This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Saturday, November 27, 2010

How Republicans Saved the Economy

The following is, or could be, a transcript from a high school history teacher’s lecture in the year 2030 on Obama’s first term. It is a continuation of the lecture series that began with “How Obama Saved the Economy,” written in October of 2009.

Just twenty-two months into Obama’s first term, his party suffered a major setback in midterm elections in what amounted to a referendum on policy shifts that had been occurring in Washington.

In the 2010 elections Democrats lost control of the House of Representatives, a half dozen Senate seats, as well as roughly a dozen states’ governors’ offices. The result was a much more equal distribution of power around the country and gridlock achieved in Washington.

The loss of the Democrats’ supermajority in the House was particularly decisive, as President Obama’s ability to push through new spending bills was essentially crippled.

Much more significant, though, was what unfolded after the beginning of the 112th Congress and inauguration of new governors in 2011. While Democrats still controlled the Senate and the White House, there was a noticeable change in policy that almost immediately began to produce tangible impacts on the American economy.

Before the Democrats lost their grip on government, President Obama had been able to push through an economic stimulus bill, a Healthcare reform bill, and a financial reform bill. At the time of the midterms Obama was still pushing for cap and trade legislation, which would have put expensive restrictions on carbon outputs and had been the source of much controversy among the business community.

Unfortunately, as many had previously forecast, these policies did not serve to help the United States’ economy. Instead they injected significant uncertainty into the business community and stifled its recovery from the financial crisis of 2008.

With the government passing expensive legislation like healthcare reform and proposing cap and trade laws, businesses effectively stopped expansion plans because they could not know how much their costs of doing business or hiring employees might change.

Before the midterm elections Democrats had held a supermajority in the House, as well as control of the Senate, White House, and the governors’ offices of most states. With such complete control, they had no reason to listen to or cooperate with Republicans, much less their constituents; so they didn’t.

Once the wrath of voters was felt at midterm elections, however, Democrats had no choice but to begin shifting their policies in a cooperative dialogue with Republicans to improve the economy. They quickly realized that real economic growth – substantiated by significant improvement in employment figures – would be the only way those remaining Democrats would win sufficient support among constituents to ensure their reelection in 2012.

In a move that was wildly popular among voters, particularly the supporters of the then-popular “Tea Party” Movement, incoming Republicans applied considerable pressure and succeeded in reversing many of the policy trends previously being pursued by Washington’s far-left Democrats.

Most notably, through additional influence on policy making Republicans were able to substantially loosen the stranglehold of regulation on the economic recovery which had already begun – to some extent – before the elections of November, 2010.

The government correctly decided that their budget

was better spent educating the public on the detection of fraud.

Thankfully legislators, after January 2011, halted their aggravating increase of regulation on the financial sector. Having finally realized that added regulation would not halt the perpetration of frauds and schemes on the investing public, the government correctly decided that their budget was better spent educating the public on the detection of fraud. In this way they were able to limit the impact of future schemes and effectively prosecute those rare cases of criminal wrongdoing.

More importantly for the economy as a whole, Republicans were able to ease oversight on the energy sector, a path many had originally encouraged Democrats to pursue when Obama first entered office.

With Obama’s inauguration the United States was caught at a crossroads. At the time global warming was still trusted, more as a religion than a theory; and increasing pressure among environmentalists at largely limited the use of many sources of energy abundant in the US. However, there was also a growing concern among informed Americans (and rightly so) of the nation’s growing dependence on foreign energy, especially oil.

By easing government energy regulation, the private sector was able to pursue power sources without fear of political pressure. Investment in new projects surged immediately as large power companies began building new facilities to power the US through a re-industrialization period.

These and other major projects were made possible largely due to another avenue pursued by Republicans: that of pressuring the Federal Reserve to force banks to start making loans.


Up until that point, the Fed, under the guidance of Chairman Ben Bernanke, had been paying interest to banks that held excess reserves on deposit at the Federal Reserve. Oddly enough, most of these reserves had actually been provided BY the American taxpayers in the form of low-interest loans legislated by bailout packages.

