The unemployment line is getting even longer...Initial Jobless Claims rose 36,000
last week to 667,000, worse than the 625,000 expected and the highest level since
October of 1982. The number of people collecting benefits reached a record high,
rising 114,000 to 5.11 million.
New Home Purchases dropped 10.2% to an annual pace of 309,000 versus
estimates of 324,000, the lowest level since data collection began in 1963. The
median price decreased 13.5% to $201,100, the most in almost four decades. The
number of new homes for sale at the end of the month fell 3.1% to 342,000. The
supply of homes at the current sales rate surged to a record 13.3 months' worth.
Durable Goods Orders fell for a sixth straight month both domestically and from
foreign demand as the global recession marches on. Orders for Durable Goods,
from washing machines to airplanes, fell 5.2% in January versus estimates of a
2.5% drop. After excluding transportation orders, durables dropped 2.5% when
estimates were looking for a loss of 2.2%.
General Motors posted an enormous and larger than expected $9.6B loss for the
4th quarter. Even after a stiff round of bad economic news and sour corporate
earnings, Stocks are showing some resiliency and are trading higher.
More paper - another round of government auctions this afternoon in the form of
$22B 7-yr Notes. Yesterday's $32B offering didn't go over that well and the $94B
total hitting the market this week has weighed on the entire Bond Market.
We are switching to a Floating bias, after maintaining a locking stance for the past
couple of weeks. Prices are trading just above support at $100.12, a level that has
served as a good floor in recent weeks. Should prices fall beneath $100.12, the
Bond could easily drop another 60bp or so to the next clear floor of support
Thursday, February 26, 2009
Thursday, February 19, 2009
2/19/2009
President Obama is taking all the headlines of late, most recently announcing his
plan to help homeowners avoid foreclosure via two different initiatives. One is a
refinancing program for homeowners with less than 20% equity in their homes, or
who owe more than their home is worth. The second program attempts to lower
monthly payments for homeowners at risk of losing their home. As we break apart
the details of this plan, we will be giving you more information.
This morning, Bonds are trading lower as the tough multi-layered ceiling of
resistance has put a lid on any advance. A quick look at the Bond Page shows the
50-day Moving Average has been a tough level to break for the entire month of
February. Oftentimes, prices will drift lower after getting tired out from failed
attempts to break above resistance. This appears to be happening now, and has
given us a Locking bias for the past few days.
This morning's Producer Price Index (PPI) grabbed some headlines as being a hot
number, but we feel that it is more of an aberration due to one time charges, as well
as data that suggests inflation on the wholesale level will remain tame down the
road. It's funny to watch the markets looking for some inflation as "good news",
since everyone realizes deflation is a much worse problem.
Initial Jobless Claims rose by 627,000, near expectations of 620,000. A staggering
number, but what's of even greater concern is that Continuing Claims now stand at
5,000,000. Think about it. 5 Million Americans are now unemployed and cannot
find work. For many of you reading, this situation may hit close to home. Will it get
better? The answer is yes, but not right away, and it will almost certainly worsen
before the turn. Look for the worst to come over the next three months, but then
some moderate improvement should begin to follow as we head towards
the Summer.
For the most part, we have been in a Lock mode since last Thursday as the heavy
layer of overhead resistance has kept a lid on any meaningful price advances. For
now we will maintain our Locking stance as the next floor of support is still a bit
beneath current levels.
plan to help homeowners avoid foreclosure via two different initiatives. One is a
refinancing program for homeowners with less than 20% equity in their homes, or
who owe more than their home is worth. The second program attempts to lower
monthly payments for homeowners at risk of losing their home. As we break apart
the details of this plan, we will be giving you more information.
This morning, Bonds are trading lower as the tough multi-layered ceiling of
resistance has put a lid on any advance. A quick look at the Bond Page shows the
50-day Moving Average has been a tough level to break for the entire month of
February. Oftentimes, prices will drift lower after getting tired out from failed
attempts to break above resistance. This appears to be happening now, and has
given us a Locking bias for the past few days.
This morning's Producer Price Index (PPI) grabbed some headlines as being a hot
number, but we feel that it is more of an aberration due to one time charges, as well
as data that suggests inflation on the wholesale level will remain tame down the
road. It's funny to watch the markets looking for some inflation as "good news",
since everyone realizes deflation is a much worse problem.
