The “flight to safety” which started with the Crash of 2009 has accelerated as the economic policies of the Obama administration are becoming evident.

The following graph shows a net swing away from selected private debt accounts on the order of USD !.5 trillion, between 2006 and Q2 2009:

	Fed Flow of Funds Table F.107, US$ billions (annual flows) to Q2 2009

This movement seems to reflect avoidance of three types of risk:

1. OTC counterparty risk: Flight from security repurchase agreements and interbank lending reflects fear of sloppy trading and settlement practices in over-the-counter markets.
2. Credit risk: Lack of confidence in the opinions of the traditional credit rating agencies grew even faster, following the Crash of 2008 and combined with the obvious risks of over-leveraging and difficult loan roll-overs due to the credit squeeze, to drive investors out of corporate debt markets.
3. Inflation risk: Debt with the strongest credit and most efficient settlement markets cannot withstand a fall in value due to an increased rate of inflation. The Obama administration is doing what it can to scare bond investors away by gargantuan “spending is simulus” packages, passed in the dead of night, written by unknown parties, and unread by legislators or even the President.

Foreign flows to Treasuries and Equities at pre-Crash levels

	Foreign net flows to US Treasuries, US$ B, to Q2 2009

After brief and sharp spikes during the last quarter of 2008, foreign flows into US Treasuries have returned about to the levels of 2004, and about twice the levels of 2005-7.

This seems to indicate that the panic of the Crash of 2008 has already subsided, but that there is no where near the amount of money available from the Rest of the World that would be needed to finance the Obama administration’s “spending is stimulus” packages in order to avoid inflation.

The non-debt foreign investment flows are indicated by the accounts “corporate equities”, “mutual funds”, and “foreign direct investments”.

	Fed Flow of Funds Table F.107, US$ billions (annual flows) to Q2 2009

These equity-type flows suggest that, following the boom years of 2006-2007, the appetite of the Rest of the World for US non-debt investments has returned to levels similar to those of 2004-2005.

In Q2 2009, foreign flows into US equities (annual basis) were $114.6 billion, compared to issues of foreign equities into the US market of $ 148.9 billion.

This means that by Q2 2009, the Rest of the World was, on balance, avidly avoiding new investment into US equities and private debt, while failing to show enthusiasm for financing the vast Obama stimulus packages which are coming down the road.

With these statistics and the historic importance of foreign investment in the US capital markets, one is left scratching one’s head, wondering why the US stock market was rising throughout the first half of 2009?

This “Obama Deficit” is about six times the fiscal deficit for the year 2003.

	Obama administration falls off the cliff

The Rest of the World (which is already beginning to come out of the recession), is fleeing dollars, indicating that whereas President Obama may have earned the Nobel Peace Prize for what he has not yet done, he certainly has not earned good marks for his actual behavior on the economic front.

It should be noted that the Q2 2009 deficit numbers are before most of the “spending is stimulus” packages have kicked in, and certainly before the mad spending spree represented by Obamacare (Health “Reform”) or Cap and Trade legislation (supposedly directed towards the perceived imminent danger of “global warming”).

Please note that most of President Obama’s wild spending spree was his own doing (with the help of the Pelosi-Reid Congress) — not “inherited” from the Bush administration.

In order to avoid a high level of inflation and further deterioration of the US dollar, all this deficit spending will somehow have to be neutralized.

There is no clear plan, so far, as how this deficit will be unwound.

We’ll just have to see …

The following graph shows the dollar export trend in the context of rising and falling values of the US dollar versus currencies of major US trading partners.

	US Exports under Clinton, Bush, and Obama

The forces that seem to direct the volume of US exports and the relative value of the US dollar compared to currencies of US trading partners are as follows:

1. The US fiscal deficit: The relative value of the US dollar seems to be influenced primarily by the size of the US fiscal deficit. During the Clinton years, a Republican Congress combined with a moderate Democrat President, and falling defense spending, resulted in a fiscal surplus and a dollar rising in value against the currencies of trading partners. In the Bush years, following September 11, 2001, sharply rising defense expenditures — the result of two wars and the burden of continuing to act as the “World’s Policeman”, led to a return of rising fiscal deficits. In the first year of the Obama administration, all pretense of budgetary discipline was thrown to the winds, leading to even more rapid decline in the US dollar versus trading currencies.
2. Economic recessions/good times: The final year of the Clinton administration saw the collapse of the “dot.com” bubble and a mild recession which was reflected in a lower level of US exports. As good times returned during the Bush years, exports picked up substantially, spurred by a falling dollar. From the last quarter of the Bush term until today, the world entered a period of severe financial crisis, resulting in a sharp drop in US exports.
3. Anti-free-trade policies: Traditionally, the Democrat Party has been a close ally to trade unions and an opponent to free trade. Union pandering measures to restrict US imports were favored during the Clinton years, and currently by the Obama administration. This is part of the reason for the slow rise of US exports during the Clinton years and the sharp fall during Obama’s first year in office.

Of course, in addition to these factors, the principal force driving US exports is the value of the US dollar, which was rising during the Clinton years, and falling ever since the War on Terror started following the attacks of September 11, 2001.

The remarkable rise in US exports during most of the Bush years was undoubtedly due primarily to the fall in the US dollar, which, in turn, seems to have reflected the rise of US fiscal deficits driven by wartime budgets and, in the last years, pork-barrel spending driven by the Pelosi-Reid Congress.

The current collapse of dollar exports is usually attributed to a world wide recession, but distrust of the US dollar arising from Obama “spending is stimulus” measures and union-pandering certainly has had some influence.

A narrowing trade deficit

The counterpart to US exports is the value of the US dollar. A falling US dollar makes US products cheaper to foreign buyers, but also leads to US dollars being less attractive as a means of exchange for trade with the United States.

The combination of world wide recession and a falling dollar, so far, has led to a narrowing of the US trade deficit with the rest of the world. This means that there will a a diminishing supply of dollars in the hands of foreigners to buy US Treasury bonds to sop up Obama’s extraordinary “spending is stimulus” programs.

This decline in the value of the dollar, in turn, will make it more difficult to control the coming US inflation.

The US trade deficit has been building steadily since 1971, when President Nixon cut the final ties to gold.

However, the decline of the US dollar relative to the currencies of US trading partners, only became the dominant trend after September 11, 2001, when President Bush embarked upon expensive military operations against Muslim extremists in their various forms.

If this trend is not reversed, the outlook for the US dollar as the world reserve currency, with consequent benefits to the United States, is grim indeed.

A graph that tells the story

The following Federal Reserve chart shows the value of the US dollar against currencies of US trading partners since 1995.

	The War on Terror weighed heavily on the US dollar

The first period of the graph, prior to 2001, shows the value of the US dollar relative to the currency of its trading partners, appreciating in value.

This was a time in which, following the end of the Cold War, the US was drawing down its military spending, while building domestic fiscal surpluses. The combination of a moderate Democrat in the White House, plus Republican control of the Congress, did the trick.

The thick red box on the graph outlines the period of the ongoing War on Terror. This has been a time of substantial military build-up, a continuing expensive US military shield over NATO countries, Japan, South Korea, and other places, and two hot wars in Iraq and Afghanistan.

The inner thick gray box shows the period of the Invasion of Iraq.

The inner thin light gray box shows the period in which the Republicans lost control of the House of Representatives, now under the leadership of Nancy Pelosi.

Finally, the blue box shows the period following the Crash of 2008 and the election of Barack Obama as President of the United States.