When Republicans began pressuring Bernanke to stop paying interest to banks on these excess reserves, and actually begin charging a holding fee, banks immediately began scouring the market for opportunities to make loans.

Of course, the United States had endured a lengthy deleveraging process following the financial crisis of 2008, and most American consumers and corporations were surviving just fine without borrowing. In fact, at the time American non-financial companies had racked up significant cash holdings totaling roughly $2 TRILLION.

However, because the Fed encouraged banks to make loans, cheap credit was readily available to fund further expansion projects that had been previously unaffordable. Of course, as new facilities were being built and opened they not only need employees, but those workers required food, homes, and other goods and services.

Between the employment needed to execute new expansion projects, as well as the peripheral jobs created to help provide for the newly employed, the encouragement of loan creation by American banks was able to lower unemployment significantly.

What’s more, all these workers in periphery jobs, once employed, now had a demand for goods and services. The trickle-down effect of job creation turned out to be enormous, and was just what the US economy needed to jump start a recovery not previously seen since the early 1980s.

Sunday, November 21, 2010

Will Holiday Sales be Worth Celebrating?

As Black Friday and the holiday shopping season quickly approach, the business community is focusing its attention on this year’s holiday retail sales as an indication of the state of the economy after the last eighteen months of recovery. The results of this season’s sales will also be viewed as a guide for whether the recovery will prove sustainable or whether recent government policy has fostered any real growth.

We expect this holiday season to provide mixed signals to commentators and policymakers. Considering historical averages, sales will probably still be relatively low. However, we do expect an improvement over last year as stores promote deep holiday discounts.

The real impact of this year’s holiday sales will be felt after New Year, once numbers are totaled and analyzed. Strong retail sales will hopefully instigate corporate investment in expansion projects, which would continue our economic recovery and begin to ease unemployment.

Conversely, poor sales could cause a major shift in government policy, particularly given the changing make-up of the incoming Congress.

If retail sales are week, some (not many, but some) policymakers are finally going to realize that extending unemployment benefits won’t make people shop. People are comfortable spending money when they have jobs; and a handout isn’t the same as income.

Additionally, there have been a significant number of Americans whose unemployment benefits have been recently expiring after Democrats in Congress failed to push through an extension of benefits, much to the chagrin of 99ers who made headlines rallying for such an extension.

Sadly, though the US economy has improved modestly since bottoming after the crash of 2008, this recovery will be fruitless unless our leaders can encourage job growth. With real unemployment in this country at 17%, according to the BLS, the Unites States lacks sufficient consumers to support a continued recovery.

Before the US economy can see real growth to resume pre-crash levels, we need to see unemployment drop significantly. The current stated unemployment rate needs to be down around 5-6%, rather than its current 9.6%. This nation’s policymakers need to be doing all they can to help business and foster job growth.

That brings us to the impact this shopping this holiday season will have on the investment world. From a financial perspective, the next several weeks should be very revealing as to whether monetary policy pursued as of late by Federal Reserve Chairman Ben Bernanke is having a positive impact.

Many people, particularly inflation watchdogs, believe that Mr. Bernanke’s policies are detrimental to the US economy and that a new plan of action is needed.

Interestingly enough, while Bernanke’s “quantitative easing” (read: printing money) has allowed for a mild economic recovery in this country, his policies have caused foreign economies to improve significantly more than domestically. Moreover, while his policies have helped to provide markets with liquidity, employment has not improved, but actually continued to worsen until just recently.

Consider Germany for example, who according to a recent Bloomberg article is preparing for its strongest holiday sales season since 2004. Though the rest of Europe remains bogged down in debt problems compounding fiscal policy worries, Germans are projected to spend more than 75 billion Euros between November and December.

Of course, since the financial crisis that began in 2008 Germany has pursued policies almost directly opposite to those of the United States. As a result, though doubts remain whether the EU can survive this mess, Germany has recovered much more substantially than its neighbors or the US.

