6 Things to Look for in Obama’s Speech
I’ll be watching the President’s speech instead of the opening night NFL game and listening for several key factors. In order to decipher the various proposals, I encourage you to judge whether they meet the following criteria:
1. Jobs. If you were leading a major corporation, does the proposed solution either entice you to hire, or offer the confidence that you have some certainty with which to make long-term decisions? As an example, a 2% reduction of the employer portion of FICA through the end of 2012 would provide extra funds to employers, but may not urge then them to hire additional employees.
2. Spending. Same scenario with you as CEO: Would the proposal encourage you to employ some of the $2 trillion you and your peers have in cash?
3. Is it temporary? Temporary solutions like cash for clunkers or a one-year tax credit for hiring an unemployed person will not fix our long-term problems. As you think about confidence, when programs are in place for a longer term, then we have a more predictable environment in which to make decisions. The Fed did something similar two weeks ago when they announced that short-term interest rates would remain at very low levels for the next two years. Whether that benefits us or not (which depends if we are borrowing money or wanting income), at least we know what the interest rate environment will be like and can plan accordingly.
4. Is it dysfunctional? Rumors abound that Obama may suggest a refinancing program to allow homeowners with little or no equity or bad credit to refinance at these historically low mortgage rates. It just seems ironic that within days of suing the major banks for bad loans, the US Government would push for refinancing for those with troubled loans.
5. How will our investors react? As a country, we have outside investors still lending to us to keep operations running. Will these proposals cause further angst among our global creditors? Sure, we’re Americans and we don’t care what they think – until it impacts us financially.
6. Does it need a vote from Congress and can it pass? Obama and Bernanke are running out of strategies that can be implemented without Congress – though they will keep trying. With each new tactic, judge whether it can be implemented without Congress and if not, will it pass? An announcement of a major tax overhaul would be a positive move, but it may wind up becoming Debt Ceiling Debate, Part II.
I hope that there are some great surprises announced Thursday, but unless what is said passes some or all of the above tests, we’ll find ourselves waiting until after the 2012 election to see any real action.