Raining trillions from heaven

President Barack Obama would lose his quiet struggle against nicotine addiction if he dispatched the Secret Service to score him a carton of Camels. So why is Obama fighting Washington’s addiction to debt by…sinking Washington deeper into debt?

On Monday, Obama correctly criticized Republicans as the "folks who presided over a doubling of the national debt…" Former President George W. Bush, largely in cahoots with GOP lawmakers, amassed $3.35 trillion in deficits from 2002-09. This disgraceful legacy has crippled Republicans from coast to coast and relegated the party to fiscal therapy for the foreseeable future.

But rather than correct the GOP’s recent debt-swelling ways, Obama is exacerbating this mess.

"Obama pledged to fix what he considers Republican governing errors, not double down on them," Heritage Foundation fiscal analyst Brian Riedl wrote Wednesday. "Adding the ‘stimulus’ bill to a realistic budget baseline yields a projected 2010 — 2017 cumulative budget deficit of $8.4 trillion – 2.5 times the size of President Bush’s deficits over the equivalent eight-year time period."

The $789 billion Obama-Pelosi-Reid-Collins-Snowe-Specter spending blitz is a bargain compared to the $2.25 trillion in fresh bailout funds that Secretary Timothy Geithner unveiled in the Treasury’s Cash Room Tuesday. This will buy America "new programs and extraordinary action," Geithner promised.

Congress must pass an omnibus appropriations bill before March 6. Cost: $400 billion.

And don’t forget the regular federal budget, which funds FBI, FDA, FTC, and hundreds of other beloved acronyms. It likely will weigh in at more than $3 trillion.

If all this stimulus worked — from 2008’s $168 billion in tax-rebate checks to the $13.35 trillion bailout-and-nationalization orgy that turned Bush’s final days pornographic — the economy would be hot and bothered. Instead, this constant stimulation functions like Viagra in reverse.

Whether you applaud this spending or consider it the latest shambles erected by America’s reckless political class, the question remains: From where will all this money come?

"There is no tooth fairy," economist and author Stephen Moore told the Manhattan Institute Wednesday. "That’s the fundamental fallacy of the Keynesian model. The money has to come from somewhere."

"The government cannot put into the economy what it first did not take out," said Americans for Tax Reform’s John Kartch. "That would be like scooping up water from one side of a lake, dumping the water into the other side of the lake, and announcing that you’ve just filled the lake."

Try this Washington accounting right now: Take your house keys from one pocket and transfer them to the other. Congratulations! You now own two homes.

To fund his continuation of Bush’s breathless spending, Obama probably will shake the tin cup and pray that lenders come running.

"Over two years, Washington is set to borrow a staggering $3.5 trillion from a shrinking global savings pool," Riedl explained. But who has $3.5 trillion these days? U.S. and foreign banks are gasping. Europe’s governments are wheezing. What will happen when China is too winded to attend Treasury’s bond auctions? Either the Fed will buy those bonds, re-enacting the aforementioned house-key trick, or the Treasury will decorate its increasingly dreary bonds by offering investors higher interest rates. Steeper interest, of course, will slam the economic brakes just as Uncle Sam floors the accelerator.

Washington also could raise taxes. This foolishly would siphon the gas tank before refilling it, while inefficiently spilling several gallons on the ground.

Why not just print enough money to pay these bills? If that worked, Zimbabwe’s annual inflation would not stand at 231 million percent.

What will happen when America’s gargantuan debt is revealed as little more than government-issued Kleenex? Dr. Larry Parks of the Foundation for the Advancement of Monetary Education warns that "our monetary system is unstable and will blow up, because there is no longer any market-based self-correcting mechanism for increasing financial leverage, increasing debt, or increasing the money supply."

It’s almost enough to make one start smoking.

(Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University. E-mail him at deroy.Murdock(at)gmail.com)

8 Responses to "Raining trillions from heaven"

  1. griff  February 13, 2009 at 10:16 am

    I seem to remember Obama promising to cut spending, but so far the printing press is working overtime. At the very best, this will temporarily keep us afloat, but they’re really just delaying and worsening the crash when it comes. The chickens will come home to roost, having gained considerable weight in the meantime.

  2. AustinRanter  February 13, 2009 at 11:16 am

    Griff,

    European banks are now revealing that they own about £16 trillion of “toxic assets” that they’ve amassed over the past years.

