No sooner had President Obama shocked the political world with a gloomy economic forecast — projecting 9.1 percent unemployment for this year and a reelection-killing 9 percent for 2012 — than the dismal August jobs report arrived showing no gain in nonfarm payrolls. That’s right, no gain at all. Private jobs increased a scant 17,000, while hours worked and wages actually declined. Obama’s economic policies have failed.
Are we on the front end of yet another recession? This report alone suggests that we could be, although other data points disagree. But on the eve of President Obama’s so-called jobs speech, there’s a much bigger question here: Has the U.S. entered into long-term economic decline?
As a quintessential optimist who believes in American exceptionalism, I don’t even want to raise this issue. But the data tell me that I must.
For example, over the past ten years, the U.S. has actually lost jobs on a net basis. In August 2001, nonfarm payrolls calculated by the Bureau of Labor Statistics stood at 132 million. Through August 2011, payrolls stand at 131.1 million.
In fits and starts, a 4 percent unemployment rate has moved up to some kind of permanent 9 percent plateau. Following the Bush tax cuts of 2003, 8 million new jobs were created. But in the aftermath of the financial meltdown those jobs have disappeared. The so-called Obama recovery over the past two years has made no dent in this gloomy picture.
And through this whole period our economy has barely grown at a subpar 1.6 percent yearly rate for real GDP.
Meanwhile, the stock market — perhaps the best measure of our wealth and well-being — has essentially been flat for the past decade. And while the free-enterprise private sector has barely muddled along, the government has grown fat.
During the Bush years, the federal government increased from 18 percent of GDP to 21 percent. The debt went up $2.5 trillion, from roughly 32 percent of GDP to 40 percent. And now, during the Obama period, spending has moved even higher to at least 24 percent of the economy, while total federal debt has ballooned near 100 percent of GDP.
It’s almost a mirror image: The expansion of the public sector and the decline of the private sector. This is completely inimical to the American peacetime experience. And it forces us to think seriously about whether we are losing our world economic leadership. Are we? And if so, does this loss of economic leadership threaten our national security and foreign-policy stature?
And all while jobs, the economy, and stocks slumped over the past ten years, the dollar dropped 37 percent and gold increased by nearly 500 percent, from $250 to nearly $1,900 an ounce.
We don’t have the kind of inflation today that we experienced in the 1970s. But it is certainly worth noting that a collapsing currency and a skyrocketing gold price are key barometers of a loss of confidence in the American economic story.
And because most foreign currencies and gold denominated in those currencies have shown the same problems — paper money going down and the yellow metal going up — it’s not farfetched to suggest that America’s funk is leading the rest of the world in the wrong direction.
My key thought is that the U.S. in the last decade has adopted a wrongheaded policy of government expansion — primarily spending and regulating — financed by ultra-easy monetary policy and rock-bottom interest rates.
Tax rates haven’t moved much. But the whole tax system is badly in need of pro-growth flat-tax reform and simplification. However, the expansion of spending and regulating is robbing the private sector of its entrepreneurial vitality. Here’s the new fear: More big-government spending stimulus from Obama’s jobs plan. More EPA. More NLRB. More Dodd-Frank. More Obamacare.
And as the policy mantle for growth has swung to Federal Reserve stimulus, we are learning once again what Milton Friedman taught us 40 years ago: The central bank can produce new money, but there is no permanent production of jobs and growth from that pump-priming.
Big government financed by easy money is a lethal economic combination. It must be reversed. We should be reducing the regulatory and spending state while keeping money predictably stable (and even re-linked to gold). The supply-side nostrum that worked so well for 20 years, beginning with Ronald Reagan, was low tax rates, light regulation, limited government, and a hard dollar. Gold collapsed between 1980 and 2000 as stocks, jobs, and the economy roared. The last ten years? We’ve gotten the policy mix completely backwards. The results show it.
This is a Reagan moment. We need a new leader who can get the economics right and reverse our decline. Literally, for the whole world, nothing is more important.
The market is lower in early trading on the heels of a very disappointing monthly jobs report. The nonfarm payrolls data showed that the economy added zero jobs in August. That is well below both the consensus figures (70k) as well as the whisper numbers going around yesterday.
