Obama Advocates Inflation, Big Government

The Wall Street Journal reports that Barack Obama is arguing for deficit spending and a sharp increase in government.

The Journal's Jon Hilsenrath and Jonathan Weisman report that President-elect Obama includes in his spending and stimulus plan:

"a list of priorities that included: creating 2.5 million jobs, and spending on roads, bridges, schools and clean-energy programs. Jason Furman, the Obama campaign's economic policy director, briefed Democratic leaders and conservative "Blue Dog Democrats" last week on the shape of the proposed stimulus, according to senior House aides...

"...The advisers Mr. Obama named on Monday hail from the centrist part of the Democratic Party. During the Clinton years they played an important role in turning a budget deficit into a surplus. Now they argue the worsening economy requires steep deficit spending."

There is considerable question as to what the current economic malaise really is. In the 1930s the Fed (not with the support of Herbert Hoover, as many people believe) decided to contract the money supply (i.e., raise interest rates), which led to the stock market crash, subsequent bank failures and unemployment. Franklin D. Roosevelt appointed Marriner Eccles to be Fed chairman, and he began to re-inflate. In 1935 and 1936 there was a bull market in stocks. In 1936 Eccles in effect tightened again, to the chagrin of the Roosevelt administration, and there was a second crash in 1937, leading to a market bottom. The re-inflation associated with World War II led to a subsequent 65 year inflation that continues.

In the current situation there has been no cutback in the money supply. Interest rates are at all time lows. The excessive liquidity of the Bush years had led to recklessness among bankers, to include both low-quality lending to sub-prime borrowers and willingness to provide credit guarantees, swaps or derivatives concerning those loans across financial institutions. From what I can gather, few bankers were able to assess the risk of the swaps or derivatives which they transacted, and they panicked this year, leading to their unwillingness to lend. This kind of psychological reaction to risk can be undone by adding a few extra shots of heroine. The Fed has added a few kilos.

Banks have slowed lending because of their panicked reaction to their own incompetence. Lending leads to increased circulation of money, which economists call velocity. Velocity increases the amount of money in circulation, because when a borrower deposits the loan, the bank can lend out that deposit. A shift in velocity can cause a short term reduction in the amount of money and a slowdown in economic activity. The velocity of money probably fell during the past few months of the recent bankers' psychological panic. However, it is important to note that not many (if any) commercial banks have failed. This contrasts with the Great Depression, when a large number of banks failed. AIG, an insurance company which owed money to banks was not allowed to fail, so the Fed took action several steps away.

I do not believe that the Fed was able to assess either the risk or the necessity of bailing out AIG or Bear Stearns, nor of the likelihood of Citibank's failure. This was done by guesswork akin to how an investor decides on how to invest in a stock. Someone once said that throwing a dart at a newspaper is as good a way to choose a stock as what portfolio managers do, and the quality of the Fed's decision making is probably even worse than that.

The bailout took two forms. First, a large amount of money was borrowed and used to purchase the complex derivatives from investors. This not only protected the economy but also the well being of a wide range of wealthy investors, including many in foreign countries who have no direct effect on the United States's economy. Again, the actions that the Fed has been taking have been several steps removed from any important economic effects on the nation and have the advantage, much to the pleasure of the propaganda outlets, of helping wealthy investors, the Ochs Sulzbergers, Rupert Murdoch, etc.

Second, the Fed created a large amount of new money and deposited it in the various commercial banks by purchasing bonds. This contrasts with the Great Depression, where the Fed cut back on the money supply. In other words, the situation now may have surface behavior in common with the Great Depression, but little else. So far, it seems to bear the same relation to an actual bank run as as a Hollywood movie's depiction of an earthquake is to a real earthquake. Of course, many billionaires have received direct income transfers in the name of helping the poor...or have the Keynesians dropped that pretense and just started saying what they've really meant all the time---the wealthy should be subsidized via the stock market at the expense of workers and the poor, who should have reduced wages and opportunities?

The result of credit expansion is normally twofold. The average person pays higher prices, and stockholders and large borrowers, i.e., the wealthy (not the young and poor as William Greider incompetently claims in his book Secrets of the Temple ) gain. Stockholders gain because lower interest rates increase the present value of future earnings--a lower interest rate discounts the future revenue stream less and so increases shareholder wealth. Borrowers (to include large corporations, real estate developers, hedge funds and the like) gain because interest payments are reduced and inflation reduces the value of the loan in the future. In contrast, poor people who cannot borrow because they aren't credit worthy, pensioners, the elderly who have anything more than social security but are not big stock market investors (i.e., the lower middle class elderly) pay through higher prices. Old ladies begin to eat cat food while William Greider's buddies on Wall Street see higher returns. The Democrats used to claim that this process helps the poor, and Barack Obama reinvents this tradition, as opposed to the Republican tradition of not claiming this but doing it anyway.

Obama's solution to this problem is to further enhance the amount of borrowing and inflation. His advisers are Keynesians (as are Bush's, there is no difference there) and they advocate several nonsensical ideas. First, you get the government to spend more. This in turn accelerates velocity and "stimulates" the economy. For instance, you have people dig ditches and then fill them up again, and Keynesian economists believe that this is good for the economy because demand has been stimulated. They do not contemplate that wealth is not money but real goods, and government does not produce goods that the public generally wants. As well, their assessment of a decline in "aggregate demand" depends on the existence and neutrality of the slowdown. It is not clear that there really is a slowdown. Rather, the banks may have exaggerated the risk of the derivatives in their own minds, and when they settle down there will be increased velocity. This will be an inflationary period in that case because the amount of reserves that Bush has created has been immense.