In fact, leading up to the G20 summit in April of 2009, leaders in the US had the gall to attack German policy makers including Chancellor Angela Merkel by saying that they were failing to “fill the demand hole.” More than a year later it is grossly apparent how Merkel’s “boneheaded” policy has fared, as compared to the US’s expansion of money supply and government spending under Bernanke.

Saturday, November 20, 2010

The Rule of the Regulators?

Speaking with almost anyone outside the field of finance, the mere mention of rules or regulations will almost invariably result in glazing eyes and a frantic glance for the nearest exit. Few realize the changes currently developing in the world of regulatory oversight; oversight not just confined to the financial industry. Fewer still realize these changes potential effects for the rest of the world.

Recently FINRA, the quasi-governmental regulatory body for the financial industry that is funded by financial firms, has solicited the Securities Exchange Commission for additional regulatory authority over investment advisors. This is an authority typically reserved for the SEC.

At the same time, thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has been narrowing the number of firms it will oversee. The agency has been changing its rules in order to shift many “smaller” firms to state oversight, though it plans to retain the right to examine those small firms. This means that while the SEC is shifting liability to individual states; it will still be able to poke through advisors’ records. And if something goes wrong, the SEC will still be able to point a finger at the states.

Finally, the Commodity Futures Trading Commission (CFTC) has been able to gain significant oversight of the newly-regulated derivatives markets through substantial lobbying by its Chairman, Gary Gensler.

Each of these developments, along with the new rules and regulations that will inevitably follow, will impact the financial world. But not the way most people think. The real issue at hand is whether more rules make the investment world safer from theft and fraud. The answer, of course, is that they do not.

In the 1970s there were far fewer rules than there are today, but a much higher degree of customer protection. The rules then focused on keeping crooks out of this industry, rather than making sure that they acted ethically.

Since then, entire manuals of rules have been written and re-written; and yet Bernie Madoff was still able to steal billions from his clients. In fact, despite these new rules an entirely new market was able to form and flourish in derivatives, finally collapsing in 2008 and losing untold trillions of dollars for clients.

While government bureaucrats focus only on rules and regulations, they fail to see that rules do not PREVENT fraud and more than speed limits PREVENT anyone from speeding. The same misperception is shared by many naïve investors who fail to realize that the sole purpose of regulators is to come in AFTER a crime, clean up the mess, and decide who to prosecute.



Instead of protecting customers against theft or fraud as hoped, new regulations will impact clients negatively. With each additional rule firms incur increasing costs of compliance, costs that will ultimately be passed on to the firm's clients. This can already been seen in firms like Morgan Stanley and Merrill Lynch, who have been punishing small accounts for years.

While the big firms detest small accounts, regulators continue to create an environment that is burdensome for small firms who would otherwise pick up the small accounts shunned by big Wall Street firms. What FINRA and the SEC fail to realize is that they are getting dangerously close to burdening many small firms out of business.

The real irony is that it wasn’t the small firms who cost clients trillions of dollars in the derivates meltdown, but Wall Street giants – which, by the way, regulators have done nothing to prevent from reoccurring. Meanwhile Goldman Sachs and JP Morgan continue business as usual, aside from the occasional multi-billion dollar settlement in civil suits from clients.

Of course, it must be purely coincidence that most regulators have little or no experience in finance before going to work for FINRA or the SEC, and that they work for these agencies to gain experience until they can get a job with a firm – maybe even one they previously oversaw. The fact that the big firms are also the biggest employers is simply a coincidence.

The real fraud being perpetrated here is not among firms who are portrayed as money-hungry villains, but regulators who sing their siren-song that increased regulation results in more customer protection. The fact is that they don’t care about customers; they’re only looking out for their own best interest. The more rules they have to write, the more job security they have.

Consider this: If regulators truly cared about investors, would they be focused on fighting for oversight of the multi-trillion dollar derivatives market that has been previously unregulated and will require hoards of new rules and expanded budgets, or would they be doing something to shelter investors amid the bankruptcy filing of Ambac, one of the world’s largest bond insurers?

Answer: Regulators aren’t really worried about client protection, but about wrestling for greater oversight authority that translates to increased job security. Leave it to government….

