It is stunning to see such a reversal in the Democrat’s fortune in the course of one year.  As the electorate sees the hopes and dreams degenerate into deficits and taxes, the administration will be inclined to spin the outcome into something other than the rejection that it is.

It is clear that the Democrats misread the mandate. But what should they have done?

Clearly the financial system needed reform. Obama could have started by addressing problems in the banking and financial system that would have clearly enjoyed bipartisan support, and would have been seen as a consensus builder.

The administration could have addressed unemployment with tax credits rather than reckless deficit spending.  But when the first program out of the box is to force unions down the throat of business, trample bankruptcy law in the case of GM, pass a hugely flawed Cap and Trade bill, and then force and even more flawed Health Care bill riddled with blatant bribes, then he has created such political uncertainty that economic remedies are effectively neutered.

But the voters’ rejection is as much about style as policy. The unmitigated partisanship, arrogance and deafness to public concerns has pissed off the electorate.

The president prefers making grand speeches to the dirty process of passing legislation. He may have promised change but what we got were old leftists exploiting a crisis to pass unpopular legislation.  His call for openness was greeted with contempt by his own party leaders.

If I were a Democrat I would place a large portion of the blame for this destructive hubris at the feet of Nancy Pelosi and Harry Reid.  The party picked two horribly divisive leaders. If the Democrats hope to save the ship they need to mutiny and get better captains.

The poor business environment is driving down wages and costs, but inflation looms because of the government’s record deficit.  Record low interest rates are not having the desired effect because the recession is more due to political policies than economic. Business owners are not hiring and growing despite low interest rates because pending legislation such as the Union Card Check bill, Cap and Trade, healthcare reform substantially raises their risk of and costs.

Low interest rates weaken the dollar causing industrial commodity prices to rise.  If the Fed raises interest rates, especially in the midst of a record high unemployment, they risk driving business into a double dip recession.  If they keep interest rates too low for too long they risk creation of another bubble.

The Fed is betting that they can time the change in interest rates and the money supply so precisely that can avoid another recession and inflation. They have failed at this before with less uncertainty and extremes in the market.

The Fed may need magicians rather than economists to succeed this time.

Sometimes optimism and contrarianism can complement each other.   Here is a thought.

The health care bill is so unpopular and causing such outrage that other damaging proposals like the Union Card Check bill and Cap and Trade may have no opportunity at all.

By staking all their value on the health care bill which is years away from being effective, and filled with provisions that may not pass Constitutional muster, they risk having it overturned by the new Congress if the Democrats lose substantial representation.

The Democrats may have pushed too far which will erode their power.  A year ago the Republicans were badly whipped, and the Democrats talked about a 50 year reign. Now polls have the Democrats down substantially. The promise of a new era of bipartisanship has ended with the most radical bill yet passed in the Senate with not a single Republican vote.  The promise of transparency has become just another hollow and unfulfilled promise.

The independents that elected Obama have no party loyalty and will turn much quicker than the committed party members.

All of this may be factored into market expectations. The net effect of overreaching arrogance may a far shorter reign than the administration expected.

If the Democrats had been more inclusive and centered they could have gotten more Republican support and we would have possibly ended up doing more damage to the economy than their extreme tactics have caused.

By far the most retweeted posting I ever posted

50 reasons to Oppose Cap and Trade- great article! http://bit.ly/4bN7D0

10 surprising facts about American Health Care http://www.ncpa.org/pub/ba649

Now who are the deniers http://bit.ly/7TxYjb

Obama’s has the least private sector experience of any president since 1900- by far- http://blog.american.com/?p=7572

Evita Obama http://bit.ly/UF6EU Michelle Obama has 26 attendants at a cost of $1,750,000. Laura Bush made do with 16.

One of my  colleagues in the steel business has closed his business. Like our business his was started by his father in 1955. Ours was started in 1956.  He had about the same number of employees (70)  a year ago as we did. As he stated in his press release he was “unable to get small enough fast enough”.

They had a good reputation and were smart and experienced.  He was unable to get financing to stay open. The decision was difficult and painful and unfortunately inevitable.

