Billions and Trillions and Bears, Oh My!
During Tuesday’s White House press conference in response to a question about the morality of passing massive federal deficits on to future generations President Barack Obama responded by instructing critics to remember that his administration had inherited massive deficits. At that moment I was thrust back in time to images of my mother rejecting my behavior rationalizations by saying “If your friends jumped off a building would you do it too?” “But moooom, everyone’s doing it” I’d say throwing my hands out wildly. President Obama’s proposed FY 09 budget soars to over $3.5 trillion, more than doubling average Bush era budgets. The Congressional Budget Office is now forecasting deficits over the next decade to exceed a stunning $9.3 trillion. President Obama’s “Bush started it” retort may satisfy the democratic stratagem of deflecting the ramifications of unpopular federal spending expansions onto the previous administration. However, fooling the American public into fiddling as their nation crashes and burns might not be so easy.
A rift now seems to be opening between President Obama and members of his own party. Growing public pressure has forced members of congress to distance themselves from some of the President’s key policy proposals like Cap and Trade, and socialized healthcare. Senate Budget Committee Chairman Kent Conrad (D, ND) told reporters Monday that he planned to trim President Obama’s budget by $600 billion over 5 years. Alongside Conrad there is bitter opposition from congressional Republican’s with former Obama Commerce Secretary Nominee Senator Judd Gregg of New Hampshire going so far as say that if enacted, the President’s budget would lead to "National bankruptcy."
Former Republican presidential Candidate Ron Paul went on the record Tuesday telling the Financial Times that current U.S. fiscal policies could lead to a “15 year” depression and a complete collapse of the U.S. monetary system. Paul, a Texas Congressman, believes that current efforts to stimulate the ailing economy are actually preventing a natural correction that should be occurring during this time of economic downturn. Critics be damned, President Obama pressed the case for the rapid expansion of spending during Tuesday’s press conference, calling for massive investments in the nation’s education, and healthcare systems, and environmentally friendly infrastructure. The President vigorously responded to questions about the wisdom of such expenditures at this fragile time asserting that the savings and profit generation of investing in key areas would, over time, “increase prosperity” effectively leveling out deficit ramifications. Former Bush administration official Karl Rove pointed out on Fox News immediately after the President’s news conference what appeared painfully obvious to millions of Americans “If prosperity were growing deficit projections would be decreasing.”
The Federal Reserve announced last week that it was buying more than $1.3 in long and short term treasury securities further adding to a U.S. monetary system which has more than doubled in size since 2000. Common financial wisdom would suggest that such a rapid expansion in a nation’s currency supplies leads to hyper-inflation. However, at a press conference last week Federal Reserve Chairman Ben Bernanke responded to that very question by saying that since much of the current supply of money was not being spent into circulation, but rather remaining idly on reserve at Fed regional locations, that we should not expect the inflation rate to rise in any meaningful manner. Current inflation rates remain below ½ of one percent.
However, feeling Jittery about the viability of the U.S. dollar as a long term reserve currency, China’s Reserve Bank Governor Zhou Xiaochuan released an essay last week advocating for the creation of a global super currency that would replace the dollar as the world’s reserve. The idea of a global reserve currency has also garnered support from Russian president Dimitri Medvedev as well as Nobel prize winning economist Robert Mundell, the Architect of the European Union Euro. The Chinese hold over $1 trillion in U.S. treasury reserves and any abandonment of the U.S. dollar by the Chinese government would result in a catastrophic collapse in U.S. policy. The U.S. government relies on China buying U.S. debt to finance the soaring deficits being racked up by the Obama administration.
The precariousness of current U.S. spending policies is immeasurable by contemporary standards. Never in recent memory has a nation bet so heavily on their policies being correct with such disastrous repercussions looming if they are wrong. Professor Igor Panarin a renowned political analyst and Dean of the Russian Foreign Ministries School of Diplomatic Studies, caused a stir last year when he published a paper saying that the United States would collapse in the near future and divide up into 6 different autonomous region. Panarin's analysis was largely disregarded at the time of it's release however, with the U.S. government now involved in such a high stakes game of economic Russian Roulette such predictions may indeed hold weight. With the yellow brick road of the American dream now being grown over by the roots and undergrowth in the dark forest of economic crisis, let us all hope that the new stewards of the Emerald City have much more than the same old bells and whistles behind the curtain. With the stock market bears prowling down around early 90’s levels we’re all going to see very soon if President Dorothy’s ruby slippers have one more dose of magic left in those mythical three heel clicks. If not the alternative may come in the form of the last dying gasp of a once mighty nation and a sobbing cry from the rest of the world; perhaps a loud and resounding “Oh my.”
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Billings, Montana, United States