Posts filed under “Really, really bad calls”
Once upon a time, there was a President. He was elected in the middle of a recession, following an economic crisis and a decade long bear market. He came into office on high flying oratory, but was regarded by many as a lightweight.
Once in office, he passed a variety of legislation over the objections of a hostile opposing party. The pundits and the thinktanks derided his big spending, his tax cuts, and his reorganization of government. He had very different priorities than the prior president, and tried to put his stamp on government in a variety of reprioritizations.
The President had barely been in office for 18 months when the pushback to his agenda became fierce. The media and the opposing political party all focused on the budget deficit. Most of it had been accrued long before this President came into the office, but that did not stop him from getting the full blunt of the blame. “We must stop this fiscal profligacy, or it will be the end of us!” the critics all cried.
But the president ignored the critics, and put forth a deficit laden budget that contained a massive stimulus and tax cuts. He even joked about the debt issue: “I am not worried about the deficit. It is big enough to take care of itself.”
By the second year of his presidency, the stimulative effects of the deficit had their impact. Unemployment began to come down, incomes went up, and the stock market roared ahead.
By now, it should be obvious that we are not discussing President Barack Obama, but rather the 40th President of the United States, Ronald Reagan.
Which raises an interesting question: We seem to be overrun with Austerians, newly minted deficit chickenhawks who recently have discovered the evils of deficit spending.
What would all of these deficit foes have said to Ronald Reagan during the first 2 years of his Presidency? Mr. President, we cannot spend more than we take in? Mr. President, we cannot afford those tax cuts — or to spend so much on the military?
The current president, who obviously has very different priorities than RR, is in many ways following his path: Huge deficits, tax cuts targeted to his electoral base, allowing policiies of his predecessor to expire.
I find it terribly amusing that some conservatives have latched onto the deficit as their key issue, when they took the idea of deficit spending to great new heights! Whether you are looking at the economic policies of Ronald Reagan or George W. Bush, reining in the deficit was clearly of no concern. (Forget speechifying, I refer to actual policies).
I continue to see the Austerian movement in the United States as thinly disguised partisan politics. These are people who will say anything to keep the subsidies and tax benefits flowing to their electoral base. They will say anything –regardless of whether they actually believe these things — to thwart the opposing fellows priorities.
Anyone who believes the new deficit fighters care about deficits has not been paying attention. This is simply about power and money and legislative priorities and cash. With only a very few exceptions, it has nothing to do actual fiscal priorities and debt loads and deficits.
The vast majority of these new deficit chickenhawks — who voted for unfunded entitlement program (prescription drugs), who gave away trillions in unfunded tax cuts, who voted for a trillion dollar war of choice, are simply not to be believed. Their past actions speak far louder than anything they might say today.
• Deficit Hawks Want New (or double dip) Recession (February 17th, 2010)
• Greenspan Says “Deficit Reduction A Priority” — Hence, You Know its Not (June 21st, 2010)
• Word Origins: “Austerians” (June 28th, 2010)
• Austerians vs Keynesians: NYT Edition (June 30th, 2010)
• Proposal: Stimulus & Deficit Reduction (July 4th, 2010)
I want to add to Invictus’ commentary taking Newsweek’s International editor, Fareed Zakaria, to task. There are three facts that I believe put the issue into much better context than Zakaria’s opinions do.
1) The average cash-to-assets ratio for corporations more than doubled from 1980 to 2004. The increase was from 10.5% to 24% over that 24 year period. That was the findings of a 2006 study by professors Thomas W. Bates and Kathleen M. Kahle (University of Arizona) and René M. Stulz (Ohio State). When looking for an explanation, the professors found that the biggest was an increase in risk.
Indeed, the phenomena of corporate cash piling up has been going on for a long long time. You can date it back to the beginning of the great bull market in 1982 to 86, went sideways til the end of the 1990 recession. It has been straight up since then, peaking with the Real Estate market in 2006. The financial crisis caused a major drop in the amount of accumulated cash, but it has since resumed its upwards climb.
This FT chart makes it readily apparent that this is not a new trend:
chart courtesy of FT.com
2) The total cash numbers numbers are somewhat skewed by a handful of companies with a massive cash hoard. Exxon Mobil, GE, Microsoft, Apple, Google, Cisco, Johnson & Johnson, Verizon, Altria, EMC, Disney, Oracle, etc.
3) Not only is this not new, but the media has been covering it for years. See for example, this 2006 USA Today about the same phenomena: Many companies stashing their cash. Or this 2008 Businessweek article: Stocks: The Kings of Cash. Or this 2009 WSJ article: Corporate-Cash Umbrellas: Too Big for This Storm?.
So why all the sturm und drung? Well, it makes for a good narrative — facts be damned. Zakaria, whose international reporting is usually excellent, does not let his apparent unfamiliarity with corporate balance sheets or history prevent him from opining on the subject. Perhaps Kartik Athreya should have been more focused on the mainstream media, instead of bloggers . . .
Update: July 12th, 2010, 2:30PM:
Be sure to see our spreadsheet analysis of the Cash and Equivalents: Corporate Cash: Top 20 Firms = $635 Billion
UPDATE 2: December 22, 2010 3:49pm
Jim Bianco reports corporate cash is 7.3% — exactly what the historical median has been.
Why Do U.S. Firms Hold So Much More Cash Than They Used To?
Thomas W. Bates and Kathleen M. Kahle
National Bureau of Economic Research, March 2007
“There is a certain circularity in all this business. You have a crisis, followed by some kind of reform, for better or worse, and things go well for a while, and then you have another crisis . . . People are nervous about the long-term outlook, and they should be.” -Paul A. Volcker, senior White…Read More
Apparently, Barney Frank somehow hypnotized George W. Bush:
If video does not play, click here, look for video link in box on right hand side of page
Click here for Audio
President Calls for Expanding Minority Opportunities to Home Ownership
Remarks by the President on Homeownership, St. Paul AME Church, Atlanta, Georgia
White House, Office of the Press Secretary, June 17, 2002
John Paulson’s $20MM gift to New York University is to endow a chair in Economics named after Alan Greenspan. This might have slipped by our notice over the holiday weekend, but for the intrepid eye of Dan B: “The Stern School will apply $5 million of John Paulson’s gift to support two endowed faculty chairs. …Read More
Rich Karlgaard gets all up in the grills of the “über bears” in this post. This alone would not be particularly noteworthy, except Karlgaard is quite charming and somewhat reserved in person. He calls Robert Prechter “howling insanity,” noted that Paul Farrell is the new “apocalypse beat writer,” and saves particular vitriol for “the oddest…Read More
Fantastic investor letter from the Lex team at the FT on contrarian investing against the expert consensus: “Dear Investor, It has been a profitable first half for Contrarian Partners. Our core investment strategy remains unchanged: to mine the research produced by investment banks every six months to establish consensus trading strategies. Then trade against them…Read More
The Greenspan reputation legacy destruction tour continues apace. This morning, Easy Al is on Squawk Box, making another attempt at salvaging his rep. There goes my morning . . . I am going to have to spend the next few hours fisking his unique brand of wrong. He still slings the fertilizer as well as…Read More
StereoHell/Imp Kerr, who did the fantastic illustrations for the Bailout Nation chapter titled Casino Capitalism, is showing the very same work at the Tribeca Grand. (full size versions can be seen here) The show has a website where you can purchase the artwork, including all of the bailed banks as Las Vegas Casino drawings: …Read More