There are other examples of strong reputable companies that had to sell under arduously similar circumstances.  There will be more to come.

This is why I see unemployment climbing.  During the first wave of unemployment the large publicly traded companies reacted quickly to the market turndown.  But those of us who are not responsive to a publicly traded share price reacted slower; we took a wait and see attitude. A year later this is what we see:

There is no private construction on the market. Bids and backlogs are lower than ever.  Those few who are left are bidding without a profit; just to keep from further layoffs. No profits mean no taxes which means bigger deficits.

Everyone is waiting to see what will be the results of Cap and Trade, Card Check and Health Care Reform, and how it will affect them.  Capital purchases and new hiring are dead. At a time when the economy needs certainty more than anything this administration has sought the most untested , radical and massive changes we have ever seen.  And now he wishes to hold public hearing on how to stimulate job creation.  This president is clueless and the fact that his cabinet has fewer members from the private sector than any in history only makes him even more clueless.

Those of us who took a wait and see approach will generate another wave of layoffs. It will not be the thousands from a single large plant that makes national headlines.  It will be a dozen here and a few there as the small businesses across America face the reality.  Some will throw in the towel and just close; some will be forced to close or sell at bargain prices because of a lack of credit, others will finally get small enough to survive.

Either way private wealth  (and the taxes it generated) will be destroyed and unemployment will continue to climb.

One of the commonly acknowledged grave mistakes of the response to the Depression of 1929 was the Smoot Hawley Tarriff, which largely killed foreign trade in an effort to save domestic jobs.  Not only did it make the depression worse it created many of the global economic conditions that led to World War II.

The insidious cap and trade legislation threatens to make the same mistake. Acknowledging that the bill will kill American jobs our vapid leaders’ response is to use trade restrictions to penalize countries that do not comply with our plan to control the weather . This can only make a bad economy much worse.

While President Obama has criticized American arrogance in the field of foreign affairs, what could be more arrogant than America, who has consumed and produced her way to the top of the economic pyramid,  now seeking to deny the resources to poorer countries to grow their economies.

We should expect retaliatory tariffs that will hurt our exporters and as other countries develop their own middle class, they will be less and less dependent on American consumers.  If other countries do not follow our cap and trade model our efforts will have practically no effect of climate temperatures.

Obama considered previous administrations arrogant for trying to impose political systems of freedom and democracy on other nations.  He is even more arrogant for believing he can control global tempreatures, and then trying to force  other nations to comply with a very uncertain and questionable program with trade restrictions.  We will be the greater victims if this policy.

Obama has already announced plans to increase the maximum tax rate to 40% for those who make over $250k. He has also proposed elimination of the ceiling on social security taxes and now the health care bill adds a tax on employers who do not provide health insurance. If you combine this basket of tax hikes with the hikes in taxes from states like California and New York  to avoid their own meltdown and you have a substantial change in the taxes levied on small business owners.  Add  substantially higher minimum wages, enacted long ago but now taking effect in the most severe recession in decades, and higher proposed capital gains taxes. And then consider the vast uncertainty of the Rube Goldberg system called Cap and Trade and the impact of some version of the strongly pro union card check bill will have on business thinking.

You have to be an economic moron not to understand that this will sharply curtail economic growth, investment and hiring. Any of these changes would have an impact, but the collection of such disincentives has a staggering impact on the decisions of small businesses.

Those who are able will shut down and just retire early even if they have to reduce their lifestyle to do so. I hear this from small business people consistently.  With the last kids off to college they speak of selling their business and moving to their beach house.

These same business people see their risk reward opportunity to be so poor now that they would rather sit on their money in low yield money funds that risk it in expansion only to see 70% of it taxed away IF they are successful. That is why there is over 3.5 TRILLION dollars sitting in money market funds.

Many will adjust to the new looter mentality and do the best that they can. I am sure that lawyers and accounting advisors will seek and finds loopholes and other non productive means to protect private wealth. Those who are sophisticated enough will seek foreign opportunities.

Unless this direction is changed unemployment will soar and economic growth will stagnate for a long time.