    Warren Buffett believes that our nation’s banks hold a much higher number in bad assets than has yet been disclosed. Our lending institutions are not fessing up. The Feds are damn sure not fessing up.

    However, an interesting article popped up yesterday (2-12-09) in the NYT, in which the author, STEVE LOHR, begins his take on the situation by saying, “Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.”

    We have a Congress who are committed to the corporations and will no doubt continue to protect the corporations’ abilities to keep the doors open. But, Congress has devised that they can only retrieve the money that is poured into the corporations…and not be a partner to anything above those loans. An obvious problem that is lingering in the financial future of this country still chimes out that our government will never collect in full from any lending institution…or even a reasonable portion.

    The lending institutions…who, like the government depend on voter apathy, forgetfulness, but way more than that…their ignorance about both finanical complexities of the industry…and politics.

    I will continue to scream out, “I don’t get the bailout provisions”. The whole scheme just doesn’t jive.

  3. Thomas Bonsell  February 13, 2009 at 5:53 pm

    It’ so easy to blast a program before it’s even started. Let’s see how another ‘simulus” worked. It was called “the New Deal” and the statistics are present in the following article posted Thursday at OpEdNews.com:

    ‘Failure’ of the New Deal, Part II

    On Tuesday I posted a diary
    (http://www.opednews.com/populum/diarypage.php?did=12078)
    on what Republicans call the ‘failure” of the New Deal on the Great Depression. It dealt with the contraction and expansion of the Gross Domestic Product (GDP) and unemployment rates under Herbert Hoover and Franklin Delano Roosevelt.

    Today we will deal with the response the economy had to spending; examining consumer spending, industrial spending (on physical matters such as plants, machinery, materials, inventory, and not salary, wages and bonuses) and government spending. As with Part I, we will consider mostly data that occurred before World War II which conservatives falsely claim was the reason the Great Depression ended.

    Consumer spending under Hoover’s conservative approach:

    1929 $79.0 billion (GDP was $104 b)
    1930 $71.0 billion (GDP was $91.1 b)
    1931 $61.3 billion (GDP was $76.3 b)
    1932 $49.3 billion (GDP was $58.5 b)
    1933 $46.4 billion (GDP was $56.0 b)

    Consumer spending under the New Deal approach:

    1934 $51.9 billion (GDP was $65.0 b)
    1935 $56.3 billion (GDP was $72.5 b)
    1936 $62.6 billion (GDP was $82.7 b)
    1937 $67.3 billion (GDP was $90.8 b)
    1938 $64.6 billion (GDP was $85.2 b)*
    1939 $67.6 billion (GDP was $91.1 b)
    1940 $71.9 billion (GDP was $100.6 b)
    1941 $81.9 billion (GDP was $125.8 b)

    * The reversal of progress occurred when Roosevelt ceased what was working and tried conservative calls to end deficit spending and balance the budget in 1937.

    Industrial spending under Hoover’s conservative approach:

    1929 $16.2 billion (GDP was $104 b)
    1930 $10.3 billion (GDP was $91.1 b)
    1931 $5.5 billion (GDP was $76.3 b)
    1932 $900 million (GDP was $58.5 b)
    1933 $1.4 billion (GDP was $56.0 b)**

    Industrial spending under the New Deal approach:

    1934 $2.9 billion (GDP was $65.0 b)
    1935 $6.3 billion (GDP was $72.5 b)
    1936 $8.4 billion (GDP was $82.7 b)
    1937 $11.7 billion (GDP was $90.8 b)
    1938 $6.7 billion (GDP was $85.2 b)*
    1939 $9.3 billion (GDP was $91.1 b)
    1940 $13.2 billion (GDP was $100.6 b)
    1941 $18.1 billion (GDP was $125.8 b)

    * The reversal of progress occurred when Roosevelt ceased what was working and tried conservative calls to end deficit spending and balance the budget in 1937.

    ** Industrial spending increased slightly late in 1933 to satisfy demand after implementation of the Emergency Works Progress Act that created the Civilian Conservation Corps and the Works Progress Administration that purchased materials from the private sector while consumer spending didn’t pick up until 1934.

