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A Financial House of Cards

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By Bill Claiborne

Democrat Leader James Clyburn of SC said the other day: “we’ve got to spend our way out of this recession.”  This backwards reasoning echoes President Obama’s speech from nearly a year ago when he was promoting his $787 billion stimulus bill.  Remember?  This was the brilliant plan that promised to keep unemployment under eight percent.  It’s been hovering around ten percent for several months now, and is actually closer to 17 percent if you count all those who have quit looking for jobs.  Anyway, Obama was attempting to counter his Conservative critics who were suggesting his plan was fiscally irresponsible.  He mocked their concerns by shouting out “what do you think a stimulus is?”

This type of thinking only makes sense under the bankrupt socialist model of John Maynard Keynes, i.e. Keynesian Economics.  According to this ideological wisdom of the Left, governments are the ones who create economic vitality and growth.  It’s a point of view practiced by old “Command,” or “Planned Economies” of communist regimes.  The people, in these systems, only exist to be molded by top-down, bureaucratic, social engineers.  History is replete with examples of how this elitist model doesn’t work, yet it hasn’t stopped Obama and his fellow Democrats like Clyburn from pursuing its ill-fated promise.

The estimated budget deficit for 2010 is a staggering $1.56 trillion, nearly double the Bush’s last deficit.  Our total national debt is now over $12 trillion, or $40,000 per each American.  The Democrat Congress, who ridiculed President Bush as “the most fiscally irresponsible President in history," just raised the debt ceiling to $14 trillion.  Note, every time Congress raises the debt ceiling they hit it.  It’s obvious they are doing this now to keep from having to do it later in the Fall when it’s time to vote!  Since Democrats began running Congress in 2007, the federal debt limit has climbed by 39 percent.

True, the Republicans weren’t much better, but how can anyone seriously place stock in the Democrats when they are performing so much worse?  That riddle, my friends, explains the rise of the Tea Party movement!

Just three years ago, the debt was 25 percent lower than today, or $30,000 per each American. The deficit to GDP ratio was three percent in ’07 and now it’s 15 percent.  It should be obvious that adding to the debt and deficit through government spending is not the way to solve our economic problems!  Besides the enslavement of the American taxpayer, it squeezes out private investment which is the true engine of economic growth.

The Heritage Foundation has this to say: “Keynesian stimulus theory ignores deficit spending financing [which] carries budgetary consequences and economic costs.  Government borrowing reduces the pool of savings available for private spending, either investment or consumption.  Increased deficit spending may create the illusion that fiscal policy is effective, but it is temporary and only an illusion.”

Brian Riedl of the Heritage Foundation explains it this way: “In any economy, a limited amount of savings is available for everyone to borrow. The more Washington borrows from that pool to finance its debt, the lower the amount left for small business loans, mortgage loans, car loans or student loans. The result will be less business investment, and therefore, less job creation and an even worse housing market.”

One dangerous development in this Keynesian folly is China’s resistance to purchasing more of our debt.  They are currently our biggest creditor nation but the Fed has been forced to devise other methods to make-up for the lack of Chinese enthusiasm for more dollars.

According to a recent Dick Morris article:  the Federal Reserve is purchasing mortgage backed securities from US banks then borrowing back the money paid to the banks at a “teaser rate” of  three percent.  This is having the effect of squeezing out private sector lending while creating another financial bubble.  The real interest rate for our inflated dollar will ultimately emerge to devastate our budget and further wreck our economy.  Currently, our debt service is around $300 billion per year.  When interest rates resume their normal levels, that figure will likely more than double, according to Morris, equaling the total per year collection of all income taxes!  In other words, every dime of collected annual taxes will soon be required to pay just the interest payments on our Debt.  This is not “stimulus,” this is a disastrous program bent on ruining America’s economic future!

Perhaps the Tea Party activists aren’t so crazy after all?  “Hope and Change” may be a seductive campaign slogan, but it is no substitute for sound economics!  (send comments to WFC83197@aol.com, or mail to POB 114, Jacksboro, TN  37757)