Additionally, private payrolls only increased by 17,000, far less than the 110,000 that had been expected. And the unemployment rate remained elevated at 9.1%. Today's report was another indication that the ADP report that comes out two days before the NFP report has not bee a good leading indicator.
Asian markets were lower overnight, and Europe markets were down this morning amid weakness in the banking sector. Our banks are also sharply lower today after news reports that the FHFA is going to sue some large banks over mortgage-related matters.
The dollar is higher today, which is weighing on most commodities. Oil prices are down to $86.50, and ag prices are lower also. Gold and silver are both higher, benefiting from the flight-to-safety trade, with gold prices back up to $1875.
The 10-year yield is dropping again, back down to 2.06%. Last time down, we saw the 2.0% level hold. As for the VIX, it is up +5% currently to 33.35.
Trading comment: The last 2 sessions validate why I wanted to remain cautious. The volatility we have seen has not left the market, although I hope it peaked in August. But we have not heard any concrete solutions out of Europe, and recent economic data has not been all that great either. I would be surprised if we retested the August lows so quickly. Rather, I expect September to bring choppy trading, but one where traders might be able to buy into support levels and sell into resistance. For investors, my advice is to remain cautious and defensive.
Earlier this week, I had the honor and pleasure of sitting down with former Vice President Dick Cheney on CNBC’s Kudlow Report to discuss his new book, "In My Time" about his 40-year political and business career.
The full transcript and video follow below.
LARRY KUDLOW, host: I am pleased and honored to welcome back to this program former Vice President Dick Cheney, who has written a terrific new book called "In My Time" about his 40-year career in politics and, I might add, business. I think people forget you were the CEO of Halliburton for a bunch of years.
Former Vice President DICK CHENEY: Right.
KUDLOW: And you served on a whole bunch of corporate boards.
Mr. CHENEY: I did, indeed.
KUDLOW: So you come at it from both sides. Anyway, Mr. Vice President, thank you very, very much.
Let me just begin. Before I get into the book, I want to do some current events with you. I am worried, as are others, that America is in financial and economic decline right now. And I want to get your take on this. Our economy hasn't really grown in 10 years. Stock market hasn't really moved in 10 years. The budget is bankrupt, we've just been downgraded, the debt continues to rise, the dollar is falling, gold is rising. How worried are you that we are in decline? How do you see the future of the great American economy, which ain't so great anymore?
Mr. CHENEY: Well, I'm worried, too, Larry. I'm--you're somebody I follow who we've worked together over the years, back our days in government. If you're worried, I'm worried. And I think most Americans are concerned, not just about the problems of the moment, but about the long term. Finally, our debt problems are catching up with us, and we've got to find some way to get back on top if we're going to pass on the country to our kids and grandkids in as good as shape as we found it.
KUDLOW: The Chinese are nipping at our heels and they're criticizing us at every turn, particularly on the budget and the debt and the decline of the US dollar currency, which frankly, started during the Bush-Cheney years. The dollar's been falling now for 10 years, gold has been rising, China's been yelling. Again, what should we be doing about that? How serious a decline is this?
Mr. CHENEY: Well, in terms of the financial standpoint, I think it's very serious. I'm not ordinarily a pessimist. I basically believe deeply in the capabilities of the United States. We've done some tremendous things over the years, and I think we're capable of doing that again. But we have to face up to the fact that we've got these very real problems that we've created for ourselves, in large part, especially with respect to the debt, and we, in fact, have to put in place policies that'll stimulate growth, stimulate expansion, job creation, the private sector; and, at the same, time get a handle on entitlement spending in the federal government.
KUDLOW: Now you know the president constantly blames the--your administration for it. He says the Bush-Cheney people drove the economy into the ditch. That's his stock phrase. And that he's got to rescue us. And also, democratic talking points about all this, that we didn't pay for the war, that we didn't pay, we--the administration, the government, did not pay for the so-called tax cuts for the rich, they didn't pay for the healthcare drug entitlement. What is your reaction to their blaming the Bush-Cheney administration?