    Government spending under Hoover’s conservative approach:

    1929 $8.5 billion (GDP was $104 b)
    1930 $9.2 billion (GDP was $91.1 b)
    1931 $9.2 billion (GDP was $76.3b)
    1932 $8.1 billion (GDP was $58.5 b)
    1933 $8.8 billion (GDP was $56.0 b)

    Increase in 1933 government spending rose because of FDR’s Emergency Works Progress Program began operations late in the year, as stated above.

    Government spending under the New Deal approach:

    1934 $9.8 billion (GDP was $65.0 b)
    1935 $10.0 billion (GDP was $72.5 b)
    1936 $11.8 billion (GDP was $82.7 b)
    1937 $11.7 billion (GDP was $90.8 b)
    1938 $12.8 billion (GDP was $85.2 b)*
    1939 $13.3 billion (GDP was $91.1 b)
    1940 $14.1 billion (GDP was $100.6 b)
    1941 $24.6 billion (GDP was $125.8 b)

    * The lower 1938 GDP occurred after Roosevelt ceased what was working and tried conservative calls to end deficit spending and balance the budget in 1937. It had a definite effect on consumer and industrial spending, as the data show.

    The 1941 figures are slightly skewed because of a quick increase in government spending following the declaration of war early in December.

    As is clear to see, spending by both consumers and industry steadily declined throughout the Hoover years and pulled the GDP down with it, but as government spending under the New Deal increased so did industrial spending and consumer spending, even though government spending by FDR was not outrageous compared to spending by Hoover. Hoover’s spending only appeared to grow because the GDP was contracting. And the outcome of heavier government spending to stimulate the economy does not appear to be “wasteful” as conservatives always claim government expenditures to be. The government spending that comes closest to “wasteful” is that going for lavish pensions for elected and appointed government officials who create our economic problems.

    It is also noteworthy that Hoover’s last full year in office (1932) government spending was 13.85% of GDP while FDR’s last full year before the war (1940) government spending was 14.1% of GDP, a difference hardly worth mentioning. But the 1932 deficit under Hoover was 2.56% of GDP while the deficit in 1940 was 1.39% of GDP, reflecting that heavier government spending was more efficient because it had created a greater GDP.

    Right-wingers, who are constantly rewriting history trying to exonerate themselves of responsibility for all problems, claim FDR “prolonged” the Great Depression. The only way that can be given serious consideration is to cite his reduced spending in 1937 ~ at conservative insistence ~ trying to balance the budget and lost at least one year in the recovery. Many astute economists (those who are not right-wing ideologues) say FDR didn’t spend enough fast enough and that may have delayed the recovery. That’s probably not what conservatives mean by “prolonged.”

    Most economists acknowledge that as industrial spending decreases it brings down consumer spending, creating a recession. When that happens, it is imperative that government spending increase to fill the vacuum decreased industrial spending created, but when industrial and consumer spending increase enough to sustain a vibrant and growing economy government spending should be restrained. That was what happened under the New Deal, government spending moved into the vacuum and spurred economic improvements which increased consumer and industrial spending and virtually brought us out of the Great Depression before World War II started, even though government spending couldn’t be slowed or restrained because of the war.

    ………………………………..

    Raw economic data comes from a publication from the University of Houston, hardly a hotbed of radicalism, while commentary is the author’s analysis.

  4. almandine  February 13, 2009 at 7:25 pm

    “But the 1932 deficit under Hoover was 2.56% of GDP while the deficit in 1940 was 1.39% of GDP, reflecting that heavier government spending was more efficient because it had created a greater GDP.”

    But since GDP INCLUDES government spending, that amount must be subtracted from the GDP stats to compare “apples with apples”.

    Don’t get cute.

  5. AustinRanter  February 14, 2009 at 1:44 am

    Thomas,

    Splendid posting. I do however want to mention that there were fundamental differences in the 20’s and 30’s as opposed to current times.

    There was about 140 million people (maybe less) during the late 20s and early 30’s. The population was only about 149 million at the end of Roosevelts last term. Today there is just about 300 million.

    Oil was discovered in Saudia Arabia in 1938 so we didn’t have such an oil based economy.

    We didn’t have the high-tech industry that exists today.

    The market crash resulted from overly buying on margin and probably because of Hoover’s policies. The drop in the market was significant enough to call in margins….and it was either put up more money…which few had any, or lose the stocks.

