With my first essay in this “disaster” series, I thought one or two would be plenty. Alas, the disasters just keep on coming. Now we have Obama’s first proposed budget, and it simply takes your breath away.
First, a dose of reality. From a purely financial disaster standpoint, former Bush economic advisor Larry Lindsey put it in concise perspective recently on CNBC, as follows: The proposed budget bill when combined with the so-called stimulus package will result in a budget deficit of over 12% of gross domestic product (GDP). By comparison, the 2008 deficit percentage was 4% of GDP. About half of the increase will be financed by the increased savings of Americans; the remaining 4% of GDP must be borrowed or printed. To put this in further perspective, according to the Congressional Budget Office, the largest expenditure increases by the Federal government in response to a recession since 1948-49 were just over 2% of GDP in both 1973-74 and 1981-82! Who will lend us the funds to finance this gigantic sum? Long term bond rates have been increasing in anticipation of this unprecedented borrowing demand and inflationary expectations and, based on Lindsey’s rounds among world financial centers, investors are not generally willing to finance these deficit levels for our “social transformation”. Therefore, a large portion of the deficit must be monetized by our Federal Reserve, in other words, printed. This is the hottest of monetary growth, highly inflationary, and will cause the dollar to tank, thereby debauching our currency and defrauding current bond holders.
For corroboration of this scenario, look no further than liberal Washington Post columnist Michael Kinsley: “Even if the stimulus is a magnificent success, the money still has to be paid back…………There is another way: don’t pay it back……..Just three or four years of currency erosion at, say, 10% per year would slice the real value of our debt in half…………Inflation works only as a surprise or betrayal. It can never be part of any public, official plan……..But if that’s not the plan, what is?” At least he’s being honest about the dirty little secret.
Where were you from 1966 through 1982? Remember the massive monetary growth spawned by the Johnson Great Society which gave us fifteen years of stagflation cured only by the Reagan tax cuts and the crushing monetary policy of Paul Volcker’s Federal Reserve? That was a walk in the park compared to the prospects offered by the Obama recovery and budget plans.
Folks, nothing about this has anything to do with a recovery plan. It’s a bold and audacious attempt to transform American society in the vision of the progressive movement of the early 20th century. The Obama budget is even subtitled, “Reviving America’s Promise”, a paraphrase of the The Promise of American Life, the progressive “bible” written in 1909 by their patron saint Herbert Croly, one of the founders of The New Republic. Listen to David Broder: “…a change of domestic policy of historic size…..it could remake the government’s relation to American society…”; to E. J. Dionne: “….he has sought, subtly but unmistakably, to alter the nation’s political assumptions, its attitudes toward collective action and its view of government”; to Robert Reich: “We can basically say goodbye to the philosophy espoused by Ronald Reagan and Margaret Thatcher”; and to Charles Krauthammer: “….the current crisis gives Obama the political space to move the still modest American welfare state toward European-style social democracy”.
A few people are slowly beginning to wake up. Obviously, the financial markets have voted NO in about as loud and clear a voice as can be expected. Some of the more responsible members of the moderate wing of the Democratic Party are getting nervous. Many of Obama’s upscale “left coast” financial backers in the technology and venture capital communities are having doubts about his true priorities. But there can be no false sense of security that the progressive left will heal or correct itself. They basically see this through the lens of those media fellow travelers like Dionne, Reich, Paul Krugman, and the amen corners at the New York Times and in the upper reaches of the elite universities. This is the opening they have been waiting for since Reagan came onto the scene, and it will require an enormous effort, including a large dose of the kind of moral courage that has been a rarity of late, to turn the tide. As Pat Buchanan has suggested, “it’s pitchfork time”.