Except for a brief period during the chaos of the Crash of 2008, the US dollar has steadily declined against the currencies of its trading partners.

• Period A: The War against the Taliban.
• Period B: The Invasion of Iraq.
• Period C: Nancy Pelosi as speaker of the House.
• Period C: Barrack Obama as President of the US.

Although the relative value of the US dollar has been steadily weakening since September 11, 2001, the periods of sharpest decline have been during the periods in which the Democrat Party controlled the House of Representatives and the US Presidency.

Despite the relative decline of the dollar during the Bush years, the current level is still about that of 1997.

The graph suggest that by changing its military posture towards far less expensive strategies, while returning to the more conservative budgetary policies of the Clinton era, the US dollar might still be able to recover.

Whether this might be politically feasible is quite another question.

Bush’s Folly

President George W. Bush made the following critical decisions:

1. To engage in an expensive conventional war against perceived terrorist enemies in Iraq and Afghanistan.
2. To continue to provide a costly US military umbrella over various treaty nations in Europe, Japan, South Korea, and other alliances, despite over-extension of the nation’s military resources and without reciprocal contributions on the part of client nations so as to significantly reduce the burden on the United States.
3. To appease domestic political opposition to these wars and the cost of defense, from both sides, by allowing Congress to engage in excessive, non-essential spending, while enacting easy credit policies that led to the Crash of 2008.
4. To stretch US military engagement to the limit by relying on voluntary US troops (avoiding the unpopular draft) and by accepting token military contingents from most “allies” (with the notable exception of a few countries.)

The result was a successful, expensive ground war in Iraq and an initial win in the war against the Taliban in Afghanistan, in the face of falling support, both domestic and international — and the remarkable lack of appreciation — indeed, even hostility — from most countries over which US was providing an expensive military shield.

	George Bush allowed Osama bin Laden to shape his Presidency

President Bush violated the military axioms learned by Dwight Eisenhower and George Marshall from that military genius, Fox Conner, back in the Panama Canal Zone in 1922:

Never fight unless you have to, never fight alone, and never fight for too long.

See: Partners in Command: George Marshall and Dwight Eisenhower in War and Peace

In order to assure continued funding for military expenditures, President Bush looked the other way when Republican legislators betrayed their own party ideals, engaging in pork barrel spending and when Democrat activists, like Chris Dodd and Barney Frank, pushed sub-prime mortgages and other populist, but unsound financial programs through Fannie Mae.

These policies led to no clear victory over Osama bin Laden, the loss of support for the war, the financial collapse of 2008, the demoralization of the Republican Party, and the election of an unknown, radical extremist, Barack Obama, to the White House.

Obama’s Coup de grâce

With less than ten months in office, President Barack Obama has already dealt a severe, perhaps fatal blow to the supremacy of the US dollar.

Already weakened by military spending during the Bush administration, Barack Obama has increased the chances for even faster devaluation of the US dollar, pushing massive, inflationary “spending is stimulus” legislation, with explicit and hidden taxes on small businesses on whom most new job creation depends and on large segments of the population, already paralyzed by fear into a non-consuming mind-set.

To assure lack of confidence in his measures, Obama has encouraged the introduction of extreme, radical change by brute political force (claiming the “mandate of the people”) — calling on legislators to vote on bills they have not read and written by those whom they know not.

Following economic policies that seem to combine the worst schemes of Franklin Roosevelt and Jimmy Carter, Obama’s actions portend an extended US recession even after the rest of the world has recovered.

	Is this Obama's "Civilian Army"?

Perhaps the most serious blow to confidence in the dollar, beyond the unprecedented level of deficit spending, now projected forward for decades — is the fact that these measures were undertaken without due deliberation — thousand page bills that no one had read, that no one could understand, that no one seemed to know who wrote, and that were later found to be laced with radical and revolutionary “surprise packages” — like billions available for groups like ACORN to continue subversion of the democratic process and funding for a mysterious and massive “civilian army”, smacking of Hitler’s brown shirts, set up to be as well funded and armed as the regular military — all done in the dead of night, without the knowledge of most Americans.

With regards to his “civilian army”, Obama has said:

“We cannot continue to rely on our military in order to achieve the national security objectives we’ve set. We’ve got to have a civilian national security force that’s just as powerful, just as strong, just as well-funded.”

For a President that has admirers of Hugo Chaves in his “secret cabinet” of non-vetted Czars, including several admitted Marxists, his dream of a “civilian army” suggests that he may be thinking of turning the United States into a banana republic.

In any event, why should intelligent investors in the rest of the world continue to have confidence in a country that is moving decisively to devalue its currency on a long-term basis, while seeming to move into the murky world of “banana republic” politics. Obama is not George Washington, Abraham Lincoln, or Ronald Reagan. The question is: “Is he Hugo Chaves?”

Furthermore, Obama’s vision regarding conventional US military power is clouded. Elected with (in his perception) a “mandate” to reduce US military involvement and goaded further in this direction by a Nobel “Peace” Prize — not for what he has done, by for what Norwegian socialists expect him to do — Barack Obama may, eventually:

1. Withdraw US troops from Iraq and Afghanistan;
2. Continue his policy of reducing US military support for countries in the former East European Soviet Block;
3. Continue to favor Palestinian, Syrian, and Iranian interests over those of Israel, allowing Iran to acquire an atomic bomb with delivery capabilities;
4. Reduce the US military budget, atomic arsenal, and strategic defense installations;
5. Move towards relying upon the United Nations, rather than US leadership, NATO, or regional defense pacts, for world security.

Of course, no one can say how successful Obama will be in moving in this “peaceful”, “banana republic” direction, but signs are there to suggest that such a direction is at least plausible and are consistent with his “military background”, “executive experience”, and the totalitarian opinions of some of his most avid supporters and Czars.

The combination of reckless, inflationary monetary policies with unilateral disarmament and a retreat for the US role, adopted during the 20th century as an active, leading military power, do not seem consistent with a US dollar that can continue to be the leading world reserve currency.

In other words, the stage seems to be set for Barack Obama to deal the coup de grâce on American economic and military hegemony — formally ending “The American Century” and the role of the US dollar as the world reserve currency.

If the United States retreats from its role as “world policeman”, leaving the Japanese, South Koreans, and Taiwanese to their own devices — doesn’t it seem likely that China will move in as “protector” of these nations and that the US dollar will be permanently down-graded to secondary status in such regions?

As was seen in the days of the British Empire, concepts of military supremacy and the soundness of money, including relative resistance to inflation, are intimately linked with the notion of an international reserve currency.

Osama’s victory

The war that Osama bin Laden and Al Queda have been waging against Christian nations and non-radical Muslims for over a decade, was brought decisively to the United States on September 11, 2001.

The United States faced a number of serious obstacles that would need to be resolved if it was to “win” this war:

1. A Non-National Enemy: Al Qaeda is not a sovereign power nor signatory to the Geneva Convention, but rather an amorphous, terrorist group, composed of loosely associated cells of like-minded individuals. It hides in failed states, or in national regions outside the control of the supposed “sovereign”, or in friendly “rogue nations”. It has moved its primary location several times over the years.
2. The Geneva Conventions: The Geneva Conventions are a series of supra-national agreements that impinge upon the sovereign rights of nations and citizens of those nations. The intent is to somehow make wars “more humane”. Infractors of the Conventions may be tried for “War Crimes“. Al Queda doesn’t care about the Geneva Conventions, but uses them against its enemies, by hiding operatives and weapons among civilians and by using the national “sovereignty” of the weak or friendly nations as a shield.
3. The US Constitution: Citizen and residents of the United States are protected by the US Constitution, which makes it difficult for the government to spy on its own citizens, even for the purpose of national security. Anti-discrimination laws protect Muslims from being singled out for scrutiny by the government, which effectively raises the cost of internal surveillance of behavior beyond all reasonable bounds. Groups like the ACLU insist on captured terrorists being treated as criminals, rather than as combatants, giving Al Qaeda an enormous advantage when infiltrating the country as terrorists.

