Article on US economic recovery

Not being a professional economist by any stretch of the imagination, this article seems to pick out evidence of things I have suspected for a couple of weeks.....the article could probably be just as effective without the Dem-bashing...but hey....

A Wall Street/Washington Disconnect
Inside-the-Beltway reporters are economic nincompoops.
by: Larry Kudlow


For weeks the media inside the Beltway have been chattering relentlessly about the sinking dollar and the threat of deflation. Their sky-is-falling mantra features the liberal message that President Bush's proposed tax-cut plan will fuel the budget deficit, jack up interest rates, and wreck the economy.

And yet, if the Bush economic-recovery plan of easier money and lower tax rates is so catastrophic — about to rip through the economy like an Oklahoma tornado — why are both the stock and bond markets enjoying significant rallies?

Somebody has to be wrong here. No doubt, there's a big disconnect between Wall Street and Washington — which often happens. But this chasm is unusually wide. Why? The vast majority of political reporters in Washington do not believe in the markets. They are unwilling to listen to the forward-looking message from Wall Street and the investor class that better economic times are coming. This stubbornness reflects their belief that stock- and bond-market movements are either randomly capricious events or — even worse — they are rigged by a bunch of greedy rich people.

This is too bad. The efficient and well-informed markets are voting emphatically for the pro-growth policy mix of accommodative money from the Federal Reserve, to fight lingering deflation, and lower tax rates from lawmakers — sizeable enough to create economic incentives for much-needed capital formation and work effort.

Since the eve of the Iraq war, the nation's stock markets have increased by nearly 20 percent. The rally is broad and deep. It encompasses virtually all sectors of business, but especially the sensitive economic areas of technology, telecom, consumer spending, basic materials, industrials, and financials. The message is unmistakable: Conditions may be soft now, but in a few months they will improve markedly.

In bondland, long-term interest rates continue to decline. If a lower dollar and rising budget deficits are so bad, why are Treasury rates at 45 year lows? In stockland, if lower tax rates on investment capital and worker incomes are so ineffective, why are big and small-cap growth stocks leading the charge into the next bull market?

Most political reporters and commentators in Washington can't answer these questions. In short, they're economic nincompoops. They buy into the liberal line that tax cuts should temporarily put money into the pockets of lower-income folks — those who don't even pay taxes in the first place. They don't understand (and if they do they won't tell you) that liberal politicians want to keep more money in Washington so they can spend it — especially on Democratic interest-group causes.

Of course, if higher government spending were the answer, the economy would be roaring. But federal spending is running at roughly 11 percent today — about ten times the inflation rate — and there are no roars in earshot.

What the liberal media refuses to accept is the supply-side view that changes in tax rates cause changes in economic behavior. The respected National Bureau of Economic Research has documented all this. So has history. Did the liberal media miss the economic boom that followed President Reagan's tax cuts? Or the one that occurred after President Clinton signed a Republican bill in 1997 reducing the capital-gains tax and expanding tax-free savings accounts? They can even go back to the 1960s when the JFK tax cuts sparked a strong economy.

But the Beltway media won't study the evidence. They'd rather play politics.

Not one reporter in a thousand understands that the current rising price of gold and falling dollar signal the end of deflation. The Fed's recent warning of an "unwelcome substantial fall in inflation" actually came three years too late. Nevertheless, Alan Greenspan & Co. must continue feeding the economy with new cash without raising interest rates for a good long while. An intermeeting rate cut, following poor results in the latest producer price and industrial production reports, should be made right now.

As for the dollar, Treasury Secretary John Snow is exactly right to note that dollar exchange rates are determined by global market forces. Unfortunately, he inherited a credibility gap from his predecessor Paul O'Neill. For now, an easier greenback will help exporting businesses, but it will also aid domestic companies that have been crushed by deflationary drops in their pricing power and profits.

Someone in the White House should pull all this together and rebut the liberal attack, which is being replayed by the witless political media. Falling interest rates and rising share prices are daily votes in favor of an easier dollar and lower tax rates. The minute President Bush's investment-oriented tax-cut plan goes into action, King Dollar will return to its throne and another long supply-side recovery will begin. A good many reporters will be in hiding at that point, and they'll be watching the economic recovery with amazement.