Mr. CHENEY: Well, I think after nearly three years in office now, the effort to sort of pass all the problems back to George Bush's platter, if you will, don't sit very well. We're getting to the point where, after you've been there for three years, you've made a lot of promises, campaigned from coast to coast across the country as President Obama did, sooner or later it becomes your economy. And I think we're to that point now. He's going to be measured very much next year against his performance.
KUDLOW: Do you--do you take some--do you take some of the blame for it? I went through some numbers. These are just broad numbers. Spending did increase during the Bush-Cheney years from 18 percent of GDP to 21 percent. The debt did go up $2 1/2 trillion from 32 percent of GDP to 40 percent. Now the debt is running close to 100 percent of GDP now. I get that. But do you take some of the blame? Could Bush-Cheney fiscal policies have been tighter and more disciplined?
Mr. CHENEY: Well, perhaps, but we were faced with some unique situations. I mean, when 9/11 happened, all of a sudden we're hit with a terrorist attack against the homeland, 3,000 dead Americans in an hour and a half one morning. That required us to take some major steps that were expensive with respect to getting on top of that and making certain that we weren't faced with another attack like that on our watch. So no question it cost money, but it was something that you absolutely have to do. It's war time. And we've been able in the past to meet those kinds of challenges, as we did during World War II, for example, and then ultimately get on with our business. Now, in terms of adding to the debt, Obama has added as much to the debt in two and a half years as we did in eight years. The fact of the matter is, if we talk about unrestrained spending and a lack of discipline with respect to spending, I think the Obama administration's record is the worst we've seen.
KUDLOW: I want to go back into the book. You don't really spend too much time on the economy and financial stuff. It's mostly a book about the terror war, and I appreciate that, but you do talk towards the end of the book about the big banking crisis in late 2008.
Mr. CHENEY: Right.
KUDLOW: And specifically you say the $700 billion TARP package, you mention this, and you said, `Look, I have long been an advocate of keeping government intervention in the private sector to a minimum. What we were talking about now was the largest such intervention in the history of the republic and I was a strong supporter.' Now, as you know, the Republican Party en masse, especially in the last couple of years, have been totally against TARP. What do you say? Why were you such a strong supporter? Do you really think it worked?
Mr. CHENEY: Well, I--yes, I do think it worked. And I was a strong supporter because I concluded, as I think many of us did at the time, that the federal government is the one with the ultimate responsibility in terms of the nation's financial system. Federal Reserve's a part of that, Treasury's a part of that, but the fact is there isn't anybody else in the--in our system that can address those issues that were raised by that financial crisis except for Uncle Sam, for the federal government. And TARP was the response to that. And I think TARP has worked in the sense that we did stabilize the situation, that government is collecting in terms of money being paid back, so that virtually all of it has been or will be paid back. Though, from the standpoint of a lot of the criticism that was leveled against it, I don't think it was valid.
KUDLOW: Did we learn wrong lessons? Is it government bailouts? Is it too big to fail? What came out of this was the Dodd-Frank Bill, which is a massive regulatory bill, almost ineffectively governmentizing the banking systems. Did we wrong--learn the wrong lessons from that emergency?
Mr. CHENEY: Well, possibly. I'm certainly not a fan of Dodd-Frank. I hark back to my early experience in government, which was a little thing called the Wage Price Control Program...
KUDLOW: Oh, yes, of course.
Mr. CHENEY: ...under Richard Nixon. And my job then, I was the director of operations for the Cost of Living Council. I had 3,000 IRS agents who worked under my guidance to enforce those controls. I came away from the experience convinced it was a disaster. It was a classic case of trying to substitute government judgment for what ought to be a private sector enterprise, that millions of Americans would make better decisions for the country on a daily basis as they had addressed all those issues of wages and prices and profits than would a bureaucracy trying to operate in accordance with a set of bureaucratic rules. I think wage price controls were a disaster. I came away from that more conservative in terms of my view of what government's role ought to be in this society. But this was different. I thought the financial crisis that we faced in '08 really, all of a sudden, the financial system seized up, major firms with no significant financial problems can't get short-term operating cash. I mean, we had a lot of major, major indicators, if you will, that the financial system was coming to a screeching halt. And TARP was the system that was devised on short notice to get us out of that. And I frankly--I think it worked.