    People were shaken enough to run on the banks…but, had there been a better means of communication such as TV and the Internet…well, maybe that could have been defused. Yes, there was radio, it’s not the same as looking your president in the eye when he lies to ya (pun of course).

    The automobile business was in its infancy, for all practical purposes. The road infrastructure was pretty lacking for long distance travel. Inner city streets weren’t well constructed.

    Oh, I don’t want to forget, a major difference is international trade. We’ve become a whole new world in terms of trade. We are way so more linked to, and dependent on, a global trade environment.

    In 41, WWII began and it seems like that was a really big stimulus to America. Today we are already engaged in two wars for the past 6 or so years. There is no major economic boost from these two babies…in fact, they are draining us.

    Well, I could go on and on about the principle differences, but my point is that while it’s good to have the history of the Great Depression available…and there should be profound lessons learned from the experience, however, all in all, the differences 70 years ago don’t, well, we just don’t have an apple to apple comparative set of problems.

    I don’t know, Thomas…it really seems like the problems today are escalating into something a bit more profound than in the Great Depression. Our problems are way more complex.

  6. Thomas Bonsell  February 13, 2009 at 5:59 pm

    Sorry. Double posting occurred because of a malfunctioning machine on the first post.

  7. remoran  February 13, 2009 at 8:36 pm

    “Never stop questioning.” Einstein

    Please note that the disaster Geithner is putting over on the country is simply another way to make money for the banks and, most importantly, the Fed. The 2.25 trillion (like the 2 Trillion Paulson passed out onto the banks in Nov of 2008) is fungible, a fancy term for monies being under direct control of the Fed, thus elinating the need to get congressional approval before doling it out to parties who “need” it. Because of this, the 4+ trillion of OUR money is going down the familiar black hole never to be seen again. (Except for the bankers of course.) Unconsciousnable to say the least but hey, it’s politics. Note the lawsuit Bloomberg is filing against the Fed, news that’s old news to informed sites like this but not to network news because it might make people think (and get angry) about how they are being taken to the cleaners. Unreal. Keep hammering on these bastards, it’s good for the soul.

    Great post to be sure.

  8. spartacus  February 13, 2009 at 9:37 pm

    I read this and was about to comment before I noticed who had written it. I should expect nothing less from a global warming denier.

    You cite the Manhattan Institute as a credible reference in opposition to the stimulus? EXCUSE ME??????? If you take a close look at where their articles come from, most emminate from the likes of the National Review, the Wall Street Journal, the New York Post, Forbes, Investor’s Business Daily.. good grief, two of them are owned by RUPERT MURDOCH!!!! Those sources are nothing better than conservative, right wing think tanks and are hardly credible in this matter! How can you expect people who want the world to function as George W. Bush left it to even be objective in relation to fixing the shambles he left the economy in now? They still believe in the failed policies that got us here!

    Sorry, but this is NOT a normal recession: if it were not for the few protections still in place from the New Deal to prevent another Great Depression (those the Republicans were not able to undo, try though they might), we’d be looking at a 1929 scenario instead of an almost ran. Despite the recent, ridiculous, and revisionist (not to mention absurd) Republican talking points, the New Deal DID work, and it DID get us out of the Depression. What was the final stimulus, if you will, was the government spending on WWII. That, Mr. Murdock, was nothing but a government stimulus spending spree. IT WORKED!!! What makes it sad is that so many people like yourself are unwilling not only to read their history books, but to compare past events to today, or to learn from them. What was tried before when we’re losing so many jobs, businesses shuttered, life savings lost, banks closing, homes forclosed upon, trillions lost in the market, etc, should tell even you that this is not a normal event. You’d have to be blind, deaf and dumb to think so, just like EVERY SINGLE REPUBLICAN I LISTENED TO TODAY DURING THE DEBATES ON THIS BILL. They gave the most ridiculous arguements I’ve ever heard: John McCain’s long list of things he thought were a waste of money in the bill, that he couldn’t see as stimulus (and even thought was pork) was ludicrous and showed exactly why he deserved to lose the last election. He would’ve been a disaster with absolutely no understanding of how the economy works. For every item he named, it wasn’t hard to see why it was there and what it would do for the economy, both in the spending itself and in its byproducts; unless, of course, you are a very dim-witted Senator from Arizona or a Republican with little or no imagination, or common sense.

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