John Berlau to Moneynews: US in ‘Big Danger of Regulatory Recession’

Thursday, 28 Feb 2013 11:08 AM

By Glenn J. Kalinoski and Kathleen Walter

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The United States is facing the danger of a regulatory recession, according to John Berlau, a senior fellow for finance and access to capital at the Competitive Enterprise Institute.

“Regulation is a hidden tax in mandated spending,” Berlau told Newsmax TV in an exclusive interview.

“There was a mini-start last year with something called the Jump Start our Business Startups Act where the smallest companies, they pared back some of the SEC regulations and you got some more IPOs. If they did that in every department, you’d see the economy start growing again,” said Berlau, also a Newsmax contributor.

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He further outlined the threat regulation poses to prospects for economic growth.

“You can figure that Dodd-Frank is 2,500 pages; Obamacare is about 2,500 pages,” Berlau said. “In Dodd-Frank’s case, only one-third has been implemented and some of these were put off before the election. If you look at Obama’s track record, not only were the regulatory costs higher than in the Bush administration, but three times as high as the Clinton administration.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

The prospects for providing credit may become problematic as a result of Dodd-Frank.

“In Dodd-Frank … you’re actually getting banks who are not making mortgages,” he said. “Who knows what the ripple effect for credit is going to be. It also shows its mainstream banks and credit unions more than Wall Street banks," he said.

“That’s up to Congress and the president. They should be as serious about sequestering regulations as they are taxes and spending. The good news is it can be reversed.”

Berlau was asked about the Obama administration’s doom-and-gloom predictions regarding spending cuts that will result from sequestration.

“George Will … pointed out that when spending went down 40 percent after World War II, all the Keynesian economists like Paul Samuelson pointed out disaster … when in reality we had a postwar boom,” Berlau said. “Government spending and certainly taxes — when they want to raise taxes to cover the spending, borrowing as well — will crowd out to an extent private spending. And it gets even worse when you put all these regulations on there," he said.

“If you have spending cuts plus regulatory relief, it could actually grow the economy. People are not going to invest in America that becomes Greece, or has a reputation for being passive with debt and printing money.”

Meanwhile, the Federal Reserve continues its program of quantitative easing, in which it spends $85 billion per month on mortgage-backed securities.

“It can’t end soon enough,” Berlau said. “It’s having all sorts of damaging effects as far as creeping inflation, some of which doesn’t show up in the numbers. Remember the official inflation figures don’t even include food and oil.”

The low-interest rate environment was also criticized by Berlau.

“Zero interest rates [are] hurting a lot of savers,” he said. “A lot of seniors who are saving, when they get zero on their money … some of the Keynesian economists are saying people shouldn’t save. They should spend. That’s been the Obama administration, Ben Bernanke’s view. People forget that saving is delayed consumption. You can’t spend anything if you don’t save anything. Individual Americans don’t have a printing press like the Federal Reserve, so it’s a dead weight on the economy rather than being a stimulus.”

Berlau also offered his thoughts about the new Treasury Secretary Jack Lew.

“The good news for Jack Lew is it’s hard to be worse than Tim Geithner,” Berlau said.

“Does he want to play partisan games and scare people about the sequester like his boss has been doing? Or does he want to actually look at things like paring back Dodd-Frank? Dodd-Frank gives the Treasury a lot of power," he said.

"If he wants to go and pare back and make sure these regulations are subject to cost-analysis and delay the ones that are going to be the most destructive, then there’s a chance we could build something and the economy could grow more. It’s hard to hold back the American entrepreneur. So I’m still hopeful.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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