The Spender of Last Resort
Posted by Michael A. Kamperman on October 1, 2010
The Federal Government is our spender-of-last-resort. Because of the sour mood of a confused public we will soon send to Congress memebers who are not spenders. And a clear message has been sent to Republicans that if they spend they will be taken out by Tea Party types in the primaries. Senators and Congressman whose seats were presumed to be safe have discovered they were only safe for the Republican Party and not for them. So you can bank it that there will be no Keynesean style fiscal rescue of the economy for at least the next two years, and possibly for a generation. Sadly, the fault rests not with the public but with the economists. Chief amongst the guilty is the Whitehouse economic team. They totally lost the debate and to this day have not put forward a coherent argument the public can understand for why we need more stimulus. Instead they mistakenly have backed the President into a corner by having him launch a Deficit Cutting Commission. Much pain is coming. Perhaps the best thing that could happen would be for a preacher of the Austrian Economic Gospel to win in 2012. When the people discover the devil they don’t know, namely austerity, is much worse than the devil they do know they will perhaps come their senses and we can then end the depression.
To this day no one on the Obama economic team is explaining to the public that the economic rules that apply to everyone else simply do not apply to the federal government. They do not have to balance the budget and they don’t even need China’s money. The federal government not only has the power to print money, they are printing a little now. Come November 3 the Fed will initially start to print a few hundred billion dollars over the next year. Before this depression is over they will print many trillions. Yet this money will not bring the greatest bang for the buck because politics have paralyzed the federal government from effectively spending it. The 99′ers are getting cut off now. Next year the States will be cut off too. Plus the payroll tax cuts in the stimulus bill will soon end as well. It’s going to get ugly before its all over.
The coming cut spending tsunami is a direct result of the incompetency of the Whitehouse economic team. Summers and Romer are gone and Geithner needs to go. The blame lands squarely at their feet. When it was obvious the stimulus bill was not creating jobs and bringing the unemployment rate down they foolishly argued it was saving jobs rather than that we needed another one. Now 60% of the American public believe if the federal government would cut spending it would create jobs. They have gone around claiming they avoided another depression when we are clearly in the middle of one and the unemployed public knows this. And they have sat on their hands for 18 months without putting forward a single serious job creating idea considering the magnitued of the crisis. In reality what has the Obama Administration actually done? The TARP, the Fannie/Freddie bailout, the auto bailout all happened under the Bush Administration. The Pelosi and Reid led Congress were sending a stimulus bill to the President’s desk no matter who won the 2008 election. The Bernanke led Fed were going to do quantitative easing no matter who won the election. The single biggest contribution from the Obama team was the smoke and mirrors Bank Stress Test which has left us with Zombie Banks that don’t lend, some contribution. After the election the President has an opportunity to clean house and bring in some heavy weights. Instead, the signal he is sending is he plans to stay insular and stick with those he knows. Those who have failed to bring down the unemployment rate and have allowed Keynesean concepts of economics to get trashed in the public’s mind. The reality is we would be in much worse economic shape without the bail-outs and the stimulus. President Obama is a trained lawyer, yet he has failed lawyer 101. When you have the law on your side argue the law, when you have the facts argue the facts, and when the law and the facts are against you just argue like hell. With the laws of economics and the facts on their side they have failed to win the argument. Worse, they are not even out there arguing like hell.
