Kudlow's Take, Santelli's Law

President Hope-a-Dope is continuing to spook the markets. Which is not to discount the lousy existing home sales data (though this didn't surprise anyone). The overall theme is that there is a continuing absense of detail characterizing the administration's economic policy musings. This lends credence to the suspicion (which is reasonably based on his history as a Chicago racial agitator and the most leftist - according to Roll Call - member of the U.S. Senate, as well as his campaign rhetoric) that this guy is the Mugabe wannabe his biography suggests.

Larry Kudlow divines from the speech last night a likelihood of rising marginal tax rates, as well as a costly new regulatory regime (e.g., cap-and-trade, etc.). Steve Leesman then chimes in that he doesn't see the big deal about a two percentage-point increase in marginal rates. I do. The problem is appetite for risk. And that gets to the heart of the matter with this administration: it's not doing anything to increase anyone's appetite for risk, and doesn't seem to care.

Rick Santelli has been terrific through this period. To Leesman's sympathy with the notion that deficits can be reduced by raising marginal rates, Santelli expounds what I will now dub "Santelli's Law". "Deficits come down when the economy generates revenue. That's the dynamic." Santelli continued on this theme to describe the concern of traders as he sees it: "How deep is this (deficit) hole going to be, and are we going to be able to pull ourselves out next time?"

The problem we are going to be facing over the next several years, very simply, is how a program of massive spending is going to be financed, especially given what I will refer to as the "China Syndrome" (a matter that will be discussed in another post shortly). If we don't "generate revenue", we're in big trouble. That means we have to grow. And we're not seeing anything from the administration that is truly pro-growth. Congress is comprised of clowns, communists, and incompetents, and the markets know it (when Barney Frank and Chris Dodd are chairing the committees before which Ben Bernanke testifies, how can you feel optimistic?). President Mugabe-Wannabe is "hostile to capital" (per Larry Kudlow), and the markets know it. Hence, Louise Yamada's prediction (see "Scary Charts", December 3, 2008) is looking more likely. Have a nice day.