Monday President Obama announced a $50 billion infrastructure stimulus plan that he hopes will create new jobs during this slow economic recovery. He also proposed creating an "infrastructure bank" where the government would decide which projects are worthy of federal funding. Having the federal government take over more control of a segment of the private sector is concerning. The infrastructure bank will be on top of the federal government's additional control over health care and the automobile industry. Historically, projects/expenses that are controlled by the government sector have been done in a less efficient manner than the private sector.

As the below chart details, the amount of total treasury debt, nearing $14 trillion, now surpasses the size of the U.S economy as measured by GDP. This trend in the debt is unsustainable and should be addressed sooner versus later.

With a multiplier of 2, $50 billion in the first year is 0.3% on the unemployment rate--and it's not clear if we can ramp up an extra $50 billion of infrastructure spending in the first year.
Don't get me wrong: boosting federal infrastructure spending is almost certainly a very good idea. Tax cuts for "small business" much less so--unlikely to reduce wedges between social and private returns on a micro level, and likely to have a low bang-for-buck on the macro level.

These two charts are arguably the most important of all the charts I've shown over the years, since they are predicting what could prove to be the biggest political realignment of the American electorate in modern times. It's going to begin in just two months, if not sooner, and it could have an extremely positive impact on the outlook for the economy and the equity market.

Barack Obama's Approval Index, according to the daily Rasmussen survey, yesterday reached a new low of -23, while a record 47% now strongly disapprove of what he's doing. Even the Gallup polls show that a clear plurality of people disapprove. Say what you will—he's out of step with the country, he's inexperienced, he's poorly advised, he's a socialist at heart (my view all along)—he's failing on almost all fronts, and the Democrats are going to pay a huge price for this at the polls. If Obama is going to leave a legacy, it will be that he was The One that galvanized the Tea Party movement, and the Tea Party is the change on the margin that is making all the difference. Obama has left absolutely no doubt about what the Democratic Party stands for—bigger, more intrusive government—and the Tea Party's main objective is to reverse that. Already it's very likely that the Democrats will lose the House (Intrade places the odds of a Republican takeover at 70%), while some (e.g., Dick Morris) are making the bold prediction that they will lose the Senate as well.

The charts above over the last 12 months of: a) the Bloomberg U.S. Financial Conditions Index (data here) and the S&P 500 Volatility Index (data here) show that the financial markets went through a rough patch in May, June and July of slightly elevated risk, but have now recovered to the conditions that prevailed in the spring. The recent improvements in these two daily market measures of risk should probably mean that the chances of a double-dip recession are much less likely now than at any time over the last four months.