KUDLOW: Let me go to the--let me switch to the here and now. We have terrible unemployment problem, 9 percent, 16 percent including marginally unemployed. Something like 20 million people out of work or those who would like to have a better job. It's a really bad situation. The economies in trouble. We're growing at 1 percent or less. Now, President Obama next week will unveil another stimulus plan. I don't know whether it's stimulus three or four or five. He's talking about an infrastructure bank, he's talking about more unemployment benefits, he's talking about temporary targeted tax credits. I want to get your take on this. And, again, I remind everybody, you yourself were a former businessman for years. You ran Halliburton, you served on a lot of boards, Procter & Gamble, Union Pacific. What should Obama do to trigger businesses that are sitting on $2 trillion in cash to get this economy moving again? What do you think of his so-called jobs plan as we know it from the leaks?
Mr. CHENEY: Well, of course, I haven't seen the plan yet. We're speculating about it and dealing with the leaks, but I'm not optimistic about what he'll produce. I think his mind-set is very much along the lines of road-building projects, so-called stimulus, enhanced unemployment benefits. That it doesn't go to the heart of the problem and that what we need to do is create an environment in which the private sector is prepared to invest, where there's enough certainty there so that they can move forward in terms of making decisions about ways in which they can expand their businesses and create jobs. We need to do more to reduce the regulatory burden. I see, you know, a big regulatory burden being imposed on the private sector by the administration. That doesn't appear to be addressed at all by President Obama. I think we need to seriously look at tax policy. I think, you know, left to his own devices, he was arguing for tax increases. I think the private sector is still concerned out there that, first chance he gets, he's going to be for tax increases.
KUDLOW: Mm-hmm.
Mr. CHENEY: And all of those kinds of things will retard the restoration, if you will, of the kind of confidence that's needed for the private sector, long term, to enter a period of rapid growth and job creation. That's really the only way out of this. I don't think government can do it by itself.
KUDLOW: I've got a couple more questions. I just want to make sure you and the batteries there are working OK.
Mr. CHENEY: Mm-hmm. Well, they are.
KUDLOW: What have you got going in there? You've got this lovely--looks like a fishing vest.
Mr. CHENEY: It is.
KUDLOW: And what's--what are the hookups to keep your ticker going?
Mr. CHENEY: Well, I've got a--this is a control element. Sort of a small computer.
KUDLOW: Uh-huh.
Mr. CHENEY: I've got two of these batteries.
KUDLOW: Oh, don't move it, it makes me nervous!
Mr. CHENEY: They operate for about 10, 12 hours. Then what it does is it runs a heart pump called the HeartMate II that's inside my chest, plugged into the heart, that takes blood out of the left ventricle, the pumping chamber...
KUDLOW: Hm.
Mr. CHENEY: ...and moves it into the aorta. It operates at about 7,000 RPMs. Instead of a heartbeat, it's sort of like having a Ferrari in your chest.
KUDLOW: Yeah.
Mr. CHENEY: I mean, it gives you that kind of noise when you listen to it. But it's wonderful technology. It was originally built to tide over patients until they could get a transplant. It's now gotten good enough so that a lot of people are living for several years with this equipment. It's a little awkward, but you get used to it. I get everything into this vest that's specially made for that purpose.
KUDLOW: How is your outlook with this?
Mr. CHENEY: Well...
KUDLOW: You look great. You sound great.
Mr. CHENEY: ...so far, so good.
KUDLOW: You're snapping right back at me just like you always did.
Mr. CHENEY: Fourteen months ago, I was in big trouble. I was in end-stage heart failure. My heart was not moving enough blood to service my kidneys and my liver. I was close to--close to the end when we went in and put in the heart pump. Now, it's not an artificial heart, but what it does is supplement your heart and move a significantly larger volume of blood than was possible...
KUDLOW: Hm.
Mr. CHENEY: ...before it was installed. And it really is--has done wonders for me.
KUDLOW: All right.
Mr. CHENEY: I fish, I hunt, I'm not playing tennis, but I'm doing just about everything else.