Initial Jobless Claims rose by 627,000, near expectations of 620,000. A staggering
number, but what's of even greater concern is that Continuing Claims now stand at
5,000,000. Think about it. 5 Million Americans are now unemployed and cannot
find work. For many of you reading, this situation may hit close to home. Will it get
better? The answer is yes, but not right away, and it will almost certainly worsen
before the turn. Look for the worst to come over the next three months, but then
some moderate improvement should begin to follow as we head towards
the Summer.
For the most part, we have been in a Lock mode since last Thursday as the heavy
layer of overhead resistance has kept a lid on any meaningful price advances. For
now we will maintain our Locking stance as the next floor of support is still a bit
beneath current levels.
Tuesday, February 17, 2009
2/17/2009
It's the heat of the moment, with Stocks under heavy selling pressure and Bonds
reaping the benefit. Traders may be caught up in panic mode, as bad economic
news from around the globe is capturing all their attention. With no place to hide,
Bond prices are improving as money flows into Bonds as a temporary safe haven.
Technically, Stocks are near a very important level, with the Dow testing support
near the lows set back in November. The Dow's closing price was 7552 back then,
with intra-day lows at 7449. Today's low so far was 7553 - pretty amazing. But the
benchmark S&P 500 had set its lows in the 740 - 750 area back in November. The
current price is just under 800, which allows for additional downward movement in
stocks before that floor is tested. Will the Dow floor hold? It's hard to say, but a
break beneath the Dow floor will make the drop in the S&P down to 750 a pretty
sure thing. What's this mean for bonds? So long as stocks remain under pressure,
bonds should benefit. But if the floor in the Dow holds, Stocks will bounce higher at
the expense of Mortgage Bonds. And the FNMA 4.5% is also trading right up close
to an important technical juncture as well...read on.
Yesterday, Japan reported that its economy shrank 3.3% in the 4th quarter, the
most since the 1974 oil crisis. Japan still remains the world's 2nd largest economy.
And in other news, if you though Geithner's press conference was bad last week,
how about this - Japan's Finance Minister Shoichi Nakagawa (Japan's version of
our Treasury Secretary) resigned after coming under fire for speaking incoherently
and slurring at a G7 Press conference in Rome. There is heavy speculation that
the Finance Minister was drunk, although he claims to have been on cough
medicine...looks like a heavy dose to us. You can watch the spectacle on TV or
YouTube today and decide for yourself if this was cough medicine or an
overabundance of Rome's wine.
In economic news, manufacturing in the New York area contracted at a record pace
in February, falling 34.7, far worse than expectations of a 23.75 drop. One bright
spot - WalMart Stores posted a quarterly profit that actually beat expectations. And
since WalMart is such a huge indicator of the retail sector, this is pretty positive
news.
Mortgage Bonds will have to break above a triple layer ceiling of resistance to make
significant gains higher. So the floor in the Dow is also important for Bonds, as a
fall lower in stocks will allow bonds to break above the ceiling. But if stocks can
bounce of the Dow floor, bonds will run out of gas at the overhead ceiling, and it will
be time to lock. We are in float mode as the drama plays out.
reaping the benefit. Traders may be caught up in panic mode, as bad economic
news from around the globe is capturing all their attention. With no place to hide,
Bond prices are improving as money flows into Bonds as a temporary safe haven.
Technically, Stocks are near a very important level, with the Dow testing support
near the lows set back in November. The Dow's closing price was 7552 back then,
with intra-day lows at 7449. Today's low so far was 7553 - pretty amazing. But the
benchmark S&P 500 had set its lows in the 740 - 750 area back in November. The
current price is just under 800, which allows for additional downward movement in
stocks before that floor is tested. Will the Dow floor hold? It's hard to say, but a
break beneath the Dow floor will make the drop in the S&P down to 750 a pretty
sure thing. What's this mean for bonds? So long as stocks remain under pressure,
bonds should benefit. But if the floor in the Dow holds, Stocks will bounce higher at
the expense of Mortgage Bonds. And the FNMA 4.5% is also trading right up close
to an important technical juncture as well...read on.
Yesterday, Japan reported that its economy shrank 3.3% in the 4th quarter, the
most since the 1974 oil crisis. Japan still remains the world's 2nd largest economy.
