"Are We All Keynesians Now?"

Barack Obama and George W. Bush seem to have come away from their study of the Great Depression with similar conclusions:

To wit: After the Crash of 1929, the Federal Reserve did not move fast enough to save the banks and inject cash into the economy. Second, the New Deal, far from being wastrel deficit spending, was not bold enough. So it was that America wallowed in depression for a decade until the unbridled spending and mammoth deficits of World War II pulled us out.

Bush and Obama seem determined not to make the same mistake.

We are all Keynesians now.

Thus, we have the $700 billion Bush bank bailout, the $700 billion "stimulus package" Obama wants by inauguration to "jolt this economy back into shape" and the $800 billion fund Hank Paulson created to get consumers borrowing and buying again.

These come on top of Bush $455 billion deficit, the $29 billion bailout of Bear Stearns, the $105 billion in pork to grease the $700 billion bailout, the $100 billion to $200 billion to keep Fannie and Freddie afloat, the $140-billion-and-counting for AIG, the $25 billion for the greening of GM, Ford and Chrysler, the $25 billion more to save the Big Three and the $20 billion for CitiGroup.

Now much of this overlaps, and some will be retrieved. But we are still staring at a deficit that could approach $2 trillion.

Consider what we are about to do. Bush in 2008 spent 21 percent of GDP. States, counties and cities spent another 12 percent. Thus, one third of GDP is spent by government at all levels. Obama and Co. propose to raise that by another 10 percent of GDP. We may soon be north of 40 percent of gross domestic product controlled and spent by government.

That is Eurosocialism.

And where, exactly, are we going to get the money?

Americans save nothing. We spend more than we earn. Thus the levels of consumer debt, credit card debt, auto debt and mortgage debt. U.S. foreign-exchange reserves amount to a piddling $73 billion.

The only nation with the kind of cash on hand we need now — if we don't print the money and invite another gigantic bubble — is China, with its $2 trillion in foreign-exchange reserves.

Will Beijing lend back the dollars it has piled up by selling to us?

China certainly has an incentive to keep Americans spending. For our purchases of Chinese-made goods have often been responsible for 100 percent of China's growth. China does not want to kill the American goose that lays those golden eggs — until the goose can't lay any more eggs. Then they won't need the goose.

But should China decide to lend us the money, what will Beijing demand in interest rates and assurances that we will not default. After all, the U.S. debt is 70 percent of GDP, our savings rate is near zero, and our merchandise trade deficit is still running at 5 percent to 6 percent of GDP.

Unlike the 1950s, we are today dependent on foreigners for two-thirds of our oil and for much of our manufactured goods — toys, TVs, radios, cameras, cars, shoes, clothes, bikes, motorcycles — and for the $700 billion to $800 billion we borrow each year to pay for these imports.

With U.S. homeowners, consumers, companies and banks now going bust, why must the nation borrow trillions more to bail them out? So we can maintain our status and standard of living as the last superpower.

Bush and Obama are competing to shovel out trillions of dollars, so we can return to the good times of yesterday.

But wasn't yesterday the root cause of today? Didn't saving nothing and spending more than we earn, purchasing what we cannot afford in cars, consumer goods and houses, buying far more from abroad than we sell abroad — didn't that cause this crisis and crash?

A family man in America's condition, awash in debt, spending more than he makes, would cut back consumption, find a second job and get out of debt. Or declare bankruptcy, accept the shame and humiliation, change his wastrel ways and start anew.

Is it different for a nation?

Yet we seem to believe we can borrow and spend our way out of a swamp of unpayable debt into which borrowing and spending have plunged us.

We are headed either for default on our debts and bankruptcy as a nation, or something less honorable: a quiet cheapening of the debts we have incurred by inflating and destroying the dollar, robbing our creditors of what we owe them and robbing our own people of the value of what they have earned. And so it has come to this.

What would the Founding Fathers think of us now?

"All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation." John Adams "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)

    Though it is apparent that President Elect Barack Obama will try to emulate FDR's Great Depression economic and fiscal policies, such policies, just as Roosevelt's "New Deal " policies, will only make our current economic recession worse. Common sense tells us, that no individual or nation can ever get out of debt by continuing to borrow. Our Federal government can spend nothing until it first borrows and it is apparent that China will ultimately be loaning the US money for all the current corporate, manufacturing and unions bailouts. As I see it, the only way for America to climb out of what will soon be a 2 trillion dollar deficit, is to totally withdraw from Iraq, Afghanistan and all foreign military entanglements, abolish the private international banking cartel that controls US tax revenues and currency, The Federal Reserve Banks and abolish all free trade agreements while placing tariffs on all imports, even Chinese imports. Having accomplished these three objectives, the Federal government wouldn't have to borrow money for infrastructure, education, health care, alternative energy sources and rebuilding the US manufacturing industries. This isn't Keynesian/FDR economic policies. Dammit, we are not all Keynesians!

tags: fdr  the new deal  barack obama  takebackamerica  business  the economy  capitalism  deficit spending  john maynard keynes  

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