The enormous advantages afforded Al Qaeda by these legal restrictions, plus the economic asymmetry of terrorism, have placed the United States at a severe disadvantage in fighting Al Qaeda.

	Unionized officials confiscate a lady's mouthwash ...

The long lines and personal inconveniences that US citizens must now face when traveling by air are a case in point:

1. Universal passenger screening, rather than profiling for the most likely terrorists: I recently witnessed a TSA employee requiring a two year old child, whose mother was carrying two other infants, to remove her flip-flops and put them in a basket for screening. She then confiscated a four ounce bottle of baby oil from the mother, because it was over the three ounce limit. The mother was white, about thirty, wore a typical house dress and a cross, and spoke with a strong Texas accent. The TSA official seemed to lack the intelligence to spot Osama bin Laden if he were to approach her.
2. Permanent, unionized screeners: In addition to insisting on universal screening (requiring far more employees than intelligent screening by profile), the Democrat Party also insisted that screeners be unionized government employees — thereby virtually ensuring that they can’t be fired, no matter how incompetent, nor that they will be fired, even after the danger of terrorist attack on airplanes passes. This means that the costs of the War on Terror will go on for generations, supplemented with government health insurance, retirement plans, and other goodies.
3. Failure to implement pre-screening: It seems obvious that millions of Americans could be pre-screened as not being suspected terrorists, thereby dramatically reducing the cost and inconvenience of current universal passenger screening. However, this would reduce the number of government employees required (anathema to the Democrat Party) and involve “implicit profiling” (hateful to the ACLU). So all Americans must put up with the indignities of mass screening.
4. Failure to screen for real dangers: Anyone with an ounce of sense, observing TSA officials at any airport, can come up with a dozen ways to get weapons past these bureaucrats. For example, in the same line mentioned above in which a TSA official was forcing a two-year old child to remove her flip-flops, I saw a tall, muscular woman, who seemed to have a furtive look, wearing stiletto high-heel shoes. The spikes, with a little ingenuity, could have been converted into a weapon that could be driven into the brain of an airline stewardess, but this lady passed inspection with barely a glance. (Meanwhile, the screeners were confiscating toe-nail clippers of old ladies.)

So far, based on the evidence, we must conclude that Osama bin Laden (or whoever is taking his place) is winning the War of Terror:

1. George Bush, despite successful military campaigns, has been discredited.
2. Barrack Obama has been awarded the Nobel Peace Prize (despite having done nothing to earn it) on the assumption that he is likely to disarm the United States, fail to protect Israel against the Iranians, and free Al Qaeda terrorists held at Guantanamo Bay in Cuba.
3. The cost of the War on Terror, so far, has been sufficiently high to devalue the dollar relative to its trading partners and weaken the position of the dollar as the international reserve currency.

Theoretically, it would be possible for the United States to completely rethink the strategy for the War on Terror, to include such features as internal surveillance against US citizens and residents, black-operations against Al Qaeda cells without the permission of the host nations (like Pakistan), and regrouping of US military, bringing troops back from abroad (including places like Korea, Germany, Japan, Afghanistan, and Iraq), to beef up domestic border security.

However, there is no indication, so far, that a reasonable response to the asymmetrical warfare waged by Al Qaeda has been found.

The conclusion, therefore, so far, seems to be a victory for Osama bin Laden.

This also, does not suggest that strength of the US dollar or the outlook for its role as the international reserve currency is likely to be enhanced.

Photo credit: “Only following order” by Crashwork, from Flickr

These statistics show a pattern of behavior quite different from that which has prevailed since 1982.

It is too early to say whether Q2 2009 is the precursor of a new paradigm in US equity markets, or whether the Stock Buyback Era will return.

The (temporary?) demise of stock buybacks

For the last twenty years, the upward trend in the US equity markets has been driven by massive net stock buybacks on the part of non-financial corporations, matched, more or less, by huge net sales of equities by US households as corporate executives exercised stock options in amounts that far exceeded net stock investments by other individual investors.

	New York City skyline in 1970s, before the Buyback Era began ...

During this period, prices moved upwards, which, according to the Motivation Axiom of Capital Flow Analysis, meant that corporate buybacks were causing the upward movement in stock prices.

In Q2 2009, this flow pattern was suddenly reversed — returning to a type of behavior seen prior to 1982 when the US SEC issued Rule 10b-18 granting safe harbor to corporations that wished to manipulate stock prices in order to give value to executive stock options.

The stock buyback movement has been, essentially, a trillion dollar Ponzi scheme that required ever greater gobs of corporate cash to succeed.

The Crash of 2000 signaled the first weakening in the buyback movement, as a point was reached where buybacks could no longer be easily financed just from current earnings.

The post-2000 recovery came about as corporations began to finance buybacks by dipping into depreciation reserves and, in the last five years, by borrowing from banks.

In 2007, the collapse of the sub-prime mortgage market began to restrict the availability of credit.

By the last quarter of 2008, imprudent bank lending had reached such proportions that global financial markets collapsed, bringing what seemed to be, the end of the buyback era.

Capital Flow Analysis made it possible to predict the 2008 collapse in equity prices as far back as September 2007.

Now the pattern has changed.

Radical shifts in market behavior in Q2 2009

Federal Reserve flow of funds table F.213 shows the dramatic difference in the equity market in 2007 (before the Crash) and in Q2 2009 (after the Crash):

This table shows a striking shift in market behavior pre- and post-Crash.

Before the Crash, Domestic, Non-Financial Corporate issuers were net buyers of securities; after the Crash, these corporations were net sellers.

The 2007 pre-Crash flows were typical “buyback era” behavior — exactly the opposite of issuer behavior one might expect from Economics 101 in which corporations are supposed to go to the stock markets to raise capital.

After the crash, Issuers became “net sellers” and investors became “net purchasers” — which is what one would expect from Economics 101.

In Q2 2009, stock prices were rising and the principal buyers were individuals, directly as Households, and indirectly through Mutual Funds.

According to the Motivation Axiom, this means that the behavior of individual investors was the driving force that caused stock prices to rise in the first half of 2009.

By analyzing the flow of funds accounts for Households, we see that individual investors were moving out of fixed income investments into stocks, apparently due to low interest rates on short-term investments and fear of the impact of inflation on longer-term bonds.

What else can be deduced from Q2 2009 equity flows?

From the above table, other patterns can be discerned, beyond the shift of motivated buyers from domestic, non-financial corporations to households and mutual funds (individual investors).

