Does Barack Deserve a Break?
If you read the paper this morning you probably saw something like this:
“New Obama Plans: ‘Spend Our Way Out’ of Downturn” as The Associated Press, the global journalistic standard, put it. Oh… how the pendulum swings.
As Bill Bonner has said, “We have always had fondness for minstrels, misfits and lost causes.” With Mr. Obama’s approval rating down to 47% — the lowest ever recorded for a president’s first year — the majority seems to think he is at least one of those three. He’s not broken down enough to garner our affection, but we begin today by noting that the story isn’t as simple as the media spins it:
The White House did not announce yesterday that “the nation must continue to ‘spend our way out of this recession,’” as the AP and Matt Drudge — pathetic placaters to the mob — quoted out of context. Here’s what Obama actually said, which is far more interesting:
“Even as we have had to spend our way out of this recession in the near term, we have begun to make the hard choices necessary to get our country on a more stable fiscal footing in the long run. Despite what some have claimed, the cost of the Recovery Act is only a very small part of our current budget imbalance. In reality, the deficit had been building dramatically over the previous eight years. Folks passed tax cuts and expensive entitlement programs without paying for any of it — even as health care costs kept rising, year after year. As a result, the deficit had reached $1.3 trillion when we walked into the White House. And I’d note: These budget-busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility while opposing our efforts to reduce deficits by getting health care costs under control. It’s a sight to see.”
Politics as usual… but the man’s got a point.
The executive branch also announced that a $175 billion chunk of TARP leftovers will be used to pay down the budget deficit. We would have rather seen $315 billion — the balance of unused bailout bucks — used that way. (Instead, $140 billion will get bumped to Congress in what will basically become a stimulus slush fund.) And if you think about it, this move is a lot like taking money out of one pocket and putting it in the other… but for chrissakes… we have to start somewhere, and soon.
“I expect that this huge Keynesian experiment will end in tears,” opines Dan Amoss, “and policymakers will be forced to make unpopular decisions — like hike tax rates or cut spending — by the end of 2010.
“I disagree with the stock and bond market consensus, which believes that government spending and the Fed’s money printing will lead to sustainable recovery in private sector capital spending and employment. If current policies remain in place, I expect more of a late-1970s environment, in which flight out of paper money and into tangibles was the dominant investment theme.
“The Fed and Treasury can create new claims (government bonds and paper money) on real assets, but these institutions cannot control how the private sector adjusts to this flood of new claims . If the private sector no longer wants to hold money or government bonds as aggressively as it used to, we could soon see rising prices in many ‘unwelcome’ markets — like food and energy.”