Will we have a drawn out Obama Depression or will we have direct stimulation soon from the US Treasury

Much of Asia is on holiday welcoming their Lunar New Year. Japan was up almost 5% last night. Japan is throwing a $16.7 billion lifeline to their companies threatened by the credit crunch.

European markets were up over 3% yesterday and are presently giving back about 0.75% because they got out way ahead of the American rally.

The futures for American markets are again up fractionally today. The market appears to be bouncing upward again and there is a good possibility that the window for cherry picking out of the market will extend more than a month. Also, although it has not happened in the past two years the cracking of the sell window could prove premature (in as soon as 10 days) if this trend continues. However it is always good to take profits when stocks rise 20% to 40% or more in a short period of time because the probability of holding rapid gains is usually very low. It is a good policy to cherry pick out partially but let some of the investment run upward when fortune smiles.

Yesterday we discussed the culture of poverty, of the negativism and the relishing of a vision of victimization as a rationale for not trying. Poor people are often considered lazy because they often see no value in trying when the cards seem stacked against them. They often seem to want to do things in such a way as though seeking to fail and thus fulfill their negative beliefs. The culture of poverty seldom gets into a leadership role except in third world countries such as 1930’s Eastern Europe under Communism and current equatorial Africa under dictatorships. Generally today in such places the successful farmers and middle class are murdered or driven out and replace by militant partisans who support the state. Each industrious working family that is displaced provides a temporary source of goods and money that the partisans divide up as their reward. Eventually there is no longer any incentive to succeed because the system enslaves the industrious. Poppy plants tend to be a crop of choice. In order to survive without drug trade it is often necessary to invade surrounding countries to enslave them and exploit their wealth. These negative cultures of poverty believe they are justified in exploiting the industrious people who they incorrectly blame for their poverty. Their poverty is the direct result of their negative exploiter-victim belief system.

Our primary problem right now is our culture of debt. We want everything now and to pay later. It increases demand for goods and initially leads to prosperity. From Keynes to today this philosophy has grown in Western nations. In the last eight years it took over the Republican Party which had previously been able to claim to be the party for fiscal responsibility. In this past election we had no candidate at all representing fiscal responsibility. Great Britain has had the longest experience with this problem and if we want to get out of this recession quickly we would do what the British do. They are rapidly devaluing their currency at this moment. By devaluing their currency the real value and cost of British debt is reduced proportionally to the devaluation of the pound. That causes inflation in the prices of imported goods and helps balance their trade while providing jobs at home. Unfortunately it is addictive and encourages debt and is the reason the world no longer is based on the British pound but it is now based on the American Dollar.

The American successful alternative to the quick-fix devaluation method had been tax cuts. Even JFK gave them. That puts money in people’s hand quickly but does not favor American products initially so it pulls up the whole world. It creates more money in circulation so it inflates all world currencies that are based on the dollar without the need for all nations to inflate their own currencies. Most nations like the slow underlying inflation that linking their currencies to the dollar automatically produces. The Obama administration could do that quickly now and in such a way as to lift all American’s equally if the tax cut is implemented as checks from the Treasury as was done by the Bush administration last year. The Obama administration could give every adult the same amount so as not to favor more industrious Americans since the purpose is only to pay down individual debt and to stimulate demand for goods.

An old American disastrous alternative is unfortunately the one the Obama administration is pursuing at the moment. It is to create government jobs based on non productive socialist make-work programs. This plan takes two years to start and produces three million jobs which then creates three million voters who depend on the Obama administration for their jobs. They will then elect democrats/socialists because their jobs have no value of their own. They keep their jobs by campaigning and voting as often as possible for the people who give them their jobs. “Ironweed” is a book about the last time a political party turned a recession into a Great Depression using this proposed method. This method will not nip the recession in the bud. It takes two years to start producing jobs and could eventually shackle 25% of the American population in feel good non productive jobs. The FDR Democrats stayed in office for sixteen years without interruption the last time they did it. And they got to blame Herbert Hover the whole time. Now they will of course blame George Bush if they succeed in turning this the Bush recession into an Obama depression.

The right answer seems not to be disasterous job welfare but rater stimulative investment from the Treasury done in whatever form is deemed equitable. That will allow people to make mortgage payments and to reduce the debt load with mild inflation.

Good luck on your investment journey.