Wednesday, November 17, 2010

Competition Moves Society Forward

Football season is in full swing, and nowhere else can one find a better demonstration of fierce competition, the glory of victory or the agony of defeat. All too often, though, we forget that these customs so often left to burly beer drinkers and couch potatoes truly express facets of everyday life.

There is a telling quote from the ancient Roman poet Ovid which translates roughly into “a horse never runs so fast as when he has other forces to catch up and outpace.”

While sports clearly illustrate the purity of rivalry and reward for the bold, we sometimes need reminding that the concept of competition is not confined to the playing field. It is an ever-present facet of life and a driving force behind progress, and should be appreciated as such.

Whether a long-standing champion boxer with no skilled challengers left to ward off or a powerful and reclusive Wall Street CEO with a cast of yes-men, examples abound of laziness and ineptitude that are bread from a lack of competition.

This is particularly relevant today as the federal government prepares to sell stock of General Motors back to the public. Many will recall that GM rival Ford declined a government bailout after the crash of 2008. Instead, Ford did what any competitor would do: hunker down, cut costs, narrow product lines, shrink payrolls, close facilities, and make every dollar count.

Now, though GM has done some downsizing, Ford is much more financial sound while its larger rival has failed to patch all the holes in its balance sheet and has lost market share. One can only hope that GM’s sale to private investors will increase pressure to shape up and fight to regain prominence.

The business world is froth with examples of fierce competition and bitter rivalry. One frequently studied in business school is that of Jack Welch and his tenure as General Electric CEO. Welch used a method known as 20-70-10. Each year he ranked his managers; the top 20% were groomed for upper management, the middle 70% were kept in their current roles and motivated, though not considered “rising stars.” Those managers in the bottom 10% were fired.

Competition can, unfortunately, also be restrained, especially by government intervention. When the government attempts to guide production or the allocation of resources, progress slows. As was the case with the birth of the cell phones and computers, and the auto industry before them, industries grow the fastest when they are in their infancy – BEFORE the government gets involved to regulate.

For more perspective on the government’s role in the economy and its impact, readers with enjoy F.A. Hayek’s The Road to Serfdom. Written in the early 1940s by an economist living in England, the book is an interesting study socialist and totalitarian governments (an important issue during World War II) of what was then termed “economic planning.”

The fact is that, as is the case with the private sector, competition also serves to drive sound (and popular) policymaking and efficient government. Partisan politics force parties to compete for supporters and use their times in power for the benefit of constituents, while those entrenched in power become inefficient and detached.

Such is the case with the US Transportation Security Administration, as illustrated by recent headlines. The TSA, with no apparent competitor to challenge its existence, much less its expansion, has no limitations when it comes to restricting personal rights or invading their privacy. It has no need to ensure contentment among travelers it shepherds.

Meanwhile there are towns like Sandy Springs, Georgia, whose services and agencies hardly extend beyond police and firefighting. Run by a city manager, Sandy Springs takes advantage of competition by outsourcing nearly all of its services to private companies.

With companies competing for contracts to provide such services, the citizens of Sandy Springs apparently feel that their needs to met with the minimum necessary cost; much more efficiently than could be done with an expanded payroll. It seems Sandy Springs residents posed themselves the question: What can the government do better than the private sector? Their list was rather short.

Competition, though enjoyable on a Sunday afternoon, is a pervasive aspect of life, particularly among western cultures. History has shown it to be the lifeblood of innovation and the driving force behind progress. We can only pray that our leaders learn that sooner or later – preferably sooner than later.

Wednesday, November 10, 2010

Congress Concedes to Fed Chief

In the days since Federal Reserve Chairman Bernanke announced that a second round of quantitative easing may be necessary to extend the US’s budding economic recovery, the market has been in turmoil. Investors’ reaction was swift as commodity prices and bond yields jumped in anticipation of inflation.

The backlash from foreign nations was equally firm, with many diplomats now beginning to do what the US Congress has so-far failed to find necessary: pressuring Bernanke to check his monetary policy and uphold the dollar’s value which is, after all, still the world’s reserve currency… for now.