1. Rest of the world: Foreign corporations continue to use the US capital market as a source of funds (sellers of equities). However, the willingness of foreign investors to buy into the US equity markets has dropped significantly relative to 2007.
2. Federal government: The US government is now a major player in the US equity markets. However, the government has not entered directly onto the stock exchanges, preferring direct deals with corporations. In Q2 2009, the government reduced their equity positions (net sellers) as companies sought to rid government from their lists of shareholders. The prices at which these transfers took place were not determined by supply and demand on the open market.
3. Sophisticated investors: Insurance companies and broker-dealers tend to be more sophisticated in their investments than individual investors, acting directly (households) or indirectly through mutual funds. Sophisticated investors showed a reduced appetite for equities, despite rising prices. In the case of broker-dealers, activity shifted sharply towards net selling compared to their position as net buyers in 2007. This suggests that institutional investors might have been skeptical of the sustainability of the 2009 recovery in equity prices.
4. Private pension funds: These long term investors have been strong sellers of equities since before the crash, indicating an excess of withdrawals over new investment in pension plans. As Baby Boomers retire in greater numbers, private pension funds might be expected to continue to be a drag on equity price levels.

These indicators suggest that the more sophisticated institutional investors have been avoiding US equities and that a furtherance of the 2009 price bounce may depend upon the motivation of less knowledgeable individual investors.

Risk of investment in equities increases substantially

For a generation prior to the Crash of 2008, with equity prices being driven primarily by corporate stock buybacks, investors could rely, over the medium term, in a continued rise in stock values.

The motivation the caused corporations to buyback their own stocks (at the expense of dividends and to the detriment of long-term investors) was pure, selfish greed, without a trace of fiduciary responsibility. This crass motivation proved extremely reliable, as seen by the behavior of top executives in saving their own remuneration schemes during the Crash of 2008, despite public outcries and the woes of ordinary investors.

However, if the buyback era is over — which is not yet certain — investors will have to get back to fundamentals and try to determine the intrinsic value of securities before trusting their life savings to a portfolio of equities.

This is easier said than done, since the market has changed since the days of Graham & Dodd.

Many unsophisticated investors still believe in the Efficient Market Hypothesis, as demonstrated by the continued high level of investment in Exchange Traded Funds.

Furthermore, the extreme, radical changes in the US economy being introduced by the Obama administration and the Democrat Party that controls the US Congress, with an outlook of fiscal deficits beyond anything most investors have seen in a lifetime (except in third world countries), combined with expectation of massive tax increases on most of the population (directly and indirectly), creates foreboding in the minds of most Americans (at least those who own stocks) as to the future of the country.

Furthermore, the are technical barriers to a continued recovery in stock prices, including:

1. Over-hang of executive stock options: Corporate executives are still holding huge quantities of under-water stock options (perhaps on the order of a trillion dollars) that will be triggered if stock prices ever get back to 2007 levels.
2. Rising interest rates: Sooner or later, the Federal Reserve will have to give up on trying to artificially hold down interest rates. When inflation kicks in, interest rates on money market funds will rise substantially, as happened in the Jimmy Carter years. At some point, investors will opt out of risky long-term investment in equities and move to tangible returns in the form of high interest rates.
3. Persistent high unemployment and tight credit: Motivation towards increased personal savings are stimulated by high unemployment and tight credit. As seen in Q2 2009, personal savings rates have already risen substantially, causing savings to be channeled into equities, in lieu of extremely low interest on money market funds and bank time deposits. However, once interest rates start to rise and inflation kicks in, these savings may be moved out of equities into what is perceived as safer investments.
4. Tendency to cash out of equities, once pre-Crash levels are reached: Most individual investors saw their net worth decline by twenty percent or more in the Crash of 2008 and many of these are approaching or are in their retirement years. Chances are that if stock prices ever get up to pre-Crash levels, these investors will be strongly tempted to cash out — placing a barrier to further recovery in prices.

In any event, uncertainty as to the future of equity prices has risen to the highest levels in a generation and uncertainty is just another name for risk.

We’ll see …

By comparing the flow of funds in the year 2007 (at the top of the bubble), with the flows in Q2 2009, a dramatic shift in investor behavior is evident.

	.

Briefly, continued high levels of personal income, combined with lower taxes and historically low interest rates caused by Fed policies, along with fear of hard times to come and the need to save, resulted in a massive shift of funds out of fixed income investments into equities.

These statistics seem to contradict the dismal picture painted in the mass media.

However, by using commonsense and the Fed flow of funds statistics, the forces that influenced equity prices in the first half of 2009 are revealed.

Populist stimulus measures encouraged savings rather than spending

Both the Bush and Obama administrations pushed small amounts of money directly into the hands of consumers in an attempt to revive the economy in 2008 and 2009.

	No Great Depression, despite political fear-mongers

The theory, apparently, was that the public would spend these tiny payments, which in turn would cause businesses to produce more to meet demand, leading to rehiring and increased employment.

However, the public, frightened by rapid collapse of securities and real estate markets in 2008, and by dire warnings from the White House of a coming Great Depression — the haranguing of political operators not constrained by any need for historical accuracy — logically concluded that the prudent course would be to not spend money, but to save it for worse days to come.

The Federal Reserve, for its part, decided that lowering interest rates to almost zero would somehow encourage businesses to invest and create new jobs — presumably ignoring the terrifying behavior of a Congress that approved trillion dollar spending bills, without reading them, while favoring programs that would impose higher taxes on small businesses — the principal creators of jobs in the United States.

Rather than create new jobs, businesses became more productive, getting rid of marginal workers and holding on to the best.

Despite the success of the economic fear-mongers in getting the Democrat Party into the White House — the first president without any palpable executive experience — an over-whelming majority of Americans still had jobs and were willing to work harder to keep them.

Increasing the minimum wage resulted in sky-rocketing unemployment for young people — in the case of young black males reaching 50%!

The collapse of credit markets in the last semester of 2008 and the need for banks and other financial intermediaries to de-leverage as quickly as possible, restricted the flow of capital to business — despite the low interest rates.

Here are the figures that show household income, taxes, and savings in 2007 and Q2 2009:

Here we can see that the tax savings doled out in the various stimulus packages did not result in greater spending, but in greater savings.

Only about 10% of the tax stimulus went into consumption — the rest was saved.

Furthermore, despite rising unemployment, household income did not shrink compared to 2007.

Switching from fixed income investments to equities

Not only did individuals save more in Q2 2009, but they shifted funds away from fixed income assets into corporate stocks.

This table shows a remarkable change in the behavior of ordinary American investors between 2007 (before the Crash of 2008) and in Q2 2009 (after the Crash of 2008 and the introduction of Obamanomics).

The investment behavior in 2007 is easily explained, since it fits a pattern observed since 1982:

1. In 2007, corporate executives were selling huge amounts of stocks (over $ 794.2 billion, annual rate) in order to take profits on their stock options. The main buyers were corporations with buyback programs approved by the executives themselves. See: The Great Misleading, a critical essay on the stock buyback movement.
2. After the Crash of 2008, stock buybacks dried up due to lack of corporate funds. Stock prices fell to the point that most executive stock options were “under water”. Consequently, equity sales related to the exercise of options virtually ceased. There always were individual purchasers of equities, even in the buyback era, but the amount of such purchases was hidden by massive sales due to executive options. By Q2 2009, without executive options, 288.1 billion in net equity purchases became visible. The flow of funds accounts don’t indicate whether this amount was greater or less than underlying equity purchases in 2007.