And in other news, if you though Geithner's press conference was bad last week,
how about this - Japan's Finance Minister Shoichi Nakagawa (Japan's version of
our Treasury Secretary) resigned after coming under fire for speaking incoherently
and slurring at a G7 Press conference in Rome. There is heavy speculation that
the Finance Minister was drunk, although he claims to have been on cough
medicine...looks like a heavy dose to us. You can watch the spectacle on TV or
YouTube today and decide for yourself if this was cough medicine or an
overabundance of Rome's wine.
In economic news, manufacturing in the New York area contracted at a record pace
in February, falling 34.7, far worse than expectations of a 23.75 drop. One bright
spot - WalMart Stores posted a quarterly profit that actually beat expectations. And
since WalMart is such a huge indicator of the retail sector, this is pretty positive
news.
Mortgage Bonds will have to break above a triple layer ceiling of resistance to make
significant gains higher. So the floor in the Dow is also important for Bonds, as a
fall lower in stocks will allow bonds to break above the ceiling. But if stocks can
bounce of the Dow floor, bonds will run out of gas at the overhead ceiling, and it will
be time to lock. We are in float mode as the drama plays out.
Wednesday, February 11, 2009
1/11/2009
MBA Applications Survey: Composite Index down 24.5%, Refinance Index fell 30.3%, Purchase Index down 9.8%, pushing the MBA's purchase index to its lowest level since the end of 2000. Reinancings made up 66.7% of applications filed last week, down from 73.2% the week before, while adjustable-rate mortgages accounted for 2.5%, up from 2.1% The rate charged on 30-year fixed-rate mortgages averaged 5.19% last week, down from 5.28% the week before. The average on 15-year fixed-rate mortgages sank to 5.00%, down from 5.15%. One-year ARMs averaged 6.22%.
Treasuries Little Changed Before Record Sale of 10-Year Notes. Government bonds erased gains after the biggest advance in almost two months yesterday as Treasury Secretary Timothy Geithner failed to ease concern that a U.S. plan to rescue the banking system won’t work. President Barack Obama, who is borrowing unprecedented amounts to combat the economic recession, is asking lawmakers to approve a stimulus package within days. Yields at this time are in 2.78 – 2.80 range.
U.S. Trade Deficit Narrowed 4% in December to Lowest Since 2003. The gap between imports and exports shrank 4 percent to $39.9 billion, the lowest since February 2003, from a revised $41.6 billion deficit in November that was wider than previously estimated, the Commerce Department said today in Washington. Imports fell to the lowest since 2005.
Treasury Secretary's Announcement Short on Details About Bad Assets, Mortgages. Mr. Geithner committed the government to spending $50 billion to stem home foreclosures but said the details remain to be worked out in the next few weeks. Officials also will take the coming weeks to flesh out details, in consultation with the public, of a planned Public-Private Investment Fund to take soured assets off banks' books.
Bernanke Begins ‘Thorough Review’ of Fed Disclosure. Bernanke has invoked emergency authority and more than doubled the size of the Fed’s balance sheet to $1.8 trillion to combat the worst credit crisis in seven decades. His moves have prompted concern that the central bank is encouraging excessive risk-taking, distorting pricing in financial markets and jeopardizing the Fed’s independence. The Fed hasn’t disclosed many of the assets and participants in its programs.
Finding a Way to Stem Foreclosures Proves Tricky. Right now servicers are limited in their ability to modify mortgages that have been packaged into securities and sold to multiple investors. In addition, "the borrower is going to have to probably -- if they get some assistance -- agree to give up some equity once housing prices recover," the president said in Ft. Myers yesterday. Government officials are also expected to create national standards for loan modifications that would be adopted by Fannie Mae and Freddie Mac. But there is little data on what types of workouts are most cost-effective. Data released in December by federal banking regulators show that more than 40% of borrowers were at least 60 days past due eight months after their loan was modified. Critics say redefaults are so high because mortgage companies aren't doing enough to make payments more affordable.
Foreclosure 'Tsunami' Hits Mortgage-Servicing Firms. At the American Securitization Conference in Las Vegas Tuesday, panelists discussed the growing number of foreclosures. An attendee said that the servicing arms had been inundated with borrower requests to change the terms of their loans. "We have a tsunami upon us,"
.