A possible wave of global inflation is not just having an impact in the US. Like US Treasury debt, Irish debt has also seen rising rates – albeit to much greater heights. There bondholders are also concerned with the country’s ability to repay its debt, which has been increasingly difficult to roll over.

Though many problems remain to be sorted out both in the US and around the world, these events have illustrated a lesson which has hopefully been learned by investors the world over: Neither Bernanke, nor any other regulator or bureaucrat, can control the market.

As events have unfolded since 2008 and government officials have reacted to them (NOTE: not anticipated), the egos of many, Bernanke included, have stopped them from realizing that the “invisible hand of the market” described by economist Adam Smith is simply larger than they, and will ultimately dominate any feeble attempts made to steer a lumbering giant.

This Fed, however, has acted particularly brazen in its manipulation of monetary policy which well-regarded investor John Hussman recently argued has amounted to the exercise of fiscal policy legally reserved for Congress. To quote Hussman directly, “the central bank is not engaging in monetary policy, but fiscal policy. Creating government liabilities to acquire goods and assets, unless those assets are other government liabilities, is fiscal policy, pure and simple.”

Thankfully the last several years have made it nearly impossible for the Federal Reserve to hide its true colors. By now, anyone who still thinks that the Fed exists to look out for Americans’ best interests is either blind or naïve.

Beyond the obvious bank bailouts, interest payments on excess reserves, lack of transparency, and leniency with banker-crooks, consider another example – this one more economic.

Presently the Fed has pushed interest rates to lows not seen in a half-century, announcing in public the expectation that rates will likely remain low for an “extended period” in order to encourage an economic recovery. Is this policy of cheap money really an advocacy of recovery?

In order for this economic recovery to be sustainable, the US needs people and companies to borrow. Does the depression of interest rates, along with the announcement that they will stay low, actually provide a motivation for borrowers? Why would any corporation or consumer borrow today when they know that money will still be cheap tomorrow?

This is hardly the first – or the last time – that bureaucrats have demonstrated their ineptitude for real-world economics. While the Fed continues to weigh additional measures to help prop up floundering banks whose own policies put them in their predicaments, the public opinion on bailouts is by now abundantly clear.

Before bailouts will routine, General Motors accepted government assistance, while its rival Ford stayed out of Washington’s pocket. Now GM continues to suffer – typical of anything run at all like a government agency – as Ford thrives, having cut costs and gained market share over its crony-counterpart.

Now, with what seems to be an irrational and unfounded surge of confidence, the government is planning a resale of GM stock to the public. Under the deal, the UAW will own a substantial piece of the company, so we’ll see how well a union can run an automaker.

For our own 2 cents, we’ll go on record forecasting that if, after the government’s sale of GM stock, there isn’t a major change in management within 18 months (away from those who were government-appointed), the auto giant will be bankrupt within 4 years.

Tuesday, November 9, 2010

"Hello, Your PIN is now 'CASH':” How to Get a $600 Billion Hit from the Money Machine

Before the final votes had been tallied in many midterm elections, and the potential impact from the recent shift in power both in Congress and among governors around the country, Federal Reserve Chairman Ben Bernanke announced on Wednesday that the Fed will begin a second round of quantitative easing (dubbed "QE2" by market pundits).

Apparently the first round of quantitative easing – read: “money printing” – didn’t quite have the impact that regulators had hoped. This time around they’ll be printing somewhere in the neighborhood of $600 billion to buy back government bonds and inject liquidity into the market.

For those who enjoy little comparisons, imagine this: if someone were to stack 600 billion one-dollar bills on top of each other (NOT long-ways), the pile would be over 40,700 miles high.

In politics, though, all that money is just another line on an ever-expanding spreadsheet; and its “pounds of prevention” likely won’t add up to one ounce of positive economic impact.

The problem with all this “quantitative easing” nonsense is that none of the new funds being created are trickling down to the business community, much less consumers. Instead, all the Fed is doing is printing money and giving it to banks. The banks then turn around and redeposit that money with the Federal Reserve in the form of excess reserves, on which they are paid interest.