KUDLOW: God bless. God bless. All right. Just the last round then, I appreciate this very much and thank you for showing us that. Back to my worries that America's in decline.
Mr. CHENEY: Mm-hmm.
KUDLOW: I've taken to calling this a Reagan moment. We need to find a Reagan-like figure to reverse the decline of the United States, at last in the economic and financial sphere. National security, we look much better, as your book chronicles, but on economic and financial. Now, let me ask you a couple of questions, political questions. The role of the tea party. How do you see the role of the tea party?
Mr. CHENEY: I think they've had a significant impact on sort of putting some spine in the backs of a lot of my friends in the Congress. That, in fact, I've realized it was controversial for the--for my colleagues to threaten, for example, the--not to grant the commitment to pay the debt, to raise the debt ceiling. That was, without question, controversial, but I think that threat was effectively used to force the administration to sign on to some significant deficit reduction measures. So I don't think we would've gotten as far as we have without them sort of holding the feet to the fire of members of Congress, but that they were deadly serious about wanting to go after the deficit problem. Now we've not yet solved the problem by any means. I'm not totally happy with the package that was approved. I worry very much that defense is going to be on the short end of the stick when it gets down to the point of actually adopting a policy. But we've got to start. I think the special committee that's been established has some good members on it.
KUDLOW: Yeah.
Mr. CHENEY: But I think others like Erskine Bowles and Al Simpson have done some good...
KUDLOW: Did a fine job.
Mr. CHENEY: A fine job.
KUDLOW: Democrat Bowles, Republican Simpson.
Mr. CHENEY: Yeah.
KUDLOW: Simpson's a great pal of yours from Wyoming.
Mr. CHENEY: He is indeed a very close friend.
KUDLOW: But they did a fine job.
Mr. CHENEY: And...
KUDLOW: It's a pity the president didn't really just enact their proposals.
Mr. CHENEY: Totally ignored them. Totally ignored them. And we've got to continue to aggressively pursue it, and I think the tea party crowd has had a big impact on moving the political dialogue over to a more responsible...
KUDLOW: All right. On the campaign trail, Governor Rick Perry is the new front-runner. Governor Mitt Romney is a tough competitor. You also have Congresswoman Michele Bachmann. You also have Congressman Ron Paul. Are these people that can step into the Reagan and reverse America's decline? Do you have confidence in the Republican field or are you looking for other candidates to run?
Mr. CHENEY: I haven't endorsed anybody yet, Larry. I'm not sure that would be necessarily helpful. There's some quarters where my endorsement probably wouldn't be welcome. But I--we're sort of at that moment where, as I look at it, the question is whether or not we can elect the equivalent of Ronald Reagan in 1980 or whether we're going to get a Jimmy Carter-like figure.
KUDLOW: Mm-hmm.
Mr. CHENEY: And I worry that Obama--President Obama represents the Carter wing, if you will, of the political spectrum, and we badly need a Ronald Reagan. Now, do we have that yet in the Republican field? I don't know. That's going to depend a lot on what happens in the months ahead in terms of a candidate...
KUDLOW: But you're not convinced. I'm hearing some--I'm hearing some skepticism and doubt in your--in what you're saying here.
Mr. CHENEY: I have to say, I haven't...
KUDLOW: You haven't seen it yet.
Mr. CHENEY: I haven't endorsed anybody yet, and I expect to support the Republican nominee, but they have a lot to show me before I'll be enthusiastic about any one of those candidates.
KUDLOW: All right. I hear you. Last one, sir. Tenth anniversary of 9/11 approaches. It's just going to be in a few weeks. Osama bin Laden is dead, the number two and threes of al-Qaeda, they're dead and gone. We've really decimated them. We've killed them, we've crippled them. It looks like democracy, this was the Cheney vision and the Bush vision. Democracy is spreading--Tehran, Cairo, Tripoli, perhaps Kabul. First of all, on the 10th anniversary of 9/11, are you satisfied that our country is safe? And second of all, are we wining the global war on terror?
