A Conservative Review of the Obama Administration Part 8 (The Debt)
Posted: Monday, January 18, 2010
by Jim Anderson
Weddings That Last
So we saw in the last article why the stimulus plan isn't working and how the government is handling it, but that leads us to another problem that is being created. That problem is the debt. The endless printing of money and monetizing the Federal debt is temporarily propping up the economy. If the Federal Reserve Bank were to stop printing money and be more fiscally conservative, it would create another financial crisis as bad or worse than the Great Depression. This is because spending by consumers and business has dropped considerably as they pay down debt in response to the economic crisis. People realize the debt leaves them vulnerable to financial failure and paying off the debt is a wise move to keep them from being foreclosed and bankrupt. In reality, a financial crisis in this case would actually bring a recovery faster because all the dead weight on the economy would disappear. The dead weight is the businesses that are not profitable and are poorly run. They should go out of business. Then the money that was going into these businesses would go to businesses with successful management and profitability. Those businesses would become more successful and drive a recovery.
It isn't just the excessive money supply that is creating the problem, it is also an unsustainable Federal budget. What they report isn't reality, it is politically corrected. Obama promised the entire legislative process would be broadcast on C-Span, yet when asked about it now it draws a laugh. They say, don't you know a lot of promises are made on the campaign trails that aren't fulfilled? Yet, today each man, woman, and child in this country owes $346,000 as their share of the federal debt. 70% of our economy is built on spending and the other 30% is on the creation of wealth. Our country is no longer building wealth like it used to. Since consumers are spending less, the Federal Government is trying to make up the difference. No matter how they raise taxes, tax revenues are dropping. They are bringing in less, and spending much more than ever. It is like they are trying to commit fiscal suicide.
The "Green Economy" is being touted as another piece of the solution. However, it is unrealistic because of all the red tape involved in doing things like manufacturing solar panels, along with the negotiations with unions. While in China, they can make solar panels with a fraction of the cost of labor and no red tape. We simply can't compete. As a result, unions are globalizing to try to equalize the equation. In the meantime, U.S. union members are going to be thrown under the bus. So we just keep going into debt and continue to consume more than we produce. The promise of the Green Economy is that it will create more jobs, yet Evergreen Solar in Massachussets received $58 million in government aid and tax incentives to build a plant and produce solar panels. They created double the jobs promised but lost $167 million in 2009. So what was their solution? They are now sending 200 jobs to China.
The Federal Government is severly overleveraged. There is $2.38 trillion in tax revenue, but 3.55 trillion in expenses. They have to borrow $1.17 trillion to cover the deficit. If this were a private company, no bank would make this loan. But the Federal Government has the Federal Reserve Bank, and doesn't have to qualify for the loan. The problem is, without the accountability they are left vulnerable to reality. When interest rates increase the interest alone could become more than the expenses themselves. When that happens, what are all the bondholders going to think? By standard definitions, that is insolvency, and that may cause the U.S. government a big problem. It will have to go bankrupt.
For the rest of the story see the final article in this series, A Conservative Review of the Obama Administration Part 9 (The Final Straw)
This Article has been viewed 158 times. (Not updated in real-time.)
Top-level comments on this article: (0 total)No comments yet.
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.