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A Modest Agenda for a New GOP Congress

What the Republicans could do with a majority that would give certainty to businesses, calm the markets, and reignite the economy.

by
David H. Horwich

Bio

October 27, 2010 - 12:00 am
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Furthermore, Congress would do a world of good by examining the overwhelming volumes of regulations that every business operates in. Countless examples of ludicrous hoop-jumping exist in the real world that have cost, profitability and, at the end of the day, employment consequences. In my world (corporate finance), it would be very useful for Congress to re-examine the several thousand page Dodd-Frank legislation and roll back provisions that don’t add any meaningful protections to consumers. For example, my firm generally markets financial instruments or M&A transactions to institutions or corporate investors and holds no individual retail accounts, yet we are subject, generally speaking, to operating as if we did hold retail client assets.

Finally, the liberal establishment of significant additional regulation and cost (I’m thinking, particularly, of cap-and-trade) without any demonstrable or tangible benefit to society or the environment should be scrapped. Any bill that is pending in either the House or the Senate should be proactively killed to clear the field for business to operate.

The size of the national debt is so large and staggering that it defies the ability to get one’s mind around it. It is exceedingly destructive to both the national economy and to current, and future, citizens’ well-being. To say that we’re spending now to pass on to our children and grandchildren understates the case by many factors. In just the past two years, the deficit run up by the Obama administration exceeds the national debt run up cumulatively over the preceding history of the United States.

Clearly, this can’t continue.

With interest rates being held low by the Fed (Treasury Bonds are at 2.5%), the size of the debt masks the future destructiveness of more “normalized” interest rates required to service the debt. Imagine if rates for 10 year Treasury bonds were trading closer to 6%, the eyeballed average of the bellwether for the past 45 years; more to the point, imagine if rates were closer to 12%, where they were during the destructive Carter inflation years and a more likely scenario should the Fed resort, again, to turning the printing presses on full-steam. The catastrophe would be enormo — and immediate.

One of the best things I have heard from putative Speaker John Boehner is that he intends to roll spending back to 2008 levels and also to pass smaller (e.g., not omnibus) budgets for individual departments. He also intends to introduce sunset provisions for every new legislation or department to ensure regular examination. If successful, this should lead to limited additional deficits and perhaps even a reduction in the size of the Federal government. We can’t hope too much for the last.

If Congress is successful in rolling back spending and limiting further growth insofar as the national debt is concerned, and, if Congress succeeds in extending the existing tax rates, several good things can happen. While the national debt is staggering and unwieldy, growth in the economy can provide the ability to retire the debt over a lengthy period of time. It would be a very good idea for Congress to mandate 30-year notes be floated after imposing discipline on spending (providing confidence to the bond markets that inflation won’t eat away at the principal value).

Furthermore, a signal is sent when additional outrageous deficit spending is curtailed as helping the value of the dollar in the currency markets. Contrary to a misguided trade policy that favors a weak dollar to improve the ability to export, a strong dollar provides worldwide confidence in trade and interrelated economies.

Finally, clearing away cost and regulations and taxation at all levels will dramatically improve the employment situation, creating jobs and adding to wealth, incomes and tax revenues.

In the long run, there are many other policies that a serious Congress will need to deal with, such as entitlements (Social Security and Medicare, to start); far too powerful government worker unions that have too much influence on policy; clearing out entrenched bureaucracies; market-based education policies that push decision-making to local levels; enacting constitutional amendments that subject elected officials to the same programs, rules and regulations that the rest of us out here in the hinterlands must live with.

And, I’m sure, readers here can think of a few of their favorite outrages to add.

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David H. Horwich is a managing director at the investment banking firm of PGP Capital Advisors, LLC in Los Angeles.
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