Monday, November 24, 2008

Investors: The Missing Ingredient

Obama has assembled his team of economic professionals and proffered a plan to take us out of this economic tailspin America faces. Obama has promised to pull out all the stops and go full speed ahead. Obama has said he would do whatever it takes. Obama has promised $2.5 million jobs, promised bailouts, and promised more government intervention. The problem is he forgot the main ingredient; the investor.

The stock market plunged after Obama won the election. Investors on wall street were fleeing the uncertainty brought on by Obama. The evil rich Wall street investors bailed out on the market and it went into a tailspin. Obama's economic plans are to "spread the wealth" and investors don't like that idea too much. So the smart investor took his gains and left the market. The smart investors is moving towards the precious metals or leaving their hard earned cash in their mattresses to save for the future. Rich investors don't like the idea that they will have to pay higher taxes on money invested in their future and the future of America. The rich investor has a stake in the economy and places funds in high risk endeavors that will provide the breakthroughs of tomorrow. Yet Obama wants to punish these investors through higher taxes without relieving any of the risk. No investor places money in high risk investments without expectation of potential high rewards. This is what Obama plans on taking away. Take away the incentive for taking risk and no one will take them.

The investor is the reason that a bottom up approach to the economy will never work. Our economy is built on consumer spending. However, in order to generate consumer spending people must have jobs. In order to have a job (private not public) employers must have the opportunity to expand capital. In order to have an expansion of capital companies require investors. In order to have investors their must be something in return. That return is in the forms of dividends and capital gains. As taxes on capital gains increase the return on investment is lowered thus making it not worthy of the risk involved.

We all must face reality. America can print the money and sell our future in the form treasury bills but that will not provide comfort to the investor. Obama can create all the public works jobs possible and that will not sooth investor angst. Obama surrogates have now come out and said they may not raise taxes on the wealthy. The surrogates say they may not repeal the Bush tax breaks. However, this is only temporary while the economy is down. As soon as they see the economy improving Obama will raise these taxes. My question is why would a smart investor fuel the economy today only to lose the wealth gained tomorrow? This is not good business. The smart investor will stay away from this economy until the fundamentals get straightened out. Really the only way right now to get the smart investors back is for Obama to make the Bush tax cuts permanent. The sooner Obama does this the sooner we will be able to move the country forward. Short of making the tax cuts permanent or at least extending them to another 6 years and the investors stay home. We are a country in trouble and Keynesian economics will only deepen the recession and push it closer to depression. Remember the last depression was only escaped because of a world war which was caused by the depression in the first place.


commoncents said...

Great post!

Would you like a Link Exchange with our new blog COMMON CENTS where we blog about the issues of the day??

The Lizard said...

Common Cents. Sounds great. Thanks.