STAFF NEWS & ANALYSIS
Biden: We Are Spending as Fast as We Can
By Staff News & Analysis - June 05, 2009

Vice President Joe Biden on Tuesday defended the pace of federal stimulus funding, warning that hasty spending on wasteful projects could jeopardize the entire program. "There's been some criticism that we've not gotten enough money out so far," Biden said. "Well look, since I'm the guy who was put in charge of it, I want to make sure in the first 100 days we do it right." Biden made the comments at a hearing with small business owners, many of whom said they'd secured credit from banks and had been able to hire new employees as a result of the stimulus funding. Biden pointed to other ways the plan had begun helping to restore the weak economy, including an $8,000 tax credit offered to new home buyers. – AP

Dominant Social Theme: The administration is doing its best to get rid of the money.

Free-Market Analysis: Apparently, the issue is not whether the Obama administration should be spending a budget of US$3 trillion-plus for 2009, and even more for 2010, but whether the administration is spending bailout portions of it fast enough. Say, what? Yes! This is the burning issue of the day. The crux of this story, above, is apparently why federal "stimulus" funds are not being disbursed more rapidly in order to lessen the pain of the unemployed.

In fact, common sense tells us that such stimulus packages may not do what they are intended to on a micro-scale let alone a macro. A bubble such as the one that occupied much of the 2000s inevitably generates mal investments. That's because the bubble itself is caused by overprinting of money by central banks. When there is too much money in circulation, people are fooled into setting up businesses that will fail. Once the bubble has deflated, these businesses are often beyond salvage.

On top of this, many of the failing businesses in America, Britain and Europe today are banks. That's because banks were the first to be propped up by various bailouts. Banks are part of the central banking network. Without banks (commercial or investment), central banks would have to inject cash directly into the civilian population. Once this occurs, even more questions about the nature of central banking would doubtless emerge. People would want to know where the money was coming from and would soon see that it was merely the product of electronic book-keeping and of the printing presses.

Due to the current crisis, central banking's unearthly power has already become too transparent in the view of some. Fed Chairman Ben Bernanke in recent Congressional testimony indicated how uncomfortable the Fed was with its various monetization and liquidity programs. The Fed's disbursement of some US$10 trillion to money center and regional banks (as well as domestic and overseas firms) has shocked a good number of habitual onlookers as well as regular citizens. The Fed's refusal to account in detail for the disbursements is not making the issue any more palatable.

So … it is central banking that beats at the heart of the current crisis. Money printing has allowed the Leviathan to grow to its current titanic size — and to stumble through bust after bust. Without central banks, federal governments (especially the United States) simply would not have the wherewithal to carry the kind of national debt they do – and to be the Nanny States they have become. Yet in the current crisis, central banks like the Federal Reserve stand ready to do even more, via monetization.

When the Fed issues cash for debt securities it acquires, we talk about "monetizing the debt". This can be taken a step further, although this last phase has not yet been implemented: when the government needs to raise money, the Treasury issues debt in form of Treasury bills and Treasury bonds. To keep the cost of borrowing for the government low, the Fed may step in and buy Treasury bonds. Whereas traditionally, the Fed is actively managing short-term interest rates by buying and selling short-term Treasury bills, the Fed may also buy, say, 10 or 30-year bonds. It's a wonderful funding mechanism: if the Treasury needs to raise cash, the Fed could come and provide it. (Axel Merk, Merk Funds)

Beyond the inflationary dangers, there is the question of what the current American annual federal budget of US$3.2 trillion actually buys. Biden expects it buys a lot of infrastructure spending, but since such infrastructure is selected via a political process rather than a market process, it will inevitably generate the same kind of mal-investment that unrestrained money-printing does. It is very strange that articles such as this one are not more balanced. Biden should at least be asked whether or not the stimulus is going to "stimulate."

After Thoughts

An article such as the one excerpted above should seemingly include a frame of reference beyond mere cause and effect. There is much to say and write about the topic — and perhaps precious metals should be part of the conversation as well. An additional way for individuals to protect themselves (beyond counting on government) would be to buy gold and silver, which may eventually rise much higher in price, given the inflationary trend in place. Anyway, there are more sophisticated analyses of the monetary situation on any one of a number of web sites and blog sites. This must prove, increasingly, a problem for the AP.

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