You read that right. Banks are being GIVEN money – at the expense of American taxpayers – and rather than using it to stimulate the economy, they hoard it. What’s more, they get REWARDED for their hoarding.

Although this series of events serves to expand the monetary supply – which is inflationary – that inflation is not realized in the economy because none of the new money is actually flowing around the economy. In other words, the velocity of money is too slow.

In order for any injection of liquidity into an economy to make any kind of positive impact, that new money needs to start flowing around the economy. Velocity must pick up in order to see a sustainable economic recovery.

Sound familiar? Maybe a little like the “trickle-down effect” that was a main focus for Reaganomics?

What few people seem to understand is that, contrary to popular opinion, the Federal Reserve has absolutely no desire to support either the business community or the citizens of this country.

Truthfully, the name “Federal Reserve” is a misnomer. The powerful central bank is neither federal, nor a reserve). In fact, it is little more than an interbank lending center that is privately owned by several of the world’s largest banks.

What this means is that the Federal Reserve is looking out for its own best interest by protecting the banks that own it. Like any good subsidiary, its sole focus – and Bernanke’s primary goal – is to help make money for its parent companies, namely big banks.

In order to increase velocity, the Fed needs to make some policy changes – possibly under pressure from a more conservative Congress.

First and foremost, the Fed should stop paying interest on excess reserves held by banks in the system. In fact, the central bank should start charging banks a holding fee for holding such excess reserves. That would quickly shift the banks’ motivation from wanting to hold reserves for small interest payments from the Fed. Suddenly they would have a reason – and a very strong one – for wanting to make loans to businesses and individuals.

This, in turn, would fuel economic growth in this country. Suddenly, instead of businesses and consumers have to bend over backwards to find banks willing to lend, banks would be competing for their business. Corporations would instantly find new expansion projects financially profitable and individuals would be able to loosen up their purse strings. Some might even start their own businesses.

If they’re smart, Republicans better do something to shift monetary policy in this country to encourage economic growth, and they better do it before the 2012 elections. While they might not have taken a majority in both houses of Congress, the ball is definitely in their court now.

Wednesday, November 3, 2010

Gridlock Achieved

[Author’s note: While this article talks about politics, the real focus is on economics, since it is now evident that, more than anywhere else in the world, economics drive politics. If the US economy does not continue to improve, politicians in this country will be punished by voters. The American people have shown that they will not tolerate policymaking that hurts American business and destroys American jobs.]

The night of November 2nd, as the results of elections rolled in from around the country, many political analysts (and politicians themselves) found themselves surprised – some pleasantly, others not so pleasantly. Though the final counts are still being tallied in several races, the broad ramifications of these elections are already evident.

As the market has been anticipating for months (and its opening this morning shows little surprise), the real achievement from midterm elections has been effective political gridlock in Washington.

In a tidal wave of Republican victories that have shifted the balance of power, the GOP was able to take back the House of Representatives. This is a major move against the Obama White House, since all spending bills must start in the House.

However, while the Republicans took back many seats and one house of Congress, their tour de force was not so complete that they will now be able to effect major policy changes in Washington. Fortunately, their accomplishment WAS sufficient to make it nearly impossible for EITHER side to enact any significant legislation.

In additional to numerous Congressional victories, the Republicans were also able to reclaim Governors offices in several states. The implications of these elections are every bit as great.

First and most notably, an increase in the number of Republican governors raises the odds that more states will be suing the federal government over the constitutionality of Obama’s Healthcare Reform Law (Ohio among them).

Even more importantly, these new governors are now be given the chance to change policies in their respective states, with the hopes of improving their states’ economies. If they are successful the chances are good that Republicans will be successful in reclaiming the White House in 2012. If they fail, the odds aren’t so good.

The real success of this election cycle from an economic perspective (distinct from the gridlock valued by the financial markets) is that it sent a clear message to Washington that the issue most concerning the American people isn’t healthcare reform or financial reform, but the economy.

Americans, it is now obvious, are far more worried about stimulating business and creating jobs. All that we can do now is to hope that this message was received on Capitol Hill and that policymakers in this country can change direction to help reach those goals.

