Protests and Social Revolution: Score Card, Mubarak, Gaddafi, Obama

Egypt's hopeful turn towards reform this past week shows that sometimes a leader sees their position and makes the right move. While Egypt's Mubarak is a real bad actor in the eyes of media elites in the US, he is due credit for adjusting his position several times and finally just leaving office. Frankly, we should be surprised that he left office with minimal bloodshed. Both the Egyptian people and Mubarak have achieved, if nothing else, the hope that a more open and productive society will be attained.

Protests are spreading and other leaders aren't doing so well. Iran is starting to kill their people again and George Soros predicts the regime won't last the year. Yemen, Sudan and Bahrain have also joined the list of countries where change is coming. In Libya, the worst despot of all, and he has always been that, is Colonel Gadaffi. Calling in jet fighters and Russian mercenaries to attack your own people on the streets of your capital city as he did Monday will be remembered in the annals of despotism forever. The bright side of that is any other despot thinking of doing it probably won't after they see the backlash Gaddaffi is to about receive.

Madison Wisconsin is experiencing its' days of rage once again (oh if it were 1970 again). Enraged or not, the city is one of the most fortunate and best endowed in the United States with an extremely stable economy due to the fact that nearly half the jobs are in the public sector. (state and local government and UW). In addition, Madison may be the most educated city in the United States with over 70% of adults having a bachelors degree or higher.

Having just returned from there, I can report first hand that it is now cool in Madison to blame recently elected Governor Walker for a bad economy, the return of fascism and the destruction of Wisconsin's families. The governor may or may not have erred in his attempt to limit the collective bargaining rights of Wisconsin's vast army of public employees, but the state has been running billion dollar deficits for about 10 years and he came into office with a clear mandate to solve the problem.

President Obama, notably hesitant to jump into the fray in support of Egyptian reformers earlier this month, was surprisingly quick to throw his weight behind Wisconsin's public sector unions in their struggle against their Governor's attempt to repair his state's deficit. Obama's intrusion was arguably unwise for several reasons.

First, a sitting US president has no authority in the governance of individual states except in the case where federal law is being violated. In this instance, he had no business interfering.

In addition, the proper deportment of a president requires a certain reserve when it comes to purely partisan matters that don't concern him. It is part of being presidential. A sort of royal detachment is required of our chief executive and from that a special authority comes from people believing their president has only the interests of the nation at heart. Wading into a spat like this so quickly made Obama look more like a Chicago union boss than our nation's leader.

More telling, Obama who faces the worst fiscal crisis ever faced by a sitting president, has taken sides against another state's chief executive who is facing the same issue head on and still worse he has done it for money. You see Obama's largest campaign contributors in 2008 were the public employees unions and his loyalty to them had to come first. Well it did if he is a president who doesn't appreciate the gravity of the issues facing America or his duty to his country.

How is President Obama going to confront the same fiscal issues that Wisconsin faces if he can't commit to dealing with the federal government's unions and employment costs? Since he has now shown he is easily compromised by his ties to public sector unions, how can we trust him to get our government on a firm footing? In trying to curry favor with Wisconsin public employee unions, Obama just may have shown the country he isn't the right guy for the job after all.

Score Card:

Mubarak gets a passing grade. In the end, he did the right thing and avoided the worst for his people. Mubarak exceeded our expectations for him.

Obama gets an unsatisfactory grade. His budget released last week was again fiscally irresponsible and he continues to show no inclination to confront the hard issues behind our deficits. Also, his actions with respect to the state of Wisconsin have an appearance of pursuing political interest while exceeding his portfolio by interfering in the affairs of a state government. Since that state is facing the very same issue he should be facing, he has earned poor marks. Bad job Mr. President. You have just 12-18 months left really to prove you are willing and able to lead us out of the fiscal crisis or you will not be reelected.

Gaddafi gets a worse grade than Obama. Well of course he does. He is one of the worst leaders on the face of the earth so good for Obama, he finishes ahead of Gaddafi.

Investment Implication:

President Obama won't address the fiscal crisis so longer term skepticism remains about the quality of the finances or our country.
Arab and Iranian social revolutions are now proceeding and will for years to come. Probably a good thing but oil supplies will be more at risk now and if oil prices soar, the economy will suffer.
There is a danger our economy is too dependent on stable oil supplies from unstable countries.

Plan on economizing ever more on your energy needs. Environment favors energy and resource producers in stable countries.

Uncle Sam’s Government Works Best When on a Deadline.

Fiscal Commission Draft Report

Bipartisan Commission Tries to Deal with Reality

There is a threshold where the total debt* of a nation exceeds its’ ability to service the interest and have a hope of paying off the principal but no one knows exactly where that is. By different accounting, the US government currently has an outstanding debt of between 60% and 90% of our annual economic output (GDP). For comparison sake, the headline problem child in this arena is Greece at 120% of GDP. For the US, current rates of annual deficit spending of nearly 10% of GDP are pushing us too close to Greece’s situation and that is the deadline Uncle Sam faces.

With Federal budget deficits that are now embedded in our economy rather than just part of economic cycles and other stubborn problems like health care costs per capita that are double those of any other nation on earth, it was very good news last week when the President’s bipartisan fiscal commission released their preliminary draft. The 24 page report is gathering attention and support even as many political leaders dismissed it out of hand. It has been patently very easy for an elected official (of either party) to vote to increase spending, but the fiscal condition of the country and mood of the electorate seems to have swung around to wanting to go in the direction of fiscal responsibility and the report has provided sound talking points for the public and policy makers to work with.

To summarize generally the document’s recommendations:

• Rollback the last decade’s growth of government, government waste and military spending
• Freeze the growth of government pay.
• Eliminate earmarks from the budget process

From an investment point of view, sound fiscal policy is overdue and absolutely required to provide the back drop for future investment success. The rock solid credit worthiness of the US is a huge advantage for our economy in terms of the cost of borrowing, buying imported goods like oil and attracting investment. If our national deficits are not addressed, we can expect a downgrade in our credit status sometime in the future that will be detrimental to our children’s financial security, our portfolios and the economy. After all, who emigrates to Greece to find financial opportunities?



* The debt referenced in this discussion is the debt of the US Federal government.