	Bad credit and inflation threaten securities markets

3. In 2007, individual investors still trusted Standard & Poor’s and believed that money market funds were safe. The table shows that in 2007, investors were taking money out of demand deposits and cash to buy longer term credit instruments.
4. In Q2 2009, investors no longer trusted the credit standing of longer term issuers, moving money out of agencies, municipals, corporate bonds, and money market funds, into government guaranteed bank deposits and cash. Extremely low short-term interest rates encouraged this transfer.
5. Massive, undisciplined spending authorized by the Obama administration in January 2009 cast serious doubts on the future of the US dollar, with a high probability of inflation. Individual investors acted rationally by moving away from medium and long term debt, in anticipation of the coming inflation.
6. Individual investors, having suffered massive paper losses in equities in the Crash of 2008, held on to their long-term mutual funds, moving additional funds from fixed income into equities in the expectation of a market recovery. In part, this reflected continued belief in the Common Stock Legend, and in part a speculative reaction to the extreme lows of the Crash of 2008.

Increased savings, plus the above factors, go a long ways towards explaining the stock market bounce in the first half of 2009.

Is the 2009 bounce sustainable?

The flow of funds accounts for Q2 2009, extracted above, also suggest the reasons that the early 2009 bounce is not sustainable.

1. The Obama health and cap-and-trade programs contain elements that will result in substantially higher taxes, direct and indirect on the American people. This will lead lead to higher unemployment and perhaps greater incentives to save for coming worse times.
2. Sooner or later, the “spending is stimulus” programs of the Obama administration will result in higher inflation, raising interest rates on short-term money market funds and crashing medium and long-term bond markets. Inflation also tends to favor lower price-earnings ratios in equity markets, resulting in falling stock prices, at first.
3. Corporate executives are still sitting on huge quantities of stock options that will become valuable if stock prices rise. If stock prices continue to rise to pre-Crash levels, executives will start selling stocks into the market. If credit continues tight, corporations won’t have the cash to support executive options with stock buybacks. This places a ceiling on continued equity price recovery.
4. Baby boomers, with equity portfolios already severely damaged by the Crash of 2008, will be anxious to sell stocks as soon as prices begin to reach pre-Crash levels.
5. The anti-capitalist slant of the Obama administration and the Democrat-controlled Congress, in the final analysis, is not conducive to a long-term rise in stock prices. Obama shows no indication, so far, of “moving to the center”. Although the President’s popularity is falling rapidly, the earliest date at which the current administration can be out of office is 2012.

If the Obama administration insists on continuing current policies, portending high inflation and increased unemployment, the United States may indeed be in for a Great Depression.

However, fortunately, unlike in the 1930s, a US President is now subject to term limits and the majority of voters are not union members.

We’ll see …

At the same time, cash dividends of this sector fell 22.5%, from the annual rate of $465.8 billion in 2006, to only $360.7 billion in Q2 2009.

This is a reversal of behavior observed until Q1 2009, when it seemed that the Stock Buyback Era might not be dead, after all.

See: “Stock buybacks refusing to die … live on!”

This is the first significant statistical indication that the stock buyback era may indeed by over.

What it will take before the “stock buyback death certificate” can be issued

The stock buyback era started in 1982 with SEC Rule 10b-18 that gave safe harbor to corporate executives to use equity repurchases to fraudulently manipulate stock prices upwards to give value to their stock options.

The US Security and Exchange Commission has not yet revoked Rule 10b-18, but it has published a Q&A page on its web site indicating that it seems to be at least vaguely aware of the unfair impact of this rule on ordinary investors.

There is far more criticism of stock buybacks today, than ten years ago.

However, public opinion is still far from rejecting the practice as being clearly fraudulent.

See: Stock Buybacks — A Fable

Academic support for stock buybacks is still strong and MBA candidates are not yet being taught that the practice is unethical.

See: New York Times: Are Buyback Stocks Still Good for Investors? . This article discusses yet another academic pseudo-scientific apology for stock buybacks.

The permanent demise of stock buybacks will ultimately depend upon investors switching their attention from the false promise of “total returns” (which includes non-realized capital gains) to the solid comfort of cash-in-the-bank “dividend yields”.

Mahmoud Ahmadinejad, the President of the Islamic Republic of Iran, vilified Israel before the United Nations on September 23, 2009, claiming that the Holocaust was the opinion of “just a few”, indicating his preference for Barack Obama over George Bush.

Representatives of only a few nations walked out in protest.

Ahmadinejad has already announced that Iran’s foreign policy calls for the annihilation of Israel.

Ahmadinejad announces the “End of Days” to the United Nations

In winding up his speech to the UN in New York on September 23, 2009, the President of Iran said,

	The 12th Iman and the End of Days

And the last point that I’d like to make. Dear friends and colleagues; The world is in continuous change and evolution. The promised destiny for the mankind is the establishment of the humane pure life. Will come a time when justice will prevail across the globe and every single human being will enjoy respect and dignity. That will be the time when the Mankind’s path to moral and spiritual perfectness will be opened and his journey to God and the manifestation of the God’s Divine Names will come true.

The mankind should excel to represent the God’s “knowledge and wisdom”, His “compassion and benevolence”, His “justice and fairness”, His “power and art”, and His “kindness and forgiveness”. These will all come true under the rule of the Perfect Man, the last Divine Source on earth, Hazrat Mahdi (Peace be upon him); an offspring of the Prophet of Islam, who will re-emerge, and Jesus Christ (Peace be upon him) and other noble men will accompany him in the accomplishment of this, grand universal mission. And this is the belief in Entezar (Awaiting patiently for the Imam to return). Waiting with patience for the rule of goodness and the governance of the Best which is a universal human notion and which is a source of nations’ hope for the betterment of the world.

They will come, and with the help of righteous people and true believers will materialize the man’s long-standing desires for freedom, perfectness, maturity, security and tranquility, peace and beauty. They will come to put an end to war and aggression and present the entire knowledge as well as spirituality and friendship to the whole world. Yes, indeed, the bright future for the mankind will come.

Although these words seem peaceful, in the context of fanatical belief in the imminent “End of Days”, this is hardly the case.

US support of Israel is no longer assured

Even before the 2008 election, Israelis suspected that Barack Obama was not their friend, pointing to the advisers that he had chosen as indicative of his pro-Palestinian, anti-Israeli bias.

On August 27, 2009, the Jerusalem Post published a poll indicating that only 4% of Israelis saw Obama’s policies as pro-Israel. The majority of Israeli Jews thought that Barack Obama favored the Palestinians.

In contrast, a Gallup Poll on May 1, 2009 indicated that 79% of American Jews approved of Barack Obama, an approval rating among religious groups only surpassed by US Muslims (85%), and far more than US Protestants (58%) or Mormons (45%) favorable towards Obama.

The explanation for the dichotomy between Israelis and US Jews is given by Norman Podhoretz in his recent book, Why are Jews Liberals?:

“Liberalism has become the religion of American Jews,” he writes, “even though it conflicts in substance with the Torah . . . [and] the most basic of all Jewish interests — the survival of the Jewish people.”

With a pro-Palestinian US President and with Iran about to become a nuclear power, while declaring its intention to wipe Israel from the face of the earth, it would seem that Israel has only a brief window to attack Iran and destroy its nuclear potential, before it is too late.

Under President Bush, the United States had agreed to provide multi-billion dollar funding and technical support to Israel for military purposes — although there is no formal mutual defense pact between the countries.

President Obama is being pressured by his supporters to suspend funding to the Israelis.

Soon, Israel may be alone, without a powerful friend in the US.

War clouds in the Mid-East

With waning US support, it seems that Israel must go it alone and determine what steps it must take to survive the Iranian threat. But this is nothing new.