Mr. CHENEY: I think we're making progress. I can't say definitively that we've won. I think it's important that we not let our guard down. I think there's still folks out there who wish us harm, and I'm still worried that the biggest threat we face is a terrorist organization equipped with a weapon of mass destruction, a nuke or a biological agent of some kind that they'd try to unleash on one of our cities. So I'm not relaxed from that perspective. On the other hand, I think you're right. I think our intelligence and military capabilities have been significantly improved over the years. We've worked hard on that, and I think it's produced results. The demise of Osama bin Laden is proof positive of that.
KUDLOW: For which you have given the president some credit for pulling the trigger.
Mr. CHENEY: I have, indeed. He made the decision to send in Seal Team 6 at that moment on that raid, and that was a good decision. I think the groundwork for it was laid over the 10 years previously and that a lot of the credit goes to our professionals in the military and in the intelligence fields who really produced the information that ultimately led to bin Laden's demise.
KUDLOW: All right. I'm going to leave it there, Vice President Dick Cheney. First of all, all best, God speed on your health. All best on the success of this book. And thank you for helping THE KUDLOW REPORT down through the years. You know we've had about a half a dozen interviews.
Mr. CHENEY: We have.
KUDLOW: You've been wonderful. Thank you, thank you, sir.
Mr. CHENEY: Well, great to see you again, Larry. I love the show.
KUDLOW: All right, thank you. We'll be right back with more from this evening's THE KUDLOW REPORT as we thank Vice President Dick Cheney and wish him all God speed.
I’ve got a few thoughts on this so-called Obama jobs plan, scheduled for release next week.
For starters, let’s be clear: Government doesn’t create jobs. It’s the private sector that creates jobs. And that’s precisely what President Obama has been missing for nearly three years now.
Ronald Reagan knew this. John F. Kennedy knew this. And Bill Clinton eventually learned this.
The trick here is to create new incentives for workers, investors, and business. But first and foremost, we need to remove the regulatory obstacles. Here are some examples:
– Stop the EPA and its environmental overkill.
– Stop the National Labor Relations Board’s war against business.
– Stop Dodd-Frank’s financial attack.
– And take out Obamacare.
And when that’s done, call off the high-tax dogs. Let C-Corps and small-business S-Corps pay no more than a 25 percent tax rate. Move to territorial taxation. Repatriate foreign earnings, bringing the money home. And make the Bush tax cuts permanent, or else move in the direction of a true flat tax.
And on money, until the dollar is properly re-linked to gold, the Fed should do nothing right now. Since QE2 ended, the greenback has actually stabilized. That’s a hopeful sign for lower inflation.
So the only role for government is to set the stage to make it pay more after regulations, taxes, and inflation to work, invest, and take risks. Revive the animal spirits of America’s private entrepreneurial economy with fewer government obstacles and more take-home pay.
The market has been dancing around the flat line so far today. Asian markets were higher overnight, but Europe was lower this morning after some disappointing manufacturing data out of France and Germany.
Here in the US, the ISM Manufacturing Index for August came in at 50.6, which was better than expected. A reading over 50 indicates that the sector is still in expansion mode (under 50 signals contraction). Initial jobless claims were basically in-line.
Other than that, there has not been a ton of market moving news today. Participants are awaiting tomorrow's monthly jobs report. The consensus estimates are for an addition of 70,000 jobs, although I hear Goldman Sachs just lowered their forecast to just 25,000.
The dollar is lower today, but so are most commodities. Oil prices are flat near $88.75, and gold prices are down slightly around $1826.
The 10-year yield is lower today to 2.18%; and the VIX is down another percent near the 31 level, but still unable to break below that psychological 30 level.
Trading comment: The market has pretty much worked off its recent oversold condition with this last 4 day rally. Volume levels will remain light ahead of the Labor Day weekend, but next week things should start to heat up again and we will see if the market can continue to build upon its recent base and work back towards the SPX 1250 level. I continue to trim cyclicals on strength and favor defensive stocks with yield in this environment.
No sooner had President Obama shocked the political world with a gloomy economic forecast — projecting 9.1 percent unemployment for this year and a reelection-killing 9 percent for 2012 — than the dismal August jobs report arrived showing no gain in nonfarm payrolls. That’s right, no gain at all. Private jobs increased a scant 17,000, while hours worked and wages actually declined. Obama’s economic policies have failed.
