An Intervention for Obama's Debting

Thursday, July 16, 2009

It’s time to hold an intervention for Obama. We need to get him into Debtors Anonymous as quick as possible. With the economy on the ropes and hopes of economic recovery bleak, Obama has decided it’s time to spend more money, a lot more money. Obama’s health care will cost $1 trillion dollars. I’ve long been warning that our options available for stabilizing the economy have been dwindling over the last few months and new developments have been buried under the news of the Sotomayor confirmation hearings. Obama’s health care initiative was always a bad idea, but given recent economic news, moving forward with the legislation has never been more foolish.

An example of the program Obama should follow thanks to SNL.

Let me begin by summarizing the White House’s and Fed’s strategy for stabilizing the economy. The Fed has slashed interest rates to zero to lower the cost of borrowing and boost capital expenditures. At the same time the White House has been spending and sending trillions of dollars to political cronies in boxes with blue ribbons. To fund Obama, the Fed has the money printers working overtime. In short, the policy is to expand the money supply as large and fast as possible. The effects of which create inflation. Generally, no one worries about inflation during a recession because prices are usually deflating.

Great, the boring part of the post is out of the way.

So the economic wisdom in Washington has been, we can keep the economy limping along so long as we keep spending. Sounds like a party when you’ve got your hands on America’s credit card. No one seemed to ask, “What happens if things get worse?” You can’t cut interest rates when they are zero (Hat tip to Nick). Two months ago, Paul Krugman would have responded, “Well, we may not be able to cut interest rates, but since there is no such thing as inflation, we can just keep spending more.” Last month, we saw the largest increase to the CPI in a year, a jump of .06 percentage points to .08. Normally, this wouldn't be cause for alarm except, inflation is not supposed to occur when the economy is still retracting. The FOMC came out this month and is predicting that it will continue to retract throughout the rest of the year.

Let me sum this up for you. We can’t cut interest rates anymore, because they are at zero. We can’t continue to deficit spend, because our economy is so sensitve to inflation, that inflation is increasing when it shouldn't be. Inflation would have a terrible impact on people in the middle of an economic recession and a time where 16.5 percent of people are unemployed or underemployed. How are we going to keep pushing those great Obama policies without tacking onto the deficit?

Congressman Rangel gave us the answer earlier this week. We are going to raise taxes and we are going to raise them so high we are going to beat out Clinton. Everyone in the left, please take a sigh of relief. It looks like we may have Pay-Go. It looks as though Obama is not going to blindly spend our country into an inflation avalanche that buries us all (he already has). Oh, I forgot to mention that dramatically raising taxes causes higher unemployment (see my post on tax incidence). What was that figure I said again? Yes, 16.5 percent unemployed and underemployed. The best part is that raising taxes has a negating effect on stimulus when your strategy is deficit spending, which happens to be Obama's plan. So Obama’s first major bill was to stimulate the economy and his second major bill will be to cancel his first bill out.

It’s not too late to stop the madness. Please support the Obama spending intervention and tell your representatives to oppose all Obama spending sprees for the rest of his Presidency. Remember, when the addict is the President, they don’t hurt themselves, they hurt everyone else around them.


Craig said...

I think Eric Schmidt knowns better than you do.

July 16, 2009 at 5:27 PM
blackandgoldfan said...

And I thought my husband was bad with a credit card...Jeez!

Stock tip: Buy stock in pepto. The way things are going, EVERYONE is gonna be chugging it.

July 16, 2009 at 7:31 PM
Joie said...

excellent post. i have been seriously wondering about the inflation factor of all this. UGH!!!

July 16, 2009 at 7:37 PM

@ Craig - Please send Eric over for a debate and we'll see (jk). You are certainly entitled to your own opinion.

@ Blackandgoldfan - Excellent stock tip

@ Joie - Thanks, glad I can help. If you have any specific questions I'll do my best.

July 16, 2009 at 10:56 PM
Eman said...

In what context does "We have to keep spending money or we'll go bankrupt" make any sense?

When will the American Voters see what a HUGE mistake this was and what will Republicans do to take advantage? As I wrote in my blog this morning, they keep calling and asking for money. Got yet another call last night from the GOP asking for money. Their sense of timing is just absurd. I’m sitting in my chair watching Republican senators getting ready to vote FOR a Supreme Court nominee who had show herself to be a liar and a bigot, because, as the puppet press would have use believe, her nomination was a lock, and any vote against her would show Republicans to be bigoted and they would lose Hispanic votes.

What tripe.

So I hung up on them. There’s a first time for everything.Many times I have given money and many times I have not. But I always talked with them and the caller at least seemed to listened.

Not this time. This time I wanted to send a message loud and click.

I will not support these wimps. I can’t. Until I see some “stones” up on capital hill I won’t be sending my hard earned money.

July 17, 2009 at 9:50 AM
Mark Meloy said...

In what context does "We have to keep spending money or we'll go bankrupt" make any sense?

It makes sense to an economist. an economy is dependent on, more than anything else, activity. Something needs to stir the pot, therefore a stimulus package is a necessity. The issue with the first one was its size. It was not large enough. Currently, most Americans have hunkered down, hoarding whatever cash they can find. since so much of the nations wealth is controlled by the top 2 percent, much is out of circulation. In theory, Reaganomics might work, except the rich failed to let it "trickle down." So now that the rest of the country is in difficult times and trying for their piece of whatever is left after the rich have raided the cupboards, we need something to get it going. Therefore, "We have to keep spending money or we'll go bankrupt."

July 17, 2009 at 5:49 PM

@ Mark - I am an economist and right now, that makes no sense.

I don't want to say that deficit spending cannot ever help jump start the economy, but making this your policy when the government was on the bring of a liquidity problem? Thanks Bush!

The fact we are seeing inflation right this moment is a huge, giant red flag. We shouldn't be. Spending more is a bad, bad, bad idea.

To correct you, the problem right now is not that the rich are holding onto their money. Sorry. I've disproved that already. Bloomberg has already reported that in this recession incomes have increased because of Obama's stimulus. All that has really been used of the stimulus so far is transfer payments so the underpriviledged are seeing their incomes rise, but their savings rate went through the roof. Meaning, they aren't consuming.

Now a little recap, Bush tried a middle and upper class consumer focused stimulus and now Obama has tried a lower class consumer focused stimulus. One only comes to the conclusion that the stimulus is not big enough if you are busy looking at graphs and inserting the amount of stimulus for X in a mathmatical model that is based on the assumption that people will not increase their savings rate (which is what is happening). In truth, consumer focused stimulus is not going to get us out because people are unemployed or afraid of being unemployed and they will not spend until things get better. Employment is a lagging indicator so consumer-focused spending makes no sense.

That's just one of two or three reasons why this stimulus won't work.

July 17, 2009 at 7:55 PM

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