Friday, December 12, 2008

Herbert Hoover Policy - Working Just as Well Today as in the 1930s

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Congressional Republicans got in touch with their Herbert Hoover roots last night when they defeated the proposed $14 billion auto bailout. Republicans wanted wage concessions from union workers, even though they failed to be as specific in reigning in multi-million dollar banker and broker salaries when the $700 billion Wall Street welfare bill (TARP) was passed. Fiscal conservative when it is convenient, Republican Senator Grassley, stated "I think it would appear that the people who voted against this are carrying out the will of the voters as expressed through the phone calls to our offices". While calls against TARP to congressional offices ran up to 100 to 1 against the bill, a large number of Senate Republicans saw no need to carry out the will of the people in that case. Senator Grassley was among that group.

While I am generally opposed to bailouts, I am 100% opposed to hypocrisy and governmental stupidity. You can make a case for bailing out no one and you can make a case for bailing out everyone, but bailing out some companies and industries and not others produces the worst results at the highest taxpayer cost. Ultimately the U.S auto companies will be bailed out, either immediately through funds released from TARP by President Bush (the White House released a statement this morning saying it was thinking about it) or when the new congress meets in January. The justification for putting Wall Street on the dole for $700 billion and refusing $14 billion dollars for the car makers is simply not going to fly.

Ironically, the most negative reaction to the failed auto bailout bill took place in Asia overnight. Both the Nikkei in Japan and the Hang Seng in Hong Kong had crash level drops of 5.6% and 5.4% respectively. Japanese and Korean auto stocks were the most pummelled, falling around 10%. The Yen rallied strongly against the dollar reaching 88 to 1 range at one point. Oil (light sweet crude) fell to the $46 range, still well above its low of $40.50 reached several days ago. European indices was spared the full carnage because an announcement of a new $267 billion economic stimulus plan for the 27 country eurozone was released in the morning their time. While U.S. stock futures were way down before the opening, the selling was muted (not accidentally I might point out) by the White House's conveniently timed statement on the possible use of TARP funds to bail out the auto makers.

While the Herbert Hoover administration actually implemented a number of programs to deal with the collapsing U.S. economy in the early 1930s, these programs were spotty and inconsistent. Hoover himself frequently chose denial over reality in dealing with the unfolding depression, even going so far as to give a press conference in June 1930 announcing that the depression was over (it was actually just beginning). The U.S. congress seems determined to follow in his footsteps.

NEXT: Indecent Exposure - Madoff Caught Swimming Naked

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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