Published on TheHill.com on July 14, 2009
Now President Obama says in The Washington Post that he never envisioned that his stimulus package would afford quick relief to the American economy, but would do so only after it had run its two-year course. But when it was passed, Obama sang a different tune, urgently demanding its enactment to speed relief to a sagging economy. He claimed it would “create or save” 600,000 jobs. Now, even as the economy loses 450,000 jobs each month, he pretends that it is a matter of time until the stimulus kicks in.
He now justifies the stimulus package by saying it was adopted to prevent the “collapse” of the economy and the banking systems. But it was really the Troubled Asset Relief Program (TARP), first passed under President Bush, that stopped the banks from going under. At the time of the enactment of the stimulus package, Obama never mentioned that he was counting on it to save the banks.
All these shifting justifications are designed to explain why the stimulus package has totally failed to accomplish anything. Not only has it done no good. It has done significant harm by ballooning the deficit, driving up interest rates, creating doubts about the U.S. currency and fanning inflationary fears.
But Obama has paid and will continue to pay dearly for betting on his stimulus package. Because of it, the Bush recession is becoming the Obama recession much faster than it would have had he adopted a more gradual approach to solving economic problems. By jumping in immediately, as he did, in order to increase government spending and pass eight years of Democratic dreams in one day, he made the public expect a solution.
At first, a sick patient looks forward to seeing the doctor. But when the medicine his physician gives him fails to make him better, he is likely to turn on his doctor. And then, gradually, when it dawns on him that the cure is making the disease last longer and get worse, he will really get mad at the physician. This is Obama’s fate.
The stimulus package used up all the wiggle room he had to increase the budget deficit. He probably could have passed the healthcare program without a tax increase had he not already sent the deficit soaring with his massive spending. (Hillary and Bill pretended that there was no need to raise taxes to pay for their 1993 reform package and few questioned their presumption.) But now that the deficit has soared to 12 percent of the gross domestic product, everyone realizes that taxes must go up to pass healthcare “reform,” making its adoption even less likely. House Ways and Means Committee Chairman Charlie Rangel (D-N.Y.) has passed $550 billion of tax increases, but everyone knows that at least $1 trillion is required. And, in the current environment, Congress will not vote to add the balance to the deficit, even if Charlie wants to “charge it.”
Finally, Obama has laid a trap for himself. Just as the economy is coming out of its recession – in 2010 and 2011 – and he begins to run for reelection, he is going to face massive inflation. The money supply has more than tripled since October of 2008 and is going up each week as the Fed buys Treasury bills and other securities to “monetize the debt” (i.e., give other people money so they can lend it back to the government and charge it interest for doing so). With each new infusion of cash, the problem of avoiding inflation becomes particularly severe. Obama could well lose the elections of 2012 because of the inflation his deficit has created.
Of course, we all know that the only way to put the inflation virus back in the test tube is to trigger a new recession, this time caused by massive increases in interest rates, as Fed Chairman Paul Volcker did in 1979. If the recession doesn’t doom Obama to a single term, the inflation will. And if the inflation doesn’t get him, the subsequent recession will.
The deeper he gets into his term, the more it is apparent that he threw it all away when he first took office and demanded over $1 trillion in stimulus and supplemental appropriation spending. He was doomed to lose the game right after he received the first kickoff.