Obama Administration: Repeating Failed History?

by Reverend J. Vance Tyree I was doing some economic research recently and came across a political cartoon, one that merged the swine flu scare with Obamas spending. I wish I would have saved it because I couldnt help but cackle loudly after reading it. The image was Obama in a hospital bed after contracting the flu, and there were two men standing at his bed. One man said to the other, Keep him under, because every time he wakes up he spends a trillion dollars. I wont deny that I was an avid supporter of Obama before the elections, but I was fooled along with the rest of the world. Few presidents actually fulfill their promises during election period, and many of them, once in office, work contrary to what they said they were going to do. Sometimes this is intentional and other times it is basic stupidity. In Obamas case, dealing with the current economic environment, I am going to put faith in the latter: The Obama Administration is just being downright stupid in its efforts to resolve the economic slump were in. Obamas deficit is constantly changing and constantly being rejected. Why? His numbers arent in line and the deficit under his administration will reach an all time high of $17 trillion—thats almost $11 trillion more than the Bush Administrations! Perhaps Im being premature in criticizing the current administrations economic plan, but history and logic tell me their plans are no good, thus the promise to tackle the economic crisis is fueled by decisions that will either keep us on the same path or sink us further. Quote: Originally Posted by CNS News By 2019&a whopping 82 percent of the nation’s gross domestic product (GDP) will go to pay down the national debt. This means that in future years, the government could owe its creditors more than the goods and services that the entire economy can produce. Although the stock market has recently received good news and is starting to recover, GDP is still in the negatives. Although the GDP report isnt actually verified for a year until seven years later, the numbers released tend to be fairly close to the mark. The fourth quarter of 2008 saw -6 percent in growth. That means production was extremely low and what production existed earned no real money. In the first quarter of 2009 GDP shows -6 percent. If we look at all of 2008, GDP was down -3 percent, which means 2009s GDP will need to reach 6 percent in order for the nations economy to begin growing again. The economy during the Bush Administration wasnt contracting but there was very little growth—so little to be almost irrelevant. The average economic growth in the Bush Administration was 2 percent, a sluggish rate of growth. (This is what Britain saw after the Era of Public Reform starting around 1848, which allowed the U.S. to become the dominant economic power in the world.) The Reagan Administration saw a 4 percent rate of growth, which is basically the status quo the U.S. maintained for so long before WWI. Gross Domestic Product alone doesnt account for the entire scope of the economy, however the figures are important as they display production and trade. During WWII production was up and unemployment down, however there was no actual growth in the economy. Even though the GDP from 1940-1946 shows immense growth, we know that, although production was high, there was no growth because wages were low; rationing was in effect, limiting supplies; and a large majority of the labor population was forced to receive pay in war bonds, which devalued by 50 percent in 1949—basically meaning those workers didnt get paid. We have to take GDP with the stock market and with the value of the U.S. Dollar (not to mention the ratio in wages VS. progressive taxation). Inflation is a reality that will never vanish; but as long as wages are high and taxation is low, particularly when income per annum surpasses the rate of inflation, there will be economic prosperity and growth because money is being invested in the economy. However, inflation climbs when the Federal Reserve prints too much currency—that is, when the Fed prints more money than the economy requires. Inflation devalues currency and people stop investing and move into commodities (part of the reason oil prices climbed recently). Obamas spending requires more dollars than is in current circulation, thus in turn requiring the Fed to print more dollars to meet the demand the government is creating. But this is not a demand that will stimulate the economy; it is a demand for increased spending that will keep the economy in a slump. Stimulus packages are a joke, a fiction, because by nature they create more money to circulate through the economy, further devaluing the currency in question. A stimulus package that requires the printing of more dollars will in turn devalue the dollars, therefore not actually stimulating the economy but keep it stagnant. If more money is printed then we will receive a return to the 1970s paradigm of stagflation—that is, inflation will continue to rise whilst the economy remains stagnant. To make matters worse, Obama aims to let Bushs tax cuts expire, which will cause an increase in taxation by 2011. This is a stupid move to say the least, and many an administration in the recent past made the same mistake followed by economic troughing. There is a key equation that equals economic prosperity, one that has been used successfully a number of times after WWI, and when administrations ignore it there is economic stagnation and even crises. That equation is simple: tighten money (stop printing money), cut taxes, and raise interest rates. Tightening money will halt inflation; cutting taxes will increase revenues which will then be invested into markets; and raising interest rates will encourage people to keep their money in the bank and not withdraw to invest in commodities. Obamas deficits have been so extreme that the United States primary deficit investor, China, has refused to purchase our debt. China would invest in our debt and we repay them through trade. But, as mentioned above, Obamas deficit plans are so outrageous that the U.S. would have to export to China for free for decades to repay the debt! And since China knows that isnt going to happen, they refused to purchase our debt. Whats the solution according to the current administration? Let the Federal Reserve purchase the debt. Are you kidding me!? Thats the first step in causing hyperinflation! And how are we to repay our own debt? Taxes will have to increase substantially and new tariffs raised, which will actually slow down trade. U.S. debt should be purchased by a country with a stable currency—which is why it has been China for a while—because their industrial and economic growth over the last few decades is outstanding, thus stabilizing their currency, making it one of the most stable in the world. Pick up a newspaper and watch other currencies climb compared to the USD; this is an unofficial (and inaccurate) indicator of domestic inflation, but it gets in the ballpark. Quote: Originally Posted by Lawrence H. White, The Concise Encyclopedia of Economics In the United States, the inflation rate is most commonly measured by the percentage rise in the Consumer Price Index, which is reported monthly by the Bureau of Labor Statistics (BLS). A CPI of 120 in the current period means that it now takes $120 to purchase a representative basket of goods that $100 once purchased. Because the CPI basket is not identical with the specific basket of goods and services that you consume, the percentage rise in the CPI is, at best, only a rough approximation of the percentage rise in your cost of living. The same is true for any alternative measure of inflation, such as the gross domestic product deflator. The GDP deflator is arguably more representative of the economy as a whole, but is less relevant to ordinary consumers because its basket includes the prices of nonconsumer goods (such as new business equipment) that consumers do not buy, and excludes the prices of the many foreign-produced goods that consumers do buy. Quote: Originally Posted by Lawrence H. White, The Concise Encyclopedia of Economics In a nutshell, inflation occurs—that is, the purchasing power of the dollar shrinks—to the extent that the nominal supply of dollars grows faster than the real demand to hold dollars In summation, Obamas current and planned spending will do nothing positive to the current economic environment, and will possibly contribute to even more economic rough patches that could last years. The current plan of attack, like many past ones, is a return to the failed Keynesian economic parody. John Maynard Keynes, an early 20th-century British economist, and father of Keynesian economic theory, denounced his theory almost immediately after proposing the elements of the theory in publishing his 1936 article The General Theory of Employment, Interest and Money. Unfortunately, he died before publicly denouncing Keynesianism, which is why the U.S. government has seen a number of economic slumps since by employing the theory. Obamas administration is returning to the failed Keynesian model, and that decision will keep the American economy in a slump. Until the administration does a little historical legwork, and realizes Keynesianism is a crock, there is no hope for the future of the United States return to economic prosperity under the current regime. ArmageddonOnline.com