Oddly enough, this goes back to the 1990s when Jim Carville, the “Ragin’ Cajun” and then an advisor to Bill Clinton, helped power Slick Willie into the White House with his now-famous catchphrase: “It’s the economy, stupid.”

Tuesday, November 2, 2010

Tight Ships Don’t Need Bailouts

For all-to-many Americans, it sure doesn’t feel like the economy has made any kind of recovery but the recent profitability of corporations tells a very different story. Lately companies like Ford have been racking up surprising earnings.

Profitability is particularly prevalent among those companies that were not the recipients of government bailouts. While Ford has seen startling sales numbers and growth in earnings its peer, Government Motors, continues to struggle.

This tells us several things, most of which were anticipated by those who opposed government bailouts from the beginning.

First, those companies that did not receive government assistance are now emerging from their predicaments. Their problems have only made them stronger and more responsible. They were forced to “take their medicine” and optimize their operations. Their sales may not yet be fully recovered, but they’re running tight ships.

Conversely, businesses rescued with government help – either through regulation or with taxpayer dollars – have not learned their lessons, as evidenced by the recent revelations of additional fraud in mortgage markets. Many of these companies continue to support outsized payrolls, possibly as a result of political pressure from those who wish to keep jobless claims low. In short, few of them have corrected the mismanagement that got them into trouble in the first place.

Second, the recent progress in America’s private sector illustrates that the economy, which many continue to fear may double-dip into recession, is actually recovering nicely with the exception of unemployment. As clearly demonstrated by comparing companies which did or did not receive bailouts, it is clear that this recovery is not the result of government intervention, namely “stimulus” packages.

The blame for this lagging recovery in unemployment rests squarely on the shoulders of the federal government. Though businesses had for years engaged in less-than-ideal business practices, growing payrolls beyond what was necessary and outsourcing manufacturing for cheaper production costs for example; recent government action has put an unnecessary damper on the creation of jobs in this country.

First the government enacted legislation like Healthcare Reform, which introduced significant uncertainty into the economy. Suddenly businesses didn’t want to hire because they had no idea how expensive each new employee would actually be.

Next, unemployment benefits were extended to “help those who fell on hard times.” The result was the complete destruction of any motivation for America’s unemployed to find work.

The question now is what this all means for the economy long-term, and where we go from here. Ultimately the hope is that the recently increased profitability seen in the private sector will “trickle down” into the economy, putting people back to work and stepping up consumer spending.

There is little that business loves more than political gridlock.

This process is likely to quicken after November if political gridlock results from the November 2nd elections. There is little that business loves more than political gridlock. Gridlock of this type increases the certainty of expected costs and benefits associated with hiring, firing, building, and selling.

While some ask whether there is anything the government can do to help, the better question is what the government SHOULD do to help; the only answer being that the government should do everything in its power to get out of the way of businesses big and small. Whether that means tax cuts, less regulation, or simply a vacation for Congress, when it comes to government corporations view no news as good news.

Oddly enough, this is almost precisely what British rookie Prime Minister David Cameron did on the far side of the pond. Rarely a country to emulate, the United Kingdom under Cameron’s leadership has lately responded to the global recession in spectacularly opposite fashion from the United States.

While the US under Obama’s leadership has seen the federal government grow to become the country’s single largest employer, Cameron has slashed the UK’s budget, last week announcing the elimination of almost a half a million jobs.

In perhaps the greatest case of leading by example ever recorded, the UK has allowed its private sector, by and large, to battle through its setbacks and grow stronger. Cameron can now boast of an unemployment rate that is nearly 2% LOWER than that of the US.

As if that weren’t sufficiently impressive, England’s economy has actually seen phenomenal growth even as the government has cut both its budget and its payroll. In fact, it is quite possible that the UK’s GDP growth for the third quarter of 2010 may equal the US’s growth in the same metric for the ENTIRE YEAR.

Perhaps our current president might learn from that example. Until he does I propose that all public Presidential appearances replace “Hail to the Chief” with “If I Only Had a Brain.”