Friday, February 27, 2009

Heading for a crash -- Congress, Obama and out of control spending

At a time of incredible financial and economic uncertainty, President Obama presented to Congress and the American people a very bold plan for the future of America -- finding a cure for cancer, universal health care, free education and a host of other things. Of course the question is how to pay for it all. Well, raise taxes and continue to pile up debt through more government spending. Of course, recent Republican presidents and republican Congresses were guilty of deficit spending, but it's breathtaking what President Obama and the democrat Congress are proposing and doing, especially at a time of great instability.

My take is their policies will only make a bad situation worse and result in even greater financial and economic distress.
I think we're seeing the confluence of at least two things which will create the perfect economic storm. One, is the economic and financial crisis brought on by greed, corrupt and people living beyond their means. People, corporations and the government have been living beyond their means, on borrowed money, and that's merely coming home to roost.

And two, faulty ideas and understanding of what to do about the financial and economic problem. Instead of seeing part of what's happening as a necessary correction to living beyond our means and cleaning up bad debt, economic and financial policy makers think all that they need to do is pump more money into the economy to keep the good times rolling. Thus, we see a very loose money supply and very low interest rates in hopes of warding off a collapse and keep things rolling along.

And now in Washington, DC the politicians in charge, Obama, Reid and Pelosi and their advisers have drunk deeply at the well of Keynesian economic theory which says government spending is what's necessary to jump start the economy and get things flying once again. The result a $1.75 trillion dollar deficit with more to come. And out of a desire to mitigate the deficit, Obama is proposing significant tax increases on the wealthy - those making over $250,000 a year - which will only discourage small business owners from expanding their businesses and creating jobs. In other words, Obama and the Keynesian economists are looking back to FDR as their example both for spending and raising taxes. The actually result then and now will be a prolonged period of economic crisis rather than a shorter one. The Great Depression went on for over a decade. It had a period of seeming recovery but quickly lapsed back into a depression with high unemployment and a dropping stock market. Punitive tax increases were imposed on the wealthy and companies by FDR which only retarded economic growth. So too today. What they didn't have then which we do now is have significant debt issues which will only worsen the wrong moves by policy makers and give us much less room for maneuvering.

Moving towards an universal health care system will be costly and mean rationing of health care and diminution of quality of care. Climate legislation will be costly to business and do little or nothing for the environment. I sense the liberals are seeking to pass all their agenda and spending items now as quickly as possible, "while the gittin's good."

I think Keynesian ideas about government stimulus have given Congressional liberals the justification for indulging themselves at precisely the time when we can least afford to be indulging ourselves. All it means is the economic problems we see now are only a foretaste of things to come.

Things may recover briefly in terms of a stock market run up but we will be "paying later" in a big way.

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