June 2009 Archives

A falling consumer confidence is one of the strongest leading indicators for an economic downturn.

I don’t think anyone should be surprised about this. Americans are noticing that the the amazingly expensive, bloated stimulus package has not produced the promised results. The more astute recognize that the Cap and Trade bill and the planned healthcare bill will take a huge hit on the economy.

Despite all the promises of “smart diplomacy,” even our former staunch allies like Great Britain and Germany don’t trust Obama.

North Korea keeps kicking sand in our face and we blew our chance to support the Iranians. When the communist Polish government cracked down on Solidarity, Reagan took an immediate stand in defense of freedom. Obama waffled for a week.

The telling paragraph is at the end:  Economists predicted that consumer confidence would rise from 54.8 to 55.0. Instead, it fell an astonishing 5.3 points – almost 10%.

There really isn’t much good news at all.

From Reuters:

WASHINGTON (Reuters) - U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors’ spirits, while another crop of economic data showed business activity in New York City and the Midwest remained weak and retail chains slogged through a rough June.

Billionaire investor George Soros added to the cautionary tone, saying fears of inflation would drive up borrowing costs and choke off growth once financial markets recover.

Major stock market indexes turned lower after the Conference Board’s consumer confidence index showed households felt gloomier about their current situation, and less optimistic about the eventual economic recovery.

Kevin Kruszenski, head of listed trading at Keybanc Capital Markets in Cleveland, said the confidence data “kind of took the wind out of things a little bit.”

The confidence index fell to 49.3 in June from 54.8 in May. Economists polled by Reuters had expected a healthier reading of 55.0 for this month.

I will never understand the “we can’t cut taxes because of the deficit” mentality. Every time taxes have been cut, more tax revenues has entered the coffers.

The same people who are allergic to tax cuts have no qualms borrowing money to stimulate the economy. That occasionally works in the very short term, but in the long term it always fails.

Why choose failure over success?

From WSJ.com:

BERLIN – German Chancellor Angela Merkel defended her plan to cut taxes despite the country’s soaring budget deficit as she introduced her conservative alliance’s manifesto ahead of national elections in September.

Lower incomes taxes would “provide motivation” and encourage economic growth, Ms. Merkel told a conference of her party, the Christian Democratic Union, and its Bavarian sister party, the Christian Social Union.

“It would be wrong not to do what is right and necessary for growth, and so prevent ourselves emerging quickly from this crisis,” Ms. Merkel said in her conference speech.

The conservative parties’ election platform promises tax cuts worth €15 billion ($21 billion), but gives no time frame. The parties plan to cut the lowest income tax rate to 12% from 14% at present, raise the threshold for paying the top income tax rate of 42%, and reduce the degree to which a rising income leads to a progressively higher tax rate.

However, Germany’s widening budget deficit has led to expectations the next government might have to plug the budget gap with higher taxes. Some state governors and lawmakers from the Christian Democrats have in recent days suggested raising some sales taxes to increase revenue, a debate Ms. Merkel is struggling to stamp out.

The left-leaning Social Democrats, who govern Germany as part of Ms. Merkel’s awkward bipartisan coalition but who are campaigning against her in the election, have mocked the Christian Democrat’s tax-cutting promises, saying the money isn’t there at a time when Germany is racking up record public debt to tackle its deepest recession in the postwar era.