Treasuries Little Changed Before Record Sale of 10-Year Notes. Government bonds erased gains after the biggest advance in almost two months yesterday as Treasury Secretary Timothy Geithner failed to ease concern that a U.S. plan to rescue the banking system won’t work. President Barack Obama, who is borrowing unprecedented amounts to combat the economic recession, is asking lawmakers to approve a stimulus package within days. Yields at this time are in 2.78 – 2.80 range.
U.S. Trade Deficit Narrowed 4% in December to Lowest Since 2003. The gap between imports and exports shrank 4 percent to $39.9 billion, the lowest since February 2003, from a revised $41.6 billion deficit in November that was wider than previously estimated, the Commerce Department said today in Washington. Imports fell to the lowest since 2005.
Treasury Secretary's Announcement Short on Details About Bad Assets, Mortgages. Mr. Geithner committed the government to spending $50 billion to stem home foreclosures but said the details remain to be worked out in the next few weeks. Officials also will take the coming weeks to flesh out details, in consultation with the public, of a planned Public-Private Investment Fund to take soured assets off banks' books.
Bernanke Begins ‘Thorough Review’ of Fed Disclosure. Bernanke has invoked emergency authority and more than doubled the size of the Fed’s balance sheet to $1.8 trillion to combat the worst credit crisis in seven decades. His moves have prompted concern that the central bank is encouraging excessive risk-taking, distorting pricing in financial markets and jeopardizing the Fed’s independence. The Fed hasn’t disclosed many of the assets and participants in its programs.
Finding a Way to Stem Foreclosures Proves Tricky. Right now servicers are limited in their ability to modify mortgages that have been packaged into securities and sold to multiple investors. In addition, "the borrower is going to have to probably -- if they get some assistance -- agree to give up some equity once housing prices recover," the president said in Ft. Myers yesterday. Government officials are also expected to create national standards for loan modifications that would be adopted by Fannie Mae and Freddie Mac. But there is little data on what types of workouts are most cost-effective. Data released in December by federal banking regulators show that more than 40% of borrowers were at least 60 days past due eight months after their loan was modified. Critics say redefaults are so high because mortgage companies aren't doing enough to make payments more affordable.
Foreclosure 'Tsunami' Hits Mortgage-Servicing Firms. At the American Securitization Conference in Las Vegas Tuesday, panelists discussed the growing number of foreclosures. An attendee said that the servicing arms had been inundated with borrower requests to change the terms of their loans. "We have a tsunami upon us,"
.
Thursday, February 5, 2009
2/4/2009
MMG Update - Thursday, February 5, 2009 10:48am ET
Current Trend Direction: Lower
Risks favor: Floating into Jobs Report
Current Price of FNMA 4.5% Bond: $100.62, +3bp
The unemployment line is growing longer - Initial Jobless Claims came in at
626,000, a good bit higher than estimates of 580,000 and the highest level in 26
years. This is an ugly labor market reading on the eve of tomorrow's Jobs Report -
let's recap the rest of this morning's headlines, and then lay out our strategy headed
into tomorrow's important release.
Productivity in the 4th Quarter increased at a 3.2% annualized rate, which was quite
a bit better - meaning more productivity - than the 1.5% increase expected. US
companies are cutting back their employees working hours at a faster pace than
output is slowing, thus keeping productivity growth rising faster than expected. And
it makes sense - more is being expected out of fewer people, working fewer hours.
The bad news here is that the cut in working hours did lower Output in the 4th
Quarter by -5.5%, the largest decline in 26 years.
This morning, the Bank of England cut their benchmark interest rate from 1.5% to
1%, its lowest since being founded in 1694, some 315 years ago. The ECB left
their interest rates unchanged at 2%.
Last night, the Senate voted to include a $15,000 tax credit in the new stimulus
plan, up from the previous figure of $7,500, in hopes of revitalizing the slumping
housing market. The proposal would allow a tax credit of 10% of the value of new
or existing residences, up to a $15,000 limit. The details are not yet known, but
we'll be watching for more information that you can share with your clients and
referral partners. The stimulus bill is still working its way through Congress after
being voted on in the House last week. We understand that the road back to
economic prosperity must include shoring up the housing market - but a tax credit
may not help someone who is worried about keeping his job. We are looking for
this stimulus package to do something special to create jobs, thereby providing the
much needed boost in consumer confidence to get people thinking about investing
in a home.
