Obama and Fed Assure More Economic Misery

Friday, 12 Nov 2010 09:38 AM

By Matt Towery

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I'll give President Barack Obama a bit of credit for signaling that he will abandon temporarily one aspect of his crazy economic philosophy, best termed "Obamanomics."

It appears the president will at least allow the George W. Bush tax cuts to remain in place for some additional period of time. That's a smart move for him because everything else both the administration and the Federal Reserve are doing or considering appears to be setting us up for another economic disaster.

First, let's consider what that whacky Federal Reserve is doing. CNBC summarized the Fed's recent move better than I could. They reported: "The Fed plans to print enough money to buy an average of $75 trillion in treasury bonds each month for eight months.

"The bond purchases program is intended to energize the economy by forcing down long-term interest rates. Those lower rates might encourage some consumers to borrow and spend more."

Wow. The presses printing those dollars will be smoking from the rate of speed at which they will be laying down ink on that special paper. Well, at least the folks who print money will have plenty to do.

But the idea that making it cheaper to borrow money when rates are already at all-time lows is just plain nuts. Sure, the banks have plenty of cheap cash they are sitting on. Bully for them. But just go and try to borrow any of it. If you are a start-up company, forget it. If you are a small business that struggles to make payments based on your cash flow, sorry, Charlie.

The only companies that could possibly benefit from cheaper dollars are large corporations, and they are continuing to consolidate and cut the fat out of their operations in order to keep their profits strong and their stock values as high as possible.

Most economists are questioning this move, not only because the cost of borrowing money is already dirt cheap, but because this new action creates a real risk of inflation.

The CNBC report notes, "Critics warn that rates kept too low for too long could inflate new bubbles in the price of commodities, stocks, and other assets. That's what happened before with technology stocks and home prices."

Oh, great! Not only will most folks not be able to get the stingy banks to take a risk by loaning money out to anyone other than those who already have plenty, they will get to watch the prices of what they want to buy rise as well!

All of this before President Obama gets busy trying to work around the system in order to at least nudge along his economic agenda. He clearly does not understand, nor does he care about, the concept of a truly free capital market system.

It will be hard for the president to implement a full version of Obamanomics since now there will be the huge impediment of a massively Republican House of Representatives. But his administration thinks it can potentially use the massive debt — which his own presidency increased greatly in just two years — as a means of seeking "compromise."

That "compromise" would be in the form of the recommendations of a "bipartisan" commission created to recommend how to trim the nation's debt over the coming years. Ironically, the left wing already hates many of the recommendations that infringe on the pet programs and entitlements they so cherish.

My guess is that the president will be more likely to embrace two of the recommendations that would surely throw the nation back into economic calamity.

First, the commission recommended treating capital gains at the same tax rate as ordinary income. Are they insane? It was the capital gains cut that Newt Gingrich and the Republicans forced Bill Clinton to agree to that got the economy moving in the late 1990s.

Then there's the recommendation that the tax deduction on mortgages for homes be cut in half. Oh, that is just brilliant. Let's not only keep the housing market at death's door, let's make it even more onerous to own a home and pay a mortgage.

Let's face it. If the Democrats had held the House in the November elections, "Obamanomics" would have likely killed us off as a nation. As it stands, at least there is a chance that the president's economic agenda will move at a much slower pace.

Matt Towery is author of "Paranoid Nation: The Real Story of the 2008 Fight for the Presidency." He heads the polling and political information firm InsiderAdvantage.




© Creators Syndicate Inc.

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