— Mr. Kudlow is CEO of Kudlow & Co.


[ 05-16-2003, 11:34 AM: Message edited by: MagiK ]

[Djinn Raffo]

from here.

[Donut]

Originally posted by MagiK: Not being a professional economist by any stretch of the imagination, this article seems to pick out evidence of things I have suspected for a couple of weeks.....the article could probably be just as effective without the Dem-bashing...but hey.... — Mr. Kudlow is CEO of Kudlow & Co.

Isn't he also the Economics Editor of the National Review Online?

Originally posted by Donut: — Mr. Kudlow is CEO of Kudlow & Co.

Isn't he also the Economics Editor of the National Review Online? [/QB][/QUOTE]

I don't know if he is staff there or not. I was more interested in the economic data he had...it follows information I have from my own investment guy and what I have been seeing in the markets....again Im not a professional...just an interested party wanting to make my retirement years are more comfy.


Nice funny there Djin [img]smile.gif[/img]

[ 05-16-2003, 12:06 PM: Message edited by: MagiK ]

[Djinn Raffo]

Thanks MagiK. I watch the Kudlow and Kramer show sometimes. They can be full of hot air but they do hit the nail on the head quite a bit.

One thing about both of them though.. they have terrible taste in ties.

Djin [img]smile.gif[/img] while I found the cartoon kinda funny, Im making my decisions based on what my "Professional" adviser is telling me, I highly doubt he watches 30 second sound bytes for his analysis. Im also basing it on my own net worth going up and not down for the first time in a few months [img]smile.gif[/img]

I competely agree on their ties....

[ 05-16-2003, 12:09 PM: Message edited by: MagiK ]

[Donut]

Share markets don't like uncertainty. In the lead up to the war prices dropped heavily - now that the uncertainty has gone they are rebounding. I don't need the NRO to tell me that. Plus there's all that business being generated for big companies in Iraq. That must help.

[ 05-16-2003, 12:15 PM: Message edited by: Donut ]

[Timber Loftis]

Yes, I've seen several shows about the money we're spending in Iraq. They will give us more jobs, but only on the taxpayer's backs. Yes, revenue will flow like viscous oil sometime -- but not for a while. And, if we stick our hand too far in this cookie jar, will we be able to tear ourselves away when it's time to leave it to the Iraqi people?

Look... I am ALL FOR tax cuts. But, they are meaningless without cutting spending. Tax cut should = less government spending. But, right now tax cut = government borrows money. That's BS. I'm having enough time with my personal debt without paying 200 billion a year to float the nation's inability to put the credit card away. Tax cuts absent cuts in spending are absolutely meaningless.

Damnit.

[Djinn Raffo]

The low dollar is not directly tied to the stock markets performance. The reason for the low dollar is miriad but because the US has a negative commercial balance, buying more things than it sells, the US has to buy foriegn bills and less of local. Foriegners are not investing in the US as much right now, lowering the dollar and Americans are buying lots from outside the US which further lowers the dollar. With a dollar down the prices for things outside the US go up and inflation rises. So then US investors start investing in US. Americans are increasing their investments at the same time foreigners are getting out of the $.

edit> But that's all just hullabaloo if ya just got laid off.

[ 05-16-2003, 12:26 PM: Message edited by: Djinn Raffo ]

[antryg]

Originally posted by Timber Loftis: That's BS. I'm having enough time with my personal debt without paying 200 billion a year to float the nation's inability to put the credit card away. Tax cuts absent cuts in spending are absolutely meaningless. Damnit. [/QB]

I would like to take this time to personally thank you for personally paying the interest on our national debt. I'm ashamed that Pres. Bush hasn't done the same.
I knew your new job meant a big raise TL, but this is rediculous. [img]graemlins/laugh2.gif[/img]


[ 05-16-2003, 12:49 PM: Message edited by: antryg ]