Jobs Report Strategy
Tomorrow's Jobs Report is going to be just plain bad, with economists expecting a
half million jobs lost. We think the number will be even worse, maybe even as high
as 600,000 and also look for revisions to prior months, escalating the already high
number of Jobs lost. Plus adding further pain to the report will be yet another uptick
in the Unemployment Rate. Last month's 7.2% unemployment should be easily
eclipsed to a significantly higher rate of unemployment. Now for the bad news...the
Jobs numbers we have been getting are a bucket of sunshine and roses compared
to what is really happening. We have often spoken of how the birth death ratio
understates true job losses but the seasonally adjusted element of the report are
masking a much more troublesome picture. The real number of jobs lost is likely
hundreds of thousands higher, with the true rate of unemployment close to 10%.
Check bls.gov for some sobering information.
We've watched Mortgage Bonds continue to drift significantly lower since peaking
on Jan 9th. This sets up a nice potential rally off tomorrows Jobs Report. The risks
favor floating, which we advise into tomorrow - but lenders may not be as generous
in giving us what the market offers, as they are still loaded with volume
Current Trend Direction: Lower
Risks favor: Floating into Jobs Report
Current Price of FNMA 4.5% Bond: $100.62, +3bp
The unemployment line is growing longer - Initial Jobless Claims came in at
626,000, a good bit higher than estimates of 580,000 and the highest level in 26
years. This is an ugly labor market reading on the eve of tomorrow's Jobs Report -
let's recap the rest of this morning's headlines, and then lay out our strategy headed
into tomorrow's important release.
Productivity in the 4th Quarter increased at a 3.2% annualized rate, which was quite
a bit better - meaning more productivity - than the 1.5% increase expected. US
companies are cutting back their employees working hours at a faster pace than
output is slowing, thus keeping productivity growth rising faster than expected. And
it makes sense - more is being expected out of fewer people, working fewer hours.
The bad news here is that the cut in working hours did lower Output in the 4th
Quarter by -5.5%, the largest decline in 26 years.
This morning, the Bank of England cut their benchmark interest rate from 1.5% to
1%, its lowest since being founded in 1694, some 315 years ago. The ECB left
their interest rates unchanged at 2%.
Last night, the Senate voted to include a $15,000 tax credit in the new stimulus
plan, up from the previous figure of $7,500, in hopes of revitalizing the slumping
housing market. The proposal would allow a tax credit of 10% of the value of new
or existing residences, up to a $15,000 limit. The details are not yet known, but
we'll be watching for more information that you can share with your clients and
referral partners. The stimulus bill is still working its way through Congress after
being voted on in the House last week. We understand that the road back to
economic prosperity must include shoring up the housing market - but a tax credit
may not help someone who is worried about keeping his job. We are looking for
this stimulus package to do something special to create jobs, thereby providing the
much needed boost in consumer confidence to get people thinking about investing
in a home.
Jobs Report Strategy
Tomorrow's Jobs Report is going to be just plain bad, with economists expecting a
half million jobs lost. We think the number will be even worse, maybe even as high
as 600,000 and also look for revisions to prior months, escalating the already high
number of Jobs lost. Plus adding further pain to the report will be yet another uptick
in the Unemployment Rate. Last month's 7.2% unemployment should be easily
eclipsed to a significantly higher rate of unemployment. Now for the bad news...the
Jobs numbers we have been getting are a bucket of sunshine and roses compared
to what is really happening. We have often spoken of how the birth death ratio
understates true job losses but the seasonally adjusted element of the report are
masking a much more troublesome picture. The real number of jobs lost is likely
hundreds of thousands higher, with the true rate of unemployment close to 10%.
Check bls.gov for some sobering information.
We've watched Mortgage Bonds continue to drift significantly lower since peaking
on Jan 9th. This sets up a nice potential rally off tomorrows Jobs Report. The risks
favor floating, which we advise into tomorrow - but lenders may not be as generous
in giving us what the market offers, as they are still loaded with volume
2/04/2009
OPINION FEBRUARY 5, 2009 Democrats Try Trickle-Down Economics
Growing government won't stimulate the real economy.Article
By KARL ROVE
As a presidential candidate, Barack Obama attacked "trickle down economics" as "bankrupt" and an "old, discredited" philosophy that "didn't work." He was wrong. Even worse, though, is that he and congressional Democrats are embracing a Democratic version of trickle-down economics that won't work.