Iran’s nuclear threat to the existence of Israel and memories of the Holocaust will focus Israeli minds on how best to deal with Mahmoud Ahmadinejad and his belief in the imminent return of the Twelfth Iman and the End of Days.

The strategy that Israel chooses to deal with Iran will determine whether there will be war or peace in the Mid-East, which in turn will effect worldwide prices of energy and economic conditions in many countries, including the US.

In the US, a spike in the price of oil combined with the looming inflationary effects of the Obama administration’s various “stimulus programs”, will place severe pressure on the US economy.

Many think that Israel will be forced to strike Iran soon, before the Russians deliver defensive radar systems that would make a conventional attack on Iran’s nuclear installations even more difficult.

However, it is possible that Israelis may decide that a preemptive strike on Iran, using conventional weapons, is not in their best interests.

Why Israel might allow Iran to acquire nuclear weapons

Iran’s nuclear facilities are dispersed and buried underground in multiple locations at the extreme outer limits of Israeli air strike capability.

If Israel were to attack Iran’s nuclear facilities using conventional air war techniques, the chances are that, at best, Iran’s possession of nuclear weapons would be postponed only a few years, while Iran would gain justification, in the eyes of many in the world, to attack Israel in return.

With Obama in the White House, the US is unlikely to assist Israel in attacking Iran and might even take measures to prevent Israeli success.

Israel, on the other hand, today has the nuclear capability to completely destroy Iran, setting back Iran’s ability to strike Israel by fifty years or so. (It is estimated that Israel has between 70 and 400 nuclear war heads with sophisticated missile delivery systems.)

The problem with this approach is that a preemptive nuclear strike would make Israel a pariah among nations of the world, with more enemies than it already has. Although it might eliminate Iran as a threat, its global defensive posture might be weaker.

So the question facing Israel is this:

If the only way to eliminate Iran’s nuclear threat for the long term would be a massive nuclear strike on that country, how could this be done without antagonizing world opinion?

The answer, of course, would be to await an Iranian first strike on Israel, once Iran is presumed to have nuclear war heads.

Israel is said to have a sophisticated missile defense system that will be even better in 2010, so it might be possible for Israel to launch a nuclear counter-strike against Iran, while destroying incoming missiles before they do any damage.

By adopting a nuclear deterrent defensive posture and continuing to build bombs and offensive and defensive missiles, Israel could keep well ahead of Iran (it already has a fifty year lead), possibly avoiding war entirely, and, if Iran does attack, have the world on its side as it responds in self-defense.

After all, with an incoming missile from Iran (which would be presumed to have a nuclear war head), why wouldn’t Israel be justified to respond in kind?

This strategy would have the added benefit of postponing any preemptive action against Iran until Barack Obama is out of office.

We’ll see …

The ACORN scandal regarding the prostitution of minors exposed by young reporters Hannah Giles and Kenneth O’Keefe and publicized by Glenn Beck of Fox News embarrassed US legislators of both parties — leading to a bi-partisan, bi-cameral vote to cut of ACORN funding.

The Census Bureau and the Internal Revenue Service have also made noises about cutting ties with ACORN.

However, all this is likely just for show — fake outrage to fool the masses.

Today’s news is that ACORN is alive and well — and is suing the young journalists that revealed how ACORN conducted business.

ACORN may be immortal. It seems likely that it can’t effectively be de-funded.

ACORN is both Chimera and Hydra

ACORN is not an ordinary organization, according to a staff report by the Congressional Committee on Oversight and Government Reform.

Because of the way it operates, ACORN is able to declare on its website:

The Association of Community Organizations for Reform Now does not apply for nor does it receive any federal grants.

So, if that is true, what is all the fuss about?

Like a mythical Chimera, ACORN seems to have many faces and forms. It seems to be supremely deceptive, with many names and aliases. It may be difficult, almost impossible, to kill.

	ACORN can change its shape at will ...

ACORN’s headquarters appear to be located in a locked house in New Orleans. Its business is said to be carried out by a network of 361 front corporations, many without regular officers or directors.

According to the Congressional Report, money is shunted from corporation to corporation as the need arises — without proper bookkeeping or discernible explanation.

The Congressional report “Is ACORN Intentionally Structured as a Criminal Enterprise?”, characterized ACORN activity as follows:

By intentionally blurring the legal distinctions between 361 tax-exempt and non-exempt entities, ACORN diverts taxpayer and tax-exempt monies into partisan political activities. Since 1994, more than $53 million in federal funds have been pumped into ACORN, and under the Obama administration, ACORN stands to receive a whopping $8.5 billion in available stimulus funds.

Operationally, ACORN is a shell game played in 120 cities, 43 states and the District of Columbia through a complex structure designed to conceal illegal activities, to use taxpayer and tax-exempt dollars for partisan political purposes, and to distract investigators. Structurally, ACORN is a chess game in which senior management is shielded from accountability by multiple layers of volunteers and compensated employees who serve as pawns to take the fall for every bad act.

It is not easy to define what constitutes an “ACORN” company.

Here are the cryptic or innocuous names of just some of the 361 entities under which it operates (according to the Congressional report):

	Cut one of ACORN's heads; two new ones grow

Project Vote; MHANY; AISJ; KABF; AGAPE; ALERT; HOTROC; Floridians for All Miami; Peace and Social Justice Center of South Central Kansas; Edison Neighborhood Center; Lagrange Village Council; Arkansas Community Housing Corporation; Desert Rose Homes; Mutual Housing Association of New York; New Orleans Community Housing Organization; Broad Street Corporation; Elysian Fields Corporation; Dumont Avenue Housing Development Fund; Elysian Fields Partnership; Fifteenth Street Corporation; Development Fund Corporation; New York Organizing and Support Center; 5301 McDougall Corporation; Sixth Avenue Corporation; Greenwell Springs Corporation; Working Families Association, Inc.; Wal-Mart Workers Association, Inc.; Orleans Criminal Sheriffs; American Institute for Social Justice, Inc.; Association for Rights of Citizens, Inc.; American Environmental Justice Project, Inc.; Missouri Tax Justice Research Project, Inc.; Connecticut Working Families; Democracy for America; Hammurabi Fund, Inc.; Volunteers for America, Inc.; Citizens Consulting, Inc.; Living Wage Resource Center; and so forth and so on …

Like the mythical Hydra, ACORN seems to have myriad heads that if cut off, will grow back in duplicate. ACORN can form companies with convenient, non-ACORN names, faster than lawmakers can write provisions cutting off funds.

Here is a conundrum for readers that are students of law:

How would you write a provision that defines ACORN so as to assure that funding will not go to this organization?

The Congressional reports suggests that ACORN is not a regular organization at all, but rather a loose, ill-defined network of radical individuals — revolutionaries organized to take power and effect social change in the United States. Unlike the Mafia, there is no Capo de tutti capi — or if there is, he or she has been hidden so far.

Without precise boundaries, ACORN blends imperceptibly into like-minded organizations, like SEIU, the Tides Foundation, the ACLU, and others. Money and personnel can flow between entities to meet the exigencies of the moment.

No federal money is budgeted specifically to ACORN

Although the stimulus package that the Obama administration rammed through Congress contains $8.5 billion in potential funds for ACORN, it is important to note that the name of ACORN appears nowhere in the legislation.

Furthermore, some of this money may go to legitimate organizations, not associated with ACORN or sharing in its agenda in any way — but, then, no one can say for sure.

