Columnist.
The new Obama Fed is going to be very dovish when it comes to fighting future inflation and defending the value of the dollar. The president has nominated Janet Yellen to be vice chair of the Federal Reserve. Yellen is a distinguished economist who unfortunately subscribes to the Phillips-curve model that trades off unemployment and inflation. In other words, rather than excess money creation as the cause of rising prices, she focuses on the unemployment rate, the volume of new jobs being created and the growth of the overall economy. For Yellen, inflation is caused by too many people working and too much economic prosperity.
The New York Times ran a front-page story this week called "Party Gridlock in Washington Feeds New Fear of a Debt Crisis." As usual, they got it wrong. Instead, the headline should have read, "After Scott Brown's Astonishing Senate Win in Massachusetts, New Political Gridlock in Washington Could Spell the End of the Liberal Crack-Up We Have Witnessed over the Past Year." In fact, gridlock in Washington is good, since it will stop the assault of big government until the end of the year, when Congress could be overturned by independents, Tea Partiers, Republicans and probably some Democrats, as well. Just take a look at the high spirits at the CPAC convention, where Tea Partiers are reinvigorating conservatives and Republicans.
The disconnect between Washington and the rest of the country has never been greater. Why can't the political class in the District of Columbia produce a fiscal product that voters, taxpayers and investors are willing to consume? According to The Washington Post, voters want smaller government and fewer government services by a large 58 percent to 38 percent margin. Pollster Scott Rasmussen reveals that 61 percent of voters believe tax cuts help the economy, that 59 percent think tax cuts are a better job-creation tool than increased government spending and that another 59 percent believe higher deficits hurt the economy.
Sen. Scott Brown's epic victory in Massachusetts on Tuesday night dealt a crushing blow to Obamacare, cap-and-trade, card check (and other union favors) and, most importantly, all the tax hikes that are lingering on the table. But does Washington really understand the Scott Brown message? President Obama thinks his "remoteness and detachment" are the problems. This is nonsense. Obama's tax hikes and spending explosion are what caused the populist tea-party revolt that was punctuated by Brown's extraordinary victory. And that leads to the next question. Are the Republicans listening?
First, the good news on the economic recovery that everybody loves to hate: Retail sales totally beat Wall Street estimates with a huge 1.3 percent gain in November. Core retail sales have increase 5.6 percent at an annual rate over the past three months. Family net wealth has rebounded $5 trillion over the past six months. Jobless claims keep trending lower. Business sales, up 1.1 percent in October (the latest data), have jumped 10.1 percent annually over the past three months. And business inventories, led by manufacturing, also rose in October.
Team Obama is in economic trouble on two fronts right now: The dollar could be headed toward its demise, while the jobs and unemployment numbers have gotten worse. (The unemployment rate is up to 9.8 percent as of the September report released last week.) And there's a simple policy mix the White House could adopt to fix this. It could enact the Mundell-Laffer supply-side approach of a steady King Dollar for price stability and low marginal tax rates to spur jobs and economic growth.
Attendees of the G-20 meeting in Pittsburgh and members of the Federal Reserve Board in Washington should carefully read a Wall Street Journal op-ed by Fed Governor Kevin Warsh. In a piece titled "The Fed's Job Is Only Half Over," the former Wall Street investment banker sends a shot across the global economic bow. He says the Fed's job will not be done until it removes the easy-money policies put in place over the past year. In other words, an exit strategy.
The day after President Obama's impassioned speech for big-government health care, Wall Street bet heavily that the so-called government-insurance option he supports is dead. In a strong stock market on Thursday -- the market's fifth-straight daily rise (so much for the September swoon) -- health-insurer shares advanced significantly. Cigna increased 5 percent; Health Net almost 5 percent; Humana 3.5 percent; and UnitedHealth Group 1.5 percent. Hospital shares like Community Health Systems and Tenet Healthcare also rallied smartly, climbing about 5 percent each. Drug company Pfizer rose more than 1 percent. These stocks would not have rallied if the public option looked alive. Corroborating this, the Intrade pay-to-play online betting parlor shows only a 24 percent probability of the government option passing by the end of this year. Also, of 17,308 respondents in a Politico poll, 38 percent registered thumbs-up for the president's address, while 58 percent said thumbs-down.
