STAFF NEWS & ANALYSIS
Obama's Plan: Keep Pumping in Dollars Until 'Change' Is All That's Left
By - February 26, 2009

Minority Leader John Boehner (R-Ohio) declared a return to "the era of big government" the day after President Obama's first formal address to Congress. "From everything I've seen, it looks like the era of big government spending is back," he told reporters at a lunch convened by the Christian Science Monitor. "My question to my Democratic friends is how are you going to pay for it?" The top Republican leader in the House praised President Obama for making a "compelling" case that the nation can overcome its economic challenges and pledged to work with him when he reaches across the aisle. He later clarified that Republicans will work with Obama on areas of agreement but would maintain their ideological differences and fight for them. … Boehner also implied that Obama's speech attempted to cast his policies as more conservative than they really are, even as government spending skyrockets with the last week's $787 billion stimulus bill and a $410 billion omnibus appropriations measure, which the House is considering Wednesday. "With few exceptions, it was a speech I could have given – it was a very conservative speech," Boehner said. "But actions speak louder than words." "As soon as I took office, I asked this Congress to send me a recovery plan by President's Day that would put people back to work and put money in their pockets," Obama said in his Tuesday night address. "Not because I believe in bigger government – I don't." He criticized Obama's claim that the stimulus bill contained no earmarks, arguing that it was simply a semantic issue on how Democrats were defining the term and was actually chock full of them. In the same vein, he said the omnibus is so full of earmarks that it doesn't "pass the straight-face test," although he acknowledged that Republicans are guilty of requesting a good portion of the pet projects in the massive spending measure. With diminished numbers after the November election, Boehner said Republicans are not in the "legislative business" and will be more effective voicing "better solutions" and communicating them to the American people rather than producing a specific legislative agenda. – The Hill

Dominant Social Theme: American Republicans will fight hard to maintain smaller government.

Free-Market Analysis: Despite the bold prediction that "big government is back," the only area where there seems to be full agreement in American politics is that both parties are wonderful managers of the public purse. How do we know this? Both the Democrats and Republicans say so.

US President Barack Obama has proven very good at explaining his policies in terms of conservative governance. His rhetoric about responsible government and limiting costs and reducing or eliminating earmarks is ever-present. Additionally, despite the economic train-wreck that was the Republican Bush administration, the current congressional Republicans sound as fiscally conservative as Barack Obama himself.

Of course, when one adds up the reality, the "facts on the ground" look much different. The American federal government is a spending machine. It spent trillions under Bush and is about to spend trillions more under Obama. Already Obama's administration can lay claim to a US$800 billion stimulus package. This is to be followed shortly by a US$410 billion omnibus appropriations measure and another US$80 billion for the war on Iraq. This is, of course, on top of US$700 billion in TARP funds (previous administration) and Federal Reserve monetization that will eventually top some US$3-5 trillion, depending on what articles you are reading and who you are listening to.

Anyway, the total amount of debt-money (no, it's not asset-backed) in the process of being spent (or created) since the economy began to falter this past year is somewhere in the area of US$8-$10 trillion. Looking at the cost side, we see that the US national debt itself doubled in the 2000s to about US$10 trillion, or some 70 percent of GDP, not including upcoming spending, Fed monetization and eventual inflation.

What hasn't been factored into all these numbers, by the way, is the amount of wealth that has "evaporated" from the pockets of US consumers. Some estimates put the figure at around US$7 trillion, though it could be lower or higher. In any event, we can see the total wealth swing in the past decade is closer to US$12 trillion currently than US$5 trillion (reverse wealth effect plus Bush spending), not counting looming Social Security costs in the tens of trillions, etc.

This is where America is today. And tomorrow? … The spending continues! America's new president, Barack Obama, has ambitious plans to nationalize health care and expand public school programs as part of an additional vast stimulus. Where is the revenue to come from? Tax hikes on the wealthy, and Fed monetization of various sorts. About 25% of American debt is apparently held overseas but that's scheduled to go up. US Secretary of State Hillary Clinton has been stumping in China to ensure the Chinese leaders continue to buy American Treasuries, though China's own economy is showing signs of stress. China already owns somewhere in the area of US$1-$2 trillion in Treasuries (the figures seem to shift day-to-day) and that country's desperate leadership is signaling willingness to buy more to ensure that the American economy remains viable.

After Thoughts

So much money being spent means that the public sector will inevitably continue to choke off the private sector to some degree. Government is notoriously inefficient at creating jobs, except of the make-work variety. In order for the American economy and the world's economy to grow, the private sector has to be reinvigorated. But how can that happen when the world's major industrial power is printing trillions in new money and adding government programs by the day? American legislators like to talk about being economically conservative, but the history of the current American culture of spending doesn't show it. No wonder gold has climbed to US$1,000 and shows no signs of stopping in the long term. So much spending presages increased inflation and there are no trends currently that point reliably in the opposite direction. Significantly, Obama has announced that he is determined to cut the national debt – but recent history, as indicated above, indicates he will have his work cut out for him.

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