Der Spiegel had an article on the five fallacies of the Obama economic
debacle plan. You can read the English version of Chancellor Merkel Visits the Debt President for the details, but here are the five fallacies:
- It's not as bad as it seems. The US amassed much more debt during World
War II, it is often said. That, though, is not true. According to
conservative forecasts, Obama's policies could end up being three times
as expensive as US expenditures during World War II.
- The money is part of an effort to resuscitate the crisis-plagued
economy and is thus serving a good purpose. The truth of the matter is
that the bulk of the borrowed money will be used to finance the normal
- When the crisis ends, borrowing will automatically fall. The truth is
that it could climb afterwards. The graying of American society creates
a new fiscal policy challenge for the country that so far hasn't been
reflected in any budget plan. According to calculations by the
International Monetary Fund, Washington would need to spend several
times more than it is now just to service current pension entitlements.
- The world believes that the US is borrowing money from capital markets.
It is often said that the Chinese and the Japanese will buy government
bonds. But the truth of the matter is that trust in the gravitas and
reliability of the United States has suffered to such a great degree
that fewer and fewer foreigners are purchasing its government bonds.
- The additional money is harmless because the economy is starting to
pull together again and there is no threat of inflation. The truth is
that the quiet on the inflation front is deceptive. The hot money is
accumulating in people's savings accounts and in the balance sheets of
banks that aren't keen to lend money at the moment. The supply of money
has increased by 45 percent in the last three years and there has not
been a corresponding rise in hard assets or production. That imbalance
will eventually make itself felt in the form of inflation.
In my opinion, if Obama succeeds in all of his spending (which it looks like he has), we will spend the next 40 years trying to get out from under it. As my mom, who is a lifelong Kennedy Democrat said to me this week "I don't think I'll live to see the economy recover from what Obama is doing, but I can damn well vote Republican in the coming elections." Now that is saying something.