Economic Recovery and President-Elect Obama

Well, as I stated in the Blog title, this blog is about things that interest me. Right now I am very concerned about the economy, so I decided to put some of my feelings into a blog entry. I probably wont get any comments because it is such a boring subject, but it's my blog and I can write about the economy if I want to!

As I write this, the Dow Jones Industrial Average is at just over 8000 points. The only reason it is that high is that on Friday of this week it rallied for almost 500 points, meaning that Thursday the DJIA closed at about 7550. While the DJIA is not the economy, I believe that is a gauge of the people's belief in their economic futures, and I believe that the relatively low level of the DJIA is telling America that we are concerned about the future. But what worries me even more is that I don't see things changing for a while. Let me explain.

Just under a year ago, on December 6, 2007, the DJIA closed at 13,727. Since that time we have had bailouts of the Insurance companies, of Mortgage companies, of Banks and now the Automobile industry. All of these have contributed, along with concerns for our financial future, to drive the DJIA to the area it is at today. In my opinion, the way to get the market moving again (and thus, to get the DJIA back to where it was a year ago) is to encourage people to invest. But, with the change of administration, I don't see that happening. Here are my reasons that this is not going to happen.

1. President-Elect Obama has expressed his opinion that business needs to pay their fair share of the taxes, and feels that taxes on business need to be raised. He has specifically mentioned small businesses and big businesses as being subject to tax increases. There are, in my opinion, at least 2 reasons that his opinion is incorrect: First of all, businesses don't really pay taxes, customers of businesses pay taxes. Secondly, raising taxes on small businesses, where most of America's new jobs are created, will make the small business owner think twice about expanding payroll, so that the additional taxes can be paid. This will cause fewer jobs to be created which pushes the economy in the exact direction we do not want it to go. Also, that small business owner is less likely to invest in the small market as he is looking for sources of funds for the additional taxes he has to pay.
2. President-Elect Obama would like to raise the capital gains tax from 15% to 20% for those who are in the highest tax bracket. In my opinion, during financially troubled times, a tax increase rates as an impediment to encouraging investment, while a tax decrease rates as an incentive for encouraging investment. People who are in the highest tax bracket are the very people that should be encouraged to be investing in America. With the uncertainty of a possible capital gains tax increase, I believe that many will adopt a "wait and see" attitude, thus affecting our economic recovery.
3. President-Elect Obama has expressed the opinion that business needs to have tighter regulations and oversight. By so doing, he has again struck at the very segment of society, those who are in the highest tax bracket, who we need to be "betting on America" by invtesting in America. If he is successful, businesses will move more jobs overseas to locations where the regulations will not be as harsh, and we will suffer through additional loss of "American Jobs", and its corresponding tax revenue shortfalls.

Because of these reasons, I believe that many people are going to sit on the sidelines, waiting to get into the game, before returning to the financial markets. I think it will probably take at lease 3 months after being sworn into office, and maybe longer, for people to believe that President-Elect Obama, Speaker Pelosi, and Majority Leader Reid will not screw up the country.

So, in my opinion, don't expect an economic recovery to begin before about May 1, 2009. And it may be later, depending on the decisions that this Democratic White House and Congress make in the meantime.

Dave