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.