10 Things That Must Change
By Doug Kass
This blog post originally appeared on RealMoney Silver on Aug. 3 at 8:25 a.m. EDT.
It is said that confidence is contagious and so is the lack of confidence. And these days, this statement applies directly to our Representatives' rancor and overall behavior over the past month in Washington, D.C.
A domestic economic recovery on a slow trajectory path is exposed to policy mistakes and external shocks (e.g., geopolitical, oil spike, etc.). It is now clear that confidence has been sufficiently eroded, in part, by the Washington circus -- and this has, in part, served to undermine growth and has jeopardized our equity markets.
I have written extensively about investors' consternation toward our country's politicians. Over the past few weeks, in "My 'Fast Money Halftime Report' Recap" and "Partisanship Trumps Progress," I have described the potential headwinds to economic growth and stock market appreciation instilled by the lack of confidence (on the part of businesses and consumers) caused by the ineptitude and bitterness in the latest debate over the debt ceiling and budget issues.
Indeed, back in late 2010, my surprise list for 2011 included two surprises on the manner in which partisan politics would inhibit economic growth and limit the upside to equities.
Surprise No. 2:
Partisan politics cuts into business and consumer confidence and economic growth in the last half of 2011.
Increased hostilities between the Republicans and Democrats become a challenge to the market and to the economic recovery next year....
The resulting bickering yields little progress on deficit reduction. Nor does the rancor allow for an advancement of much-needed and focused legislation geared toward reversing the continued weak jobs market.
Surprise No. 9:
A new political party emerges. Screwflation becomes a theme that has broadening economic social and political implications. Similar to its first cousin stagflation, screwflation is an expression of a period of slow and uneven economic growth, but, in addition, it holds the existence of inflationary consequences that have an outsized impact on a specific group. The emergence of screwflation hurts just the group that authorities want to protect -- namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices.
Importantly, quantitative easing is designed to lower real interest rates and, at the same time, raise inflation. A lower interest rate policy hurts the savings classes -- both the middle class and the elderly. And inflation in the costs of food, energy and everything else consumed (without a concomitant increase in salaries) will screw the average American who doesn't benefit from QE2.
Stagnating wages and ever higher food and other costs energize Middle America, the chief victim of screwflation, and a new party, the American Party, emerges chiefly through a viral campaign begun on Facebook. This centrist initiative initially is endorsed by several independent Republican and Democratic Congressmen, but a ratification by Senator Joe Lieberman (Connecticut) leads to several Senatorial endorsements as it becomes clear that the American Party's ranks are growing rapidly. (Both the Tea Party and Sarah Palin abruptly disappear from the public dialogue.)
By the end of 2011, between 5% and 10% of all U.S. voters are believed to be members of the American Party. With its newfound popularity, the American Party asks New York City Mayor Bloomberg to become its leader. By year-end 2011, he has not yet made a decision.
This morning I want to change my stripes; instead of focusing on and being critical of the disruptive impact of the deliberations in Washington, D.C. last week, I want to propose some solutions (a hat tip to Omega's Lee Cooperman who helped me on some of these suggestions).
So, if I were king of the forest, here are 10 changes I would immediately enact:
1. Establish term limits for all our representatives.
2. Limit government spending. Set a specific limitation on the annual gains in spending to be less than the increase in consumer price index.
3. Develop a comprehensive jobs plan.
4. Fix housing. Over 15 million homeowners are underwater with their mortgages, the shadow inventory of unsold homes is a drag on a housing recovery, and we must find a way to find a way to reemploy over 2 million former housing-related workers. We need a Marshall Plan for housing. I would suggest that the Obama administration reach out to the two most knowledgeable and smartest guys in the residential real estate markets, Eli Broad and Bob Toll. I would have them all meet in a locked room with Fed Chairman Ben Bernanke, Treasury Secretary Geithner and President Obama (and his economic team).
5. Raise taxes on the rich. Put a three-year income tax surcharge (of 10% to 15%) on incomes above $500,000.
6. Create a health care czar and tackle our health care industry's delivery and costs.
7. Mean test entitlements, freeze entitlement payouts and gradually increase the social security retirement age to 70 years old.
8. Exit Afghanistan and Iraq immediately. More effectively rationalize the defense budget and provide returning soldiers full tuition to vocational schools and colleges as they have sacrificed much.
9. Build infrastructure. Set up an infrastructure bank, and place the money saved on defense into a massive build-out and improvement of the U.S. infrastructure base.
10. Create energy self-sufficiency. Develop a comprehensive plan designed to rapidly develop all of our energy resources.
2 months ago