	Secretary Donovan: Obama's man in HUD

Finally, the stimulus money is not the only source of funds for ACORN. The organization gets grants and donations from tax exempt entities (like the Tides Foundation), receives contributions directly from donors, and receives contractual and other payments from groups that support its goals. (Much of this money is tax deductible — meaning that some other less fortunate citizens will have to pay more taxes to cover the tax deductible contributions that are directed to ACORN.)

However, the $8.5 billion stimulus money (cited in the above-mentioned Congressional report) is a particularly rich lode that, it would seem, the ACORN people know how to channel to ACORN coffers.

Most of this money is distributed, directly or indirectly through grant programs administered by the US Department of Housing and Urban Development (HUD), under Secretary Shaun Donovan.

Secretary Donovan has worked with Bertha Lewis, ACORN CEO, in his position as New York City Housing Preservation and Development Commissioner.

ACORN people have long had access to HUD officials at the national, state, and local level, and, therefore, to HUD grant money in the stimulus bill.

Its all about access and knowing how the grant system works.

ACORN is just the fruit of the corrupt HUD tree

Ever since the Department of Housing and Urban Development (HUD) was founded in 1965 by President Lyndon Johnson as part of the “War on Poverty”, it has been an equal opportunity bi-partisan source of scandal and corruption.

	HUD: Bad apples, "rotten to the core"

HUD oversees Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration, and the Community Development Block Grants off which ACORN feeds.

It is the government department most directly responsible for the sub-prime mortgage scandal that led to the Crash of 2008.

According to the government website:

HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination.

It does this, primarily, by taking money from some citizens and giving it to others, by encouraging banks to make inappropriate loans, by interfering with normal supply and demand in housing markets, and by acting as a slush fund for politicians of both parties.

Politicians love HUD and HUD grant programs because it affords them a way to pay off favored constituents with cash grants extracted by taxes on citizens in some other, less favored part of the country.

The flow of HUD grant funds is basically quite simple:

1. Congress approves a budget for grant money to be distributed by HUD. (The 2009 “Stimulus Act” had $8.5 billion set aside for grants to be channeled through HUD for which ACORN and similar groups might be eligible.)
2. HUD regulators and staff establish a highly complicated, technical set of rules and procedures as to how one can get one’s hands on this money. There are check lists, conditions, and documents to be filled out. (ACORN staffers and their lawyers are experts in HUD grants.)
3. If HUD officials don’t manage to shove these grant funds out of the door, they may not get promoted next year. Their job description is to approve grants, according to the rules. Anyone who knows the rules can get the money — especially when they have Congressional contacts and know HUD officials personally. (Certain ACORN staffers have this capability to a high degree.)
4. Once the money is out the door and the perfunctory reports, audits, and follow-ups performed, everybody is home free! (except the US taxpayers).

Since appropriations for HUD grants are not targeted to specific entities, but rather specified in terms of rules and abstract conditions, anyone who knows how to play the game can get the money. If Congress passes a law saying “no grants to ACORN”, this means little, because the ACORN people can simply incorporate an entity with no visible ties to ACORN as the beneficiary of the grant. Later, when no one is looking, the money can be shifted elsewhere. HUD has a reputation for poor oversight of the funds it disburses.

Therefore, the only way to stop ACORN from getting money from the stimulus bill would be:

1. Abolish all grant monies in the stimulus act; and
2. Abolish HUD.

Neither of these things is likely to happen, so despite posturing by Congress to “cut off funds to ACORN”, those on the inside know that this is not about to happen any time soon.

In fact, one might say the HUD is the mother of ACORN. Here is what HUD has posted on its official government website about “community organizers”:

Being a community organizer is hard work - but it is so worthwhile! Whether you’re just beginning or you’ve already graduated to nonprofit status, we have something for you.

Why HUD is immortal

In order to explain why HUD is immortal, we need to look at a simple HUD block grant project: a sidewalk in Sandy, Utah.

	A HUD project: Sidewalk in Sandy, Utah

This picture, taken from the HUD website, shows the sidewalk in question.

Obviously, this is not a large scale project or anything that appears to be of vital national interest. Nor does it seem to be a project that is helping the poor and homeless — unless, of course, they plan to sleep on the sidewalk.

Sandy, Utah is a small, upscale community that is a suburb of Salt Lake City. Its politicians are primarily Republicans. It is a well-run city, winning the Distinguished Budget Presentation Award from the Government Finance Officers Association in 2008.

	The beautiful Sandy, Utah City Hall

Sixty percent of Sandy voters are registered Republicans. Less than 1% of the population are black. The dominant religion is Mormon. The crime rate is well below the national average. The city is growing rapidly.

The median household income in Sandy, in 2007, was $72, 699, compared to $55,109 in the State of Utah.

Why would a conservative, well-off and well-run community of conservative Mormons choose to accept a hand-out from the Federal government to build a sidewalk that they could well afford to build themselves?

The answer is simple. Politicians like to do favors for people that will vote for them. If the Federal government will give them money to finance these favors, why not take it?

In other words, the nice people of Sandy, Utah have been corrupted by Federal handouts from HUD. The ordinary voter doesn’t understand what is going on, barely aware of the purpose of HUD. However, elected politicians who intend to be re-elected understand very well.

This is the reason that HUD is immortal and why ACORN is protected. Obviously, when Congress voted to cut off funds for ACORN, the politicians understood full well that this was a sham to fool the people. You can’t kill ACORN without killing HUD and block grants — which professional politicians will never do

Barack Obama and ACORN

President Barack Obama has been closely associated with ACORN for years. Although the Obama administration has tried to deny the President’s close ties to ACORN that go back across his entire career, the Internet provides hundreds of sources citing Obama’s own admission of his intimate relationship with what a Congressional report now calls a criminal organization.

There are pictures of Obama as a “community organizer”, contemporaneous testimony of fellow ACORN workers of Obama’s involvement and the President’s own writings and speeches, admitting that he was “smack dab in the middle of it”, as in his 2007 speech to his colleagues at ACORN:

“I’ve been fighting alongside of Acorn on issues you care about my entire career. Even before I was an elected official, when I ran Project Vote in Illinois, Acorn was smack dab in the middle of it, and we appreciate your work.”

The historical record indicates that without the support of ACORN, Barack Obama might not have ever made it to the White House.

Not only are Congressional Democrats and Republicans unlikely to ever take any real action against ACORN, but Obama himself will continue to provide support, ostensible and hidden, to his fellow “community organizers”.

ACORN lives on …

Photo credits: “2006-12-02 Rotten to the core ..” by Henning on Flickr.

This followed his request to address a joint session of Congress on September 9, 2009 (preempting prime time advertisers) and preceded his scheduled hour-long appearance on the Monday, September 21, 2009, David Letterman show — the late-night comedian who recently gratuitously trashed Sarah Palin’s underage daughter.

	A hard sell for the main stream media ...

Although the precise count is uncertain, Barack Obama is, relative to his time in office, now the most publicly exposed President in US history.

At the same time, he is, paradoxically, the President whose prior record and personal views have been subject to less critical media scrutiny than any of his predecessors.

Important issues, such as the future of the dollar, the recovery of employment, a potential trade war with China, the future of NATO, and the outlook for inflation are now tied directly to Obama’s popularity.

In the minds of many, the lower Obama’s popularity, the more favorable the outlook for the future of the United States.

