]

Well done, thank you.

I have never felt so sold out in my life; by my government and fellow citizens.

Everyone wants their pound of flesh and a donut, and I get the hole, exactly.

Sold out. I have NO TRUST.

Jul 20 05:58 AM

[Djinni:]

I'm glad somebody is standing up against the absurd idea that protecting American jobs is
an evil form of protectionism. We have been sold to the Enemy within and the poorest of the poor are singing His praises as they buy Chinese goods from the Devil's helper, Sam Wall.

Jul 29 11:07 PM

[Ames Tiedeman:]

Gregman2,

Well stated! Don't forget that China requires most all cars sold in China to be made in China. They subsidize their steel industry to the tune of 1 billion a week. Free trade? What is that? You will never have free trade without the free movement of currencies! China controls their currency. All the world is a sham! What do we get? Obama and Biden. So far away from Thomas Jefferson and say, John C. Calhoun, it is not even funny! America is in its last throws as a great power unless we make radical changes. The Federal Government was never mean to be so big and have such power and scope. The American people are, generally, a clueless lot that just don't get it.

Aug 03 06:03 PM

[Graham and ...:]

Right on (and a thumbs up).


On Jul 19 04:32 PM The Geoffster wrote:

> "They who would give up an essential liberty for temporary security,
> deserve neither liberty or security."
> -Benjamin Franklin

Aug 09 01:30 PM

[Graham and ...:]

You understand these things. Most people don't. Remember the Alamo.


On Aug 03 06:03 PM Ames Tiedeman wrote:

> Gregman2,
>
> Well stated! Don't forget that China requires most all cars sold
> in China to be made in China. They subsidize their steel industry
> to the tune of 1 billion a week. Free trade? What is that? You will
> never have free trade without the free movement of currencies! China
> controls their currency. All the world is a sham! What do we get?
> Obama and Biden. So far away from Thomas Jefferson and say, John
> C. Calhoun, it is not even funny! America is in its last throws
> as a great power unless we make radical changes. The Federal Government
> was never mean to be so big and have such power and scope. The American
> people are, generally, a clueless lot that just don't get it.

Aug 09 01:31 PM

[ScroogeMcduck:]

The real problem is our budget. With so much debt were forced to borrow from China. We need to pay off our debt then direct incentives toward American goods. Otherwise the Chinese have no reason to buy our USToilet paper.

Aug 09 02:25 PM