It's embodied in the House-passed "stimulus" bill, H.R. 1, whose deeply flawed assumption is that spending $1 trillion to grow government will trickle down to help people who lost jobs. The Democrats' spending is horribly mismatched with industries that have suffered job loss.
The Opinion Journal Widget
Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page.
Since December 2007, Americans lost 791,000 jobs in manufacturing, 681,000 jobs in professional and business services, 632,000 jobs in construction, 522,000 jobs in retail, 167,000 jobs in hospitality, and 576,000 jobs in the rest of the service industry. It would be logical for policy makers to focus on job creation in these sectors.
Instead, Democrats want to spend $88 billion to increase the federal share of Medicaid. What American will be hired by a small business, factory, retail shop, hotel, restaurant or service company because of this spending? The answer is very few.
In H.R. 1, there's $41 billion set aside for school districts, $1.5 billion for university research grants, $2 billion for Energy Department labs, and $3 billion for the National Science Foundation. Yet education is one of the few sectors that added jobs last year.
There's also $4 billion for health programs like obesity control and smoking cessation, $2 billion for the National Institutes of Health, $462 million for the Centers for Disease Control, and $900 million for pandemic flu preparations. Health care also added jobs last year.
It is not surprising that the stimulus package is laden with new spending programs. Congressional appropriators, not job creators, wrote H.R. 1. Much of it is spending Democrats couldn't get approved in the normal course of affairs. And it should not shock Americans that Democratic appropriators would funnel tax dollars to the Association of Community Organizations for Reform Now, unions and other liberal special interests. Putting budgets of political allies above the budgets of struggling families is apparently the new Democratic trickle-down economics.
Mr. Obama has only his own lack of engagement and leadership to blame. He outsourced the drafting of the bill to House Appropriations Committee Chairman David Obey through inaction. He refused to get his administration's hands dirty in crafting the legislation by laying out a detailed plan in December. Then saying he looked forward to Congress passing a bill for him to sign on Inauguration Day was an invitation for liberal spenders to roll him. They did.
The package's size is disturbing. The federal government's discretionary, nonsecurity spending was $391 billion in fiscal 2008 and $393 billion was requested for this fiscal year. H.R. 1 contains $317 billion in additional fiscal 2009 discretionary nonsecurity spending. If passed, this 81% increase would be history's largest.
Nor will Democrats treat this additional spending as a one-time expense. They'll simply start next year's budget writing with a new baseline of $712 billion for the federal government's discretionary domestic budget, nearly doubling it in just a year. This is only part of the Democrats' spending damage. In H.R. 1, they also add $308 billion in new "mandatory" spending (for entitlement programs), which would help produce a 25% increase in 2009, the largest increase in mandatory spending in more than three decades.
About Karl Rove
Karl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy making process.
Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.
Karl writes a weekly op-ed for The Wall Street Journal, is a Newsweek columnist and is now writing a book to be published by Simon & Schuster. Email the author at Karl@Rove.com or visit him on the web at Rove.com.
There is also the question of timing. H.R. 1 spends $170 billion in fiscal 2009, $356 billion in fiscal 2010, and $293 billion in fiscal 2011 and after. Spending more in 2011 and beyond than this year tells Americans H.R. 1 is a mammoth spending bill, not a stimulus or jobs package.
White House adviser Larry Summers argued that any stimulus must be "targeted, timely and temporary." This bill does the opposite. Mr. Obama pledged to "scour our federal budget, line by line, and make meaningful cuts." His cuts are unspecific and fanciful, while Congress's spending will be real and record-setting. Discretionary domestic spending will have nearly doubled by the time Mr. Obama stops dithering and starts scouring.
Democrats are betting that Americans now embrace centralized, top-down government and are willing to pay for it. They are wrong and will suffer politically for their misjudgment.
Republicans are right, both substantively and politically, to oppose this monstrosity and smart to offer a bold alternative. The GOP's road back is about to be partly paved by Mr. Obama's embrace of Democratic trickle-down economics. It's terrible policy -- but for Republicans, it provides an opportunity for sharp contrasts that can reset the debate on more favorable terms for the GOP.
Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.
Growing government won't stimulate the real economy.Article
By KARL ROVE
As a presidential candidate, Barack Obama attacked "trickle down economics" as "bankrupt" and an "old, discredited" philosophy that "didn't work." He was wrong. Even worse, though, is that he and congressional Democrats are embracing a Democratic version of trickle-down economics that won't work.
It's embodied in the House-passed "stimulus" bill, H.R. 1, whose deeply flawed assumption is that spending $1 trillion to grow government will trickle down to help people who lost jobs. The Democrats' spending is horribly mismatched with industries that have suffered job loss.
The Opinion Journal Widget
Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page.
Since December 2007, Americans lost 791,000 jobs in manufacturing, 681,000 jobs in professional and business services, 632,000 jobs in construction, 522,000 jobs in retail, 167,000 jobs in hospitality, and 576,000 jobs in the rest of the service industry. It would be logical for policy makers to focus on job creation in these sectors.
Instead, Democrats want to spend $88 billion to increase the federal share of Medicaid. What American will be hired by a small business, factory, retail shop, hotel, restaurant or service company because of this spending? The answer is very few.
In H.R. 1, there's $41 billion set aside for school districts, $1.5 billion for university research grants, $2 billion for Energy Department labs, and $3 billion for the National Science Foundation. Yet education is one of the few sectors that added jobs last year.
There's also $4 billion for health programs like obesity control and smoking cessation, $2 billion for the National Institutes of Health, $462 million for the Centers for Disease Control, and $900 million for pandemic flu preparations. Health care also added jobs last year.
It is not surprising that the stimulus package is laden with new spending programs. Congressional appropriators, not job creators, wrote H.R. 1. Much of it is spending Democrats couldn't get approved in the normal course of affairs. And it should not shock Americans that Democratic appropriators would funnel tax dollars to the Association of Community Organizations for Reform Now, unions and other liberal special interests. Putting budgets of political allies above the budgets of struggling families is apparently the new Democratic trickle-down economics.
Mr. Obama has only his own lack of engagement and leadership to blame. He outsourced the drafting of the bill to House Appropriations Committee Chairman David Obey through inaction. He refused to get his administration's hands dirty in crafting the legislation by laying out a detailed plan in December. Then saying he looked forward to Congress passing a bill for him to sign on Inauguration Day was an invitation for liberal spenders to roll him. They did.
The package's size is disturbing. The federal government's discretionary, nonsecurity spending was $391 billion in fiscal 2008 and $393 billion was requested for this fiscal year. H.R. 1 contains $317 billion in additional fiscal 2009 discretionary nonsecurity spending. If passed, this 81% increase would be history's largest.
Nor will Democrats treat this additional spending as a one-time expense. They'll simply start next year's budget writing with a new baseline of $712 billion for the federal government's discretionary domestic budget, nearly doubling it in just a year. This is only part of the Democrats' spending damage. In H.R. 1, they also add $308 billion in new "mandatory" spending (for entitlement programs), which would help produce a 25% increase in 2009, the largest increase in mandatory spending in more than three decades.
About Karl Rove
Karl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy making process.
Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.
Karl writes a weekly op-ed for The Wall Street Journal, is a Newsweek columnist and is now writing a book to be published by Simon & Schuster. Email the author at Karl@Rove.com or visit him on the web at Rove.com.
There is also the question of timing. H.R. 1 spends $170 billion in fiscal 2009, $356 billion in fiscal 2010, and $293 billion in fiscal 2011 and after. Spending more in 2011 and beyond than this year tells Americans H.R. 1 is a mammoth spending bill, not a stimulus or jobs package.
White House adviser Larry Summers argued that any stimulus must be "targeted, timely and temporary." This bill does the opposite. Mr. Obama pledged to "scour our federal budget, line by line, and make meaningful cuts." His cuts are unspecific and fanciful, while Congress's spending will be real and record-setting. Discretionary domestic spending will have nearly doubled by the time Mr. Obama stops dithering and starts scouring.
Democrats are betting that Americans now embrace centralized, top-down government and are willing to pay for it. They are wrong and will suffer politically for their misjudgment.
Republicans are right, both substantively and politically, to oppose this monstrosity and smart to offer a bold alternative. The GOP's road back is about to be partly paved by Mr. Obama's embrace of Democratic trickle-down economics. It's terrible policy -- but for Republicans, it provides an opportunity for sharp contrasts that can reset the debate on more favorable terms for the GOP.
Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.
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