See You Again In Three Months

By Joseph Calhoun

So it appears a deal has been brokered to end the government shutdown and raise the debt ceiling. This latest patch will only get us to mid January though and if you think the President and House Republicans are going to arrive at a grand bargain that sets fiscal policy on a sane path in that time, I've got a bridge for sale you might be interested in. 

The stock market loved the deal although it is hard to see why. The only thing I can come up with is that three more months of budget wrangling means QE goes on and in the math of Wall Street that means higher stock prices. QE and more budget negotiations won't produce more economic growth or better earnings but for some reason the stock jocks have decided that QE will keep stocks going up for as long as it persists. So far they've been right but I do wonder at what point the actual fundamentals will have an impact. And on that front, I don't see much good coming down the pike.

The problems the US economy faces are not ones that monetary policy can heal. Monetary policy cannot turn President Obama's sow's ear economic policies into a silk purse. To be fair, the Republicans don't have much of a plan either, preferring to spend their time demonizing the President's health care plan which appears to be imploding on its own anyway. 

Getting our economy growing at its historical rate isn't that hard. Believe it or not, the Italians have actually shown the way. They passed a budget yesterday - to little notice - that cut government spending and cut taxes. It was a tiny, tiny cut in both categories but at least they got the direction right. That's also, not coincidentally, the blueprint used by Canada back in the 90s to great effect. Unfortunately, the President is opposed to both of those things - he seems ideologically opposed to any policy that might create growth - so getting anything like that with his signature on it falls in the highly unlikely category. Too bad. If you think the stock market has been good recently, imagine what it would do if we got some policies that actually created real growth. 

Republicans need to break out the Reagan playbook and start emphasizing growth oriented policies. Forget Obamacare. It was doomed from the start because it didn't pass the most basic of economic laws - supply and demand. There is no way - no way - you can increase the demand for healthcare, do nothing on the supply side and end up with lower prices. Something has to give and it will be taxpayers who do the giving. So forget it for now. When people get disgusted enough with it, they'll demand changes and even Obama won't be able to say no. In fact, probably the best thing that could happen for Republicans in next year's mid-term elections is to let Obamacare keep fumbling along. 

In the meantime, someone up on the Hill needs to change the debate from Obamacare to economic growth. I don't care if it's Democrats or Republicans but surely someone up there understands that the economy needs some relief. Cut the corporate tax rate to something that is competitive with the rest of the world. If Obama won't cut taxes on the top brackets, cut them on everyone else. And for God's sake cut some real spending. Surely the United States will recover from the end of sugar subsidies or the ethanol mandate or anything the Education or Commerce Department does. And maybe someone could rewrite the Dodd Frank law in 20 pages or less and come up with something that makes sense and doesn't punish all the banks who don't have a legal department the size of JP Morgan's. There are so many things that could be done to help the economy and all we get is Green Eggs and Ham? Give me a break. 

So anyway, none of the things that could happen will so we'll be right back here in three months with the Republicans insisting on things the Senate won't pass and Obama won't sign and Demcorats believing that if they could get just steal one more dollar from the private sector they could solve all our economic troubles. It's enough to make me wish I was Italian.

Joseph Calhoun is CEO of Alhambra Investment Partners in Miami, Florida. He can be reached at

Advertisement: Partner Center
Sponsored Links

Recent Off The Street Blog

Off The Street Blog Archives

In The News