I have previously argued that George Bush = Barack Obama and we can see this in Obama's plan for a stimulus package. Obama aims to further increase already enormous federal deficits, increase the already massive increase in monetary expansion and encourage government to engage in boondoggles. Bush squandered, Obama will squander more.

Macro-economics, in which government policy makers are trained, is akin to sociology, psychiatry and theory-y management, the package of quackery that the twentieth century concocted to shore up big government, Wall Street and the Progressives' strategy of convincing the public that big government, which is the chief reason that big business exists, is necessary to regulate big business. Government has been so successful in regulating big business that big businesses like Citibank get $25 billion bailouts while small businesses get to suffer from the inflation. Sounds to me like the Bush-Obama plan is to kill small business in the interest of big.

The inflationary plan that Obama offers is just the same as the inflationary Bush plan. We can look forward to continued decline in the real economy and declining real wages coupled with inflation. Smart people will not rely on the dollar and think in terms of hard assets or going into debt, i.e., mimicking real estate moguls like the Pritzkers (Obama's chief backers), hedge fund managers and the like. It's been a nice ride for the dollar, but I would not want to be holding cash during the Obama administration. It's going to be a big payday for the Pritzkers.

Howard S. Katz responds

Dear Mitchell,

I define velocity of money as (nominal) GDP divided by the money supply.

GDP measures the amount of wealth produced. Hence it measures the total amount of money changing hands per year. Divide this by the money supply and you have the rate at which the average dollar changes hands.

Defined this way velocity is very stable, and there is no evidence that it has fallen.

Howie

James Crum on Our Spiritual Crisis

I just received the following e-mail from James Crum:

>Our problem is not economic, or political…It is spiritual, and I fear greatly that our nation has been handed over to evil men with poor intentions. A self absorbed citizenry, greed, lack of personal responsibility on all levels, a willfully ignorant press, and a dysfunctional social contract have turned America on its head. Once this debacle savages the average American, they will give the issue their strict attention, but where they focus the blame will be an issue.

Mitchell, right now, I recommend reading City of God by Augustine. His times were similar to our own as the known order begins to collapse, and chaos is all around. Piracy, dangerous cities, mass migration, immense political corruption, the list goes on. He straddled the river between antiquity and medeival times. I think that is where we could head, but so much is not yet determined.

I live in a very nice suburb in Chicago metro, but now even our our area is becoming a concern. Not too long ago, five people were murdered at a local shopping mall. Our neighbor's son (17) was carjacked at a gas station, beaten, then dumped onto I- 80. The police caught the perpetrator, and then told the family to not press charges because the gang is too violent. I had a better idea to the Chief of Police- try shooting them as they tried to escape...no one would know or care. Everyday we are getting robberies in very good, affluent areas.

I am retrenching financially as I am able. My wife is stocking a pantry. I am looking into our property in northern Arkansas for a new home once the children have moved out. Firearms and fishing gear are on the list of shopping items. I do not see this going away for many years.

Billy Grahman said something to this effect a bit ago. We have called evil good, and good evil, and so the entire society suffers for it.


We need another Great Awakening... Jonathan Edwards, where are you?

Reverend Billy Graham on American Decline

I just received this from J. Crum. One facet that Reverend Graham might have added: "We have printed paper money and called it wealth creation."

Billy Graham's Prayer For Our Nation

'Heavenly Father, we come before you today to ask your forgiveness and to seek your direction and guidance. We know Your Word says, 'Woe to those who call evil good,' but that is exactly what we have done. We have lost our spiritual equilibrium and reversed our values. We have exploited the poor and called it the lottery. We have rewarded laziness and called it welfare. We have killed our unborn and called it choice. We have shot abortionists and called it justifiable. We have neglected to discipline our children and called it building self esteem. We have abused power and called it politics. We have coveted our neighbor's possessions and called it ambition. We have polluted the air with profanity and pornography and called it freedom of expression. We have ridiculed the time-honored values of our forefathers and called it enlightenment. Search us, Oh God, and know our hearts today; cleanse us from every sin and Set us free. Amen!'

Mitchell Langbert Willing to Show Obama His Birth Certificate For $800,000

I just received the following e-mail covering a World Net Daily article from Robert Taylor. Apparently, President-elect Obama has by now spent $800,000 in court fees preventing people from seeing his birth certificate. I could live pretty well in West Shokan for that. Therefore, I am making President-elect Obama's campaign an offer: I will show Obama my birth certificate for $800,000. Why not? I have nothing to hide, and I'm not a manipultative rat. Heck, I'll throw in my passport, Bible and marriage certificate, school transcripts and medical records.

What has this country come to that the public is willing to vote for a candidate who brazenly hides basic information and hides behind legalistic double talk in doing so?

>17 LAWSUITS, $800,000 SPENT TO FIGHT THEM; OBAMA WON'T COUGH UP REAL BIRTH CERT!
Post by: cyberella on November 20, 2008, 01:04:21 PM

'Constitutional crisis' looming over Obama's birth location Alan Keyes lawsuit warns America may see 'usurper' in Oval Office

2008 WorldNetDaily

The California secretary of state should refuse to allow the state's 55 Electoral College votes to be cast in the 2008 presidential election until President-elect Barack Obama verifies his eligibility to hold the office, alleges a California court petition filed on behalf of former presidential candidate Alan Keyes and others.

The legal action today is just the latest is a series of challenges, some of which have gone as high as the U.S. Supreme Court, over the issue of Obama's status as a "natural-born citizen," a requirement set by the U.S. Constitution.

WND senior reporter Jerome Corsi even traveled to Kenya and Hawaii prior to the election to investigate issues surrounding Obama's birth. But his research and discoveries only raised more questions.

The biggest question is why Obama, if a Hawaii birth certificate exists, simply hasn't ordered it made available to settle the rumors.

Read the whole thing here.