In turn, seemingly unable to change course and abandon his far-left, radical supporters, the President’s waning popularity depends now, almost entirely, on the continued enthusiastic backing of the Mainstream Media.

This quote from Bloomberg puts Obama’s Sunday Blitz in context:

The first person to appear on five Sunday shows was William Ginsburg, who was the lawyer for White House intern Monica Lewinsky at the height of the sex scandal involving then- President Bill Clinton in 1998. The last was Clinton’s wife, then-Senator Hillary Clinton, now Obama’s secretary of state. She hit the shows, including Fox, on Sept. 23, 2007, as candidate for the Democratic presidential nomination. The main topic: her plan for overhauling the health-care system.

Mainstream Media’s heavy burden

President Obama has one fundamental problem — the policies that he now seems to be following: radical increases in government deficit spending, higher taxes on the entire population, greater government intervention in the lives of citizens, and a sharp reduction in the national defense posture of the United States — are simply not consistent with the beliefs and wishes of the majority of US citizens.

	Media bias is now widely acknowledged ...

Furthermore, after a campaign that promised lower taxes for all but the very rich, a bi-partisan, all-inclusive and open government, the elimination of pork-barrel spending, the winning of the “good war” in Afghanstan, and policies that would lead to better economic times and racial harmony — the Obama administration, in less than one year, is demonstrating that the people were sadly misled on all counts.

The problem for Barack Obama is that the Mainstream Media is finding it harder and harder to prop up his Presidency.

Worse still, by blatantly ignoring Fox News in his Sunday Blitz, Obama, in effect, labeled the rest of the media as sycophants and boot-licks that could be trusted to blindly follow his lead — without respect for the truth. (Fox News is the most popular US cable news channel by a wide margin. Fox News proclaims its “fair and balanced” coverage of the Obama administration.)

The problem with Obama’s Sunday Blitz — for the Main Street Media — is that government-controlled media is never popular or long-tolerated in the United States. Today, to find out what is happening in US politics, people go to sources that are still considered to be independent of the government.

Fox News, the Wall Street Journal , and other vehicles of News Corporation, are now widely perceived as independent of the Obama administration.

	Countries with access to Fox News (Wikipedia)

Even Time Magazine — often seen as a lapdog of the Obama administration — was forced to put a picture of Glenn Beck on its cover, thereby recognizing the dominance of the Fox channel.

(A more indicative sign of the times would have been Obama’s now famous Joker picture (widely publicized on the Internet) and an acorn, as shown above, but Time is too far to the left and does not have the independence to take such a position.)

The Mainstream Media, without the trust of the majority of the people, will have a hard time living up to what President Obama expects from them.

A boost for FIU and US investigative journalism

On September 9, 2009, two young investigative journalists, Hannah Giles and James O’Keefe, on a budget of $1,300, released a hidden-camera video in which they posed as a prostitute and a pimp in order to elicit a response from ACORN, the huge, nationwide organization that performs lobbying and champions liberal and labor-oriented causes — closely associated with Barack Obama and the Democrat Party.

According to the article in Wikipedia:

In the edited video, two employees in ACORN’s Baltimore office appear to offer unethical advice to the two regarding home loans, tax evasion, and disguising the identities of underaged sex workers trafficked from El Salvador.

The two subjects were fired by ACORN after the video’s release. Similar videos followed, filmed in Washington, D.C., Brooklyn (New York), San Diego, and San Bernardino, California.

Following the release of the Washington, D.C. and New York videos, the Senate passed amendments to pending bills to exclude ACORN from Housing and Urban Development and Interior Department funding. The House of Representatives subsequently voted an amendment that denies all federal funds to the group. New York Attorney General Andrew Cuomo announced an investigation to ensure that state grants given to ACORN were properly spent on tax-preparation and loan-counseling services. Concurrently, New York City Council Speaker Christine C. Quinn suspended all ACORN grants sponsored by City Council members as Brooklyn District Attorney Charles Hynes conducted an investigation.

Hannah Giles is a 20 year old college student who became interested in what she describes as “exposing social injustice and abuse of power” when she attended a conference in Washington, D.C. in 2007. She is currently studying journalism at Florida International University and is a columnist for BigGovernment.com.

James E. O’Keefe III is [a 25 year old] investigative journalist and conservative activist. He was the Founder and Editor in chief of the The Centurion while attending Rutgers University.

	Florida International University ... "there be real journalists here"

Hannah Giles and James O’Keefe demonstrated that, despite the power and money of the Mainstream Media, two idealistic young people, on a shoe-string budget, can quickly humble a US President by exposing crime and corruption in an organization with which he has been closely associated.

This is a victory for US First Amendment Rights. What Hannah Giles demonstrated as a journalist student at Florida Atlanta University shamed the thousands of “journalists” whose alma mater is the prestigious Columbia University Graduate School of Journalism — the spawning ground for so many in the Mainstream Media.

	At 20, Hannah Giles already is in Wikipedia --- the world's largest encyclopedia

Hannah Giles and James O’Keefe also demonstrated that the younger generation is not “brain dead” and “in the bag” for Barack Obama.

Hannah Giles, 20 years old, gained more fame and respect than thousands of Mainstream journalists after a lifetime of work. One would expect other young journalists from non-Ivy League schools, throughout the United States, to follow her example.

This does not bode well for Barack Obama.

ACORN — The Seed of Evil

Although on Obama’s Sunday Blitz, only one Mainstream interviewer had the temerity to question him about ACORN — and then only timidly — Fox News’ Chris Wallace aggressively interviewed ACORN’s CEO, Bertha Lewis — stealing the spotlight from Obama’s boring, self-serving talks elsewhere.

	Congressional report tars ACORN ...

Chris Wallace, on the same show and at the same time, interviewed Congressman Darrel Issa (R-CA), ranking member of the Oversight Subcommittee on Domestic Policy, who had just released a report on a Congressional investigation of ACORN, entitled, “Is ACORN Intentionally Structured as a Criminal Enterprise?”, answering in the affirmative.

The links between ACORN — now associated with a criminal enterprise by a Congressional body — and Barack Obama, the US President, have the potential, in time, to bring down this president, just as Watergate destroyed Richard Nixon.

Glenn Beck, of the Fox Channel and on the cover of Time Magazine, successfully encouraged over one million Americans to descend on Washington on 9/12, driving Obama out of town to speak at a safe labor union rally, is now asking for current day “deep throats” to come forth and spill the beans on Obama and corruption.

The media that Obama cannot control (yet), the Internet, has thousands of blogs, studies, and reports that describe in detail ACORN activities and its links to Barack Obama, the Weather Underground, the Service Employees International Union, and other radical organizations and “community organizers”.

During Obama’s Sunday Blitz, only one interviewer asked Obama about ACORN. Here is the exchange:

STEPHANOPOULOS: How about the funding for ACORN?

OBAMA: You know, if — frankly, it’s not really something I’ve followed closely. I didn’t even know that ACORN was getting a whole lot of federal money.

STEPHANOPOULOS: Both the Senate and the House have voted to cut it off.

OBAMA: You know, what I know is, is that what I saw on that video was certainly inappropriate and deserves to be investigated.

STEPHANOPOULOS: So you’re not committing to — to cut off the federal funding?

OBAMA: George, this is not the biggest issue facing the country. It’s not something I’m paying a lot of attention to.

“Inappropriate” behavior? “Not something I’m paying a lot of attention to?”

This gives new depth of meaning to the word “disingenuous”.

We’ll see what happens from here …