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Sunday, October 25, 2009

Point Counter Point Weekly Addresses

President Obama spent this week's address talking about the need to extend credit to small businesses. This has become a mantra for both sides. That frankly makes me nervous. For instance, the president has proclaimed that under his directive the SBA will cover up to 90% of the loan amount and now he's pushing to increase the limits for loans to small businesses.

Right now, banks can come to the fed and other banks and get money for nothing. That's because the Fed Funds rate is at zero percent. They are now being encouraged by the government to then extend that money back to small businesses. If this sounds familiar, it's about the same environment as the one back in the beginning of the decade. We all know how that ended.

When banks have access to cheap money and they are encouraged to lend that money to more people and credit worthiness is marginalized, a bubble is created. That's what I have been predicting, and it's small business loans where I believe it will happen. While that remains still only a prediction, the government is doing it's damndest to make it a reality.

Mike Johannes, Senator from Nebraska, delivered the Republican response. He again focused on health care in his response. He went through a laundry list of Republican talking points. He isolated three groups that will be most adversely affected: employees with so called "cadillac plans", recent college grads, and seniors. He said that many workers by passed raises in order to get better health care plans through their employers and now those plans will be taxed. That's one proposal though it's unclear if that will be in the final plan. There's got to be some way to be a trillion dollars and more, and this would raise a lot of money. It would also be a tax on many many in the middle class. Recent college grads would be forced to buy insurance or pay a penalty. This is also a proposal though not a final one. Finally, Medicare is scheduled to be cut by $500 billion. The president said that it would only be waste, fraud and abuse but if you believe that call me for a bridge in Mogadishu. Johannes talked about cuts at hospices, long term care, and other services to seniors.

Johannes then attacked the process. He said it was "being done behind closed doors". That's absolutely correct and it should offend and outrage everyone. The president promised transparency and instead a small group of people are deciding the future of our health care system. That's the most troubling part of all of this. At the most critical time, a few lawmakers are making decisions and they are all being done behind closed doors.

That said, this is the same talking points we've been hearing all along. So, if you support the Republican idea, then you will continue to support it. If you don't, it's unlikely that this address will change your mind.


Anonymous said...

You know, claiming cuts in hospice and claiming "death panels" are kinda mutually exclusive.

In any case, Banks borrow from the Fed through the Discount Rate, not the Fed Funds Rate. Although the Discount Rate isn't much different, the Fed does not manipulate it directly. They only manipulate it indirectly through the Fed Funds Rate. And to get really technical, most of the money the banks got from the Fed came through asset purchases, not direct loans.

mike volpe said...

Yeah, I didn't say anything about death panels. I only comment in these pieces on things said in each video. Johannes talked about cuts in hospice care in Nebraska.

Banks do borrow from each other at the Fed Funds Rate so the Fed certainly does make money readily available by dropping it.