In his first address to Congress about three weeks ago, President
Obama tried to explain how he intends to tax and borrow the
nation out of recession. Markets haven’t bought it.
“Obamanomics,” it turns out, is a demand-side economic strategy
of higher taxes on production and trickle-down debt designed to
increase consumption by putting a debt-ridden people even deeper
into debt. The President also announced a gaggle of Great Economy
Welfare Programs for financial institutions to implement this New
Economic Policy and promised to reward bankers’ bad behavior with
an open-ended commitment of unlimited bailouts to keep the credit
wine flowing.
He said, “It’s not about helping banks; it’s about helping
people.” According to Obamanomics, debt will trickle down from
federal handouts to banks through to consumers, allowing them to
run out and buy more stuff from struggling businesses. After the
speech, Senator Barbara Boxer called it a “slam dunk, a home
run…”
It’s a strike out, and history demonstrates why. In 1981,
President Ronald Reagan took office in the midst of raging
inflation and a shrinking economy. He understood that the key to
economic recovery and taming inflation was to stop printing money
and increase the rewards for work, saving and investment to
increase production, not consumption. Before people can consume,
they first must produce something to offer in trade. To produce
something, they must have a job or own a profitable business. In
other words, to increase prosperity, production first must rise
after which consumption will follow. Obamanomics has the cart
before the horse.
When President Reagan cut tax rates and reduced regulation to
increase incentives for entrepreneurs to work, save and invest to
raise economic production and create more jobs, Barbara Boxer
called the president’s successful supply-side approach to
economic recovery “trickle-down economics” and accused him of
cravenly playing on the misfortune of hardworking Americans to
reward undeserving rich people. Today, she effuses over Obama’s
demand-side, trickle-down-debt strategy based on astronomical
bailouts to banks, insurance companies, and big businesses that
would fail without government subsidies. I call that corporate
welfare in the name of the general welfare.
The same day the President laid out Obamanomics to the nation,
Fed Chairman Ben Bernanke in testimony before the Senate Banking
Committee tried to reassure the American public that the United
States was going to get only a little bit pregnant when it crawls
into bed with the big financial institutions and “partially”
nationalizes them. Uncle Sam, Bernanke insisted, will not
nationalize those banks; just provide them a little financial
stimulation. It wasn’t a week before the federal government
nationalized Citi by acquiring 37 percent of its common stock. So
much for respect in the morning.
Watching the Obama Administration and the Bernanke Fed in action
is reminiscent of a scene half way through Ayn Rand’s epic novel
Atlas Shrugged when the government bureaucrat in charge
of the Federal Bureau of Economic Planning proclaims, “Production
is not a private choice, but a public duty. They have no right to
fail, no matter what conditions happen to come up. They’ve got to
go on producing. It’s a social imperative.”
Politicians and their cronies in the Financial Establishment
ensure public acquiescence to endless bailouts by creating night
terrors among the people of “systemic risk” that could bring
total financial collapse, much as a kidnapper instills terror in
the parents of what could happen to the child he holds hostage if
they don’t pay up. So even though polls and markets reveal a
complete lack of public confidence in government’s ability to fix
the banking problem, people are afraid to stop the government
from continuing its destructive policies.
When people lose confidence in capitalism they turn to fascism,
which it precisely what is occurring before our eyes. In Chairman
Bernanke’s testimony before Congress, he said the government has
ways other than “nationalization” to control financial
institutions, and he rejected the medical metaphor used earlier
by Treasury Secretary Timothy Geithner when he announced the
stress tests for banks. Bernanke made it clear (and Geithner
later confirmed) that the Treasury Secretary’s stress test for
banks is not really analogous to the strenuous test for heart
disease doctors administer; it is more like a means test for
welfare applied by social workers. Both Geithner and Bernanke
insist it isn’t a matter of whether banks pass or fail the stress
tests. Rather, the assessment is intended to determine how big a
bailout they are going to get from Uncle Sam.
Here is how Chairman Bernanke described Obama’s Great Economy
Welfare Programs for bankers:
(i) A new “capital assistance program [a federal cash-assistance
welfare program like Food Stamps] to ensure that banks have
adequate buffers of high-quality capital”;
(ii) A “public-private investment fund in which private capital
will be leveraged with public funds [a federal matching-grant
welfare program like Medicaid] to purchase legacy assets [aka
worthless assets] from financial institutions”; and
(iii) A new Federal Reserve program “using capital provided by
the Treasury [a government-financed, third-party, faith-based
charity program] to expand the size and scope of the TALF [Term
Asset-Backed Securities Loan Facility] to include securities
backed by commercial real estate loans and potentially other
types of asset-backed securities as well” [aka more worthless
assets].
There is no doubt President Obama is a charmer and a smooth
political operator. After the past couple of weeks, however,
there also is ample evidence his administration has no idea what
it is doing economically and is